Carmen Bianchi

Family Business Associates

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Recent News

admin : February 3, 2010 1:38 am : Recent News

by:Carmen Bianchi

A traditional estate or succession plan for a family or closely held business should encompass and be part of the estate plan, the financial plan, and the strategic plan. Every closely held and family business company should have an exit strategy-What is yours?

Lately many of these closely held and family businesses at the EMC Business Forum at San Diego State University have come to us saying that they, that is , the CEO/Founder would like to work more “on” the business as opposed to “in” the business. They would like to extract themselves from the day-to-day operations and rather concentrate on growing their business and perhaps looking to diversify and perhaps even merge and/or acquire some other enterprise. However, one of the biggest dilemmas facing these CEO’s/Presidents/Founders is letting go. How do you let go? It is all very well to name your successor, hire your successor, but then once your successor has been identified then it is your duty to have the employees, clients, customers and service providers buy-in and become comfortable with this person.

A time line, or transitory period is good, with a set date, like perhaps three months so that you can ease your successor into the position, however BEWARE; remove yourself from your usual office, move on down the hall and step away from the daily operations allowing your successor to demonstrate his or her capabilities. Make sure that your successor has the same values and standard of excellence as you do and that the vision of the company remains your vision. At the outset of this transition, it is best if regular scheduled meetings occur between the successor and the person who is stepping down.

It is important to determine whether your company is your legacy and that you would like it to perpetuate through the generations. But whose dream is it, because if it is only your dream and not your next generations dream then your company may become just another company being a part of the statistics that say between 92% and 87% of all companies in the USA are family owned or closely held but by the 2nd generation this percentage drops to 36% and by the 3rd generation it drops to 16%. “Shirt sleeves to shirt sleeves in 3 generations” as the saying goes and this could be your legacy!

Do not set-up your next generation for failure. Make sure that the successor desires this position and is capable of being a leader. Establish good mentorship and development programs as well as good leadership programs. Successors need to acquire the necessary skills and experience and be comfortable in their role as the leader. Employees and customers rely on the leadership of the company to create a smooth transition that would not be disruptive to their lives.

If succession is split between two or more siblings and/or family members, what agreements should exist between these shareholders that will allow for future changes in the company. Be careful of 50/50 splits with no majority shareholder. Establish sound Buy/Sell agreements whereby decisions such as, do the shares remain in the bloodline in case of divorce, are adopted children considered bloodline etc. On the demise of one of the shareholders do the shares go back to the company or to the other family shareholders? These are very important considerations. Who will manage the company? Will there be an outside Board of Managers? Will minority ownership be allowed outside the family amongst key employees or should there be “phantom stock” given to these employees?

If you are thinking of becoming the successor of a family or closely held business here is some food for thought:

* How do you plan on acquiring the skills necessary to become the leader of the company?
* Get meaningful, fulltime outside work experience to create an aura of credibility.
* Look for mentors both inside and outside of the business
* Seek the presidency of an organization outside of your work
* Develop or belong to a peer group
* Identify leadership models to emulate
* Remember that real authority comes from earning respect, not from power
* Eventually identify your own management team
* Be a role model of listening skills, openness and change

Finally, what we like to encourage is the Ethical Will in a good succession plan. Ethical wills are multifaceted tools that can be used to transmit not just your intentions but, equally important your thoughts and feelings on innumerable subjects, some of which may be too difficult or sensitive to express directly while you are alive. Lessons learned as you experienced life, failures, and triumphs but most important of all, the Ethical Will is a tool that describes the principles and values with which you lived your life. This is a unique way of creating a lasting legacy of your wisdom and insight for having lived a rich and rewarding life; a final lesson to be learned.

Carmen Bianchi is the director of the EMC Business Forum at SDSU as well as the president of the Family firm Institute, the premier organization for service providers to family businesses. She can be reached at or 619-594-4949

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