1. Keep it in the Family Planning for Succession Presented by:
Jon Lefebvre and Yasmine Shaalan BMG320
2. Agenda Rationale for research Key points on succession
planning Succession matrix Succession planning overview Succession
planning model Components of succession planning Three levels of
succession planning Managment Ownership Transfer taxes Pros &
Cons to family succession Recommendations
3. Rationale for research It is estimated that approximately
70% of family businesses do NOT survive the transition of ownership
Baby boomers retirement void Family owned businesses are the
backbone of the American economy o Account for 63% of U.S. Gross
Domestic Product o Generates 60% of the countrys employment o
Account for 78% of all new job creations Family firms comprise
80-90% of all businesses in North America
4. Key Points Three main focuses: Management, Ownership,
Transfer taxes o Difference between management and ownership o
Lawyer and/or accountant should be consulted with respect to
transfer taxes Lead-time is crucial to a successful transition
Important to have a key employee or employees in the top management
team (TMT) to assume more responsibility during the transition
Succession has many parallels to employee retention
5. Three Levels of Succession Planning Taking away from and
simplifying the succession matrix we can break succession planning
down to three main points: 1) Management 2) Ownership 3) Transfer
taxes If executed properly, these three factors will lead to a
smooth transition between both management and ownership as well as
minimizing the cost of transition.
6. Management Management is NOT the same as ownership Top
management team members who are leaving should begin allocating
certain tasks of their own to possible successors o either key
employees or their own blood Focus on employee retention; want most
suitable candidate o Retention tactics include: Employee
agreements, nonqualified deferred- compensation plan, stock option
plans, change-of-control agreements, and/or advisory board
7. Transfer of Ownership It is important for the current owner
of the business to considers the best option(s) for transferring
ownership Owners often face certain dilemmas such as: o How do I
treat multiple children equally? What if none of my children are
interested in my business? When is the best time for me to pass the
torch? Common techniques used to address these issues: o Sell to
active children, use voting and nonvoting shares, leave
non-business assets to inactive children, reward active children
for their hard work equally, establish conditions and assurance for
active children, provide retirement income for business owner,
buy-sell agreements
8. Succession Matrix
9. Transfer Taxes Transfer taxes can claim over 50% of the
value of a business o this can lead to the business having to take
out debt or liquidate in order to keep the company alive There are
a number of strategies that can be used to minimize transfer taxes
which will ultimately lead to a more profitable business o
Techniques and strategies used by owners to minimize taxes at the
time of the transition include: Gifting techniques, sales strategy,
freezing techniques, statutory relief, and/or life insurance
applications
10. Owner-Managers and Succession Planning Im not going to
retire, I cant figure out the financial payout, Im too busy with
clients, Im not going to die anytime soon Owner-managers usually
have a personal vision to retire and pass down the family business
someday, but he or she may not have adequately considered what it
will take to make that vision a reality.
11. Components of an Integrated Succession Plan: Family Goal
Articulation Family information and communication Business Business
Strategy Assessment Management Talent Assessment Corporate
Structuring Current Business Valuation Retirement Planning
12. Five Principal Stages of a Succession Planning Model
Ongoing Enabler: A well-defined strategic planning process
Identification of target roles and positions Determination of core
competencies and skills Identification/ assessment of successor
candidates Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 Desired Outcome
Business case for proactive succession planning Leadership
developmental programs Organizational and continuity leadership
capability Ongoing Enabler: Leadership Support
13. Stage 1: The Business Case The Mission Statement
Considering the longer-term impact of: o Industry sector, market
share, competition, and barriers to growth o Long term business
strategy for growth o Independent business valuation and the
potential to increase brand equity over time o Timeframe for
implementing a succession plan o Commitment, ability and leadership
potential of family members
14. Stage 2: Identification of Target Roles Not just slotting
family members into roles An assessment of the key positions needed
to achieve business goals. o Serves to set priorities among the key
positions that will support or drive growth.
15. Stage 3: Determination of Core Competencies and Skills In
order for family members to be considered for key positions or as
successor candidates, there must be a commitment to developing the
necessary skills to meet future business needs. Family members must
be fully involved and have access to opportunities to develop an
effective succession strategy. The Case of Samsung
16. The case of Samsung Samsungs chair Lee Kun-hees health has
been deteriorating Lee Jae-yong, his son, joined Samsung in 2001. o
10 years later he had the title of vice-chairman o Employees think
he is unproven as a manager Yet he is qualified
17. Stage 4: Identifying Successor Candidates No free passes!
Determining whether family members have what it takes o A family
member may be identified as a potential successor candidate but not
want the responsibility. o Another may want to be the leader but
not want to invest the time to develop the skills needed.
18. Stage 5: Leadership Development Review of current and
required training and development practices Accepting positions
outside of the family firm o Practical, first hand experience
outside of the comfort zone of the family firm is a huge
benefit!
19. Skills Missing From Boards HR-Talent Management o 58% in
Family Owned Business boards Succession Planning o 26% in Family
Owned Business boards Strategy o 23% in Family Owned Business
boards
20. Pros and Cons of Passing the Business to a Family Successor
Advantages: o Reduces third-party involvement o Gives the
predecessor the option to maintain involvement and influence within
the business Disadvantages: o It can be difficult to identify and
train the right successor o Potential for conflicts at work and/or
in the family
21. Recommendations Evaluate company's worth Find and develop
top talent o Most in line with company values and their predecessor
Successful knowledge transfer Recycle the Boomers o Part time or
project basis Set in place a succession plan between five and ten
years before you expect the transition to take place Have regular
meetings Keep it professional Get outside help
22. Food for thought Minority owned businesses that will no
longer be minority owned o Creates competitive disadvantage Do
gifting techniques not give enough incentive to the successor?
Should the successor work up slowly or jump right up? When should
someone draw the line or pull the plug on an unsuccessful
successor? Who should do it?
23. Questions? Rationale for research Key points on succession
planning Succession matrix Succession planning overview Succession
planning model Components of succession planning Three levels of
succession planning Managment Ownership Transfer taxes Exit
strategy Recommendations