It will
never happen to me!
By Paul Winters
How many
times have you heard that phrase? From
childhood to adulthood we grow up believing in our invincibility. Many of us defer preparing for the uncertain
future due to just such a belief. It is
unfortunate that it takes a tragedy or near tragedy for many of us to recognize
our mortality.
Consider
Victor Smith (not his real name), a classical entrepreneur--he created a new
business out of nothing, and devoted a great deal of time and energy to its
success. Victor was fortunate; when he
started the business, he discovered and exploited an attractive niche in the
market place. With Victor's constant
attention, the business grew and prospered.
All this
was at the sacrifice of time with his family.
He ran the business himself. The
family had no role and had very little real knowledge about the inner working
or financial results of the business.
With the
success of the business came personal wealth.
He acquired vacation homes in the mountains and the islands, and
invested in a variety of real estate ventures.
All of these required a good degree of cash flow to support. Even so, Victor had more than adequate income
from his salary in the business.
Victor
now has three grown children. The oldest
daughter, Jackie, graduated with an MBA from Harvard. Ten years later she was general manager of a
manufacturing division of a large international corporation supervising 150
employees. Last summer, she confided in
Victor that she was unhappy working so far away and would like to go to work in
the family business.
The
middle daughter, Megan, married Mark during her college years, has two children
and is very active in the community.
Mark works for the company as marketing director and is Victor's
favorite golfing and fishing companion.
A friend recently told Victor that Mark and Megan are having marital
difficulties, and Mark doesn't deny it.
The baby
of the family, Phillip, got his college degree two years ago. Since he majored in girls, parties and fast
cars, he couldn't find a job after graduation and Victor finally put him to
work in the factory. Victor feels that
Phillip is a late bloomer, like himself, and just needs
a little more time to mature.
Victor
has been feeling more and more pressure from the family members wanting to know
the plans for the future ownership and management of the business. Several key non-family managers also feel
uneasy about the future.
To make
matters worse, three months ago Victor had an automobile accident and was in a
coma for 48 hours. Fortunately, he fully
recovered and, after two months of convalescence, returned to work. During his absence from the business, his
second-in-command, who is non-family, and Mark ran the business in a very
competent manner.
Shocked
into realizing his vulnerability, Victor was propelled into succession and
estate planning. With the help of an
advisor Victor recognized that succession planning anticipates and plans for
his inevitable departure from the business.
The time frame for voluntary departure is controllable by Victor and the
family, but a plan is ready for unexpected departure.
The first
step in the process was to list all of the questions facing Victor. Some of the issues are:
·
What
kind of life do Victor and his wife want to lead?
·
What
will be the source of income?
·
What
would happen if Victor died suddenly?
·
How
can Victor be fair to all family members, including the grandchildren?
·
What
is the worst thing that could happen to the business?
·
Who
will own the company?
·
Which
of the family members is best qualified to run the company?
·
What
happens to a non-family employee who is more qualified to run the mpany?
·
What
happens to Megan's husband if their marriage dissolves?
·
How
can the plan allow for the maturation of Phillip?
·
Does
work outside the family business qualify for a leadership position?
The list
went on for several pages. Striving to
solve the issues can create tension and stress in the family, but they must be
faced. Victor realized that he prefers
to be involved in the decision process, rather than leave it for the family to
solve after his death. There is no one
perfect solution, but there are many acceptable ones.
Why do so
many people avoid succession planning?
Many owners, like Victor, know deep down in their hearts that these
issues exist. The prevalent reason
stated is that there is plenty of time left.
The unstated reason in many cases is to avoid the emotional complexity
of making decisions that affect the future of the family.
Running
away from them, however, doesn't make them go away. They just get more complicated.
Identification
of the issues is the first step in succession planning. Future articles will review techniques to
address these complicated and emotional issues.