Craig and Jamie Henry, members of the Lafayette-Acadiana Legatus Chapter, know that the greatest success in life isn't found on a balance sheet. It's found in a faithful...
How to Ensure Success at Executive Succession
Byron Braun believes the optimum time for a business owner to start forming a succession plan is well before anybody else is thinking about it.
Braun, the president of Braun Wealth Management, followed that guideline for the company he started in Fort Wayne, IN, more than 25 years ago. Within about five years, he had a plan in place that provides for his clients and allows him to remain involved in the company, but to phase out as necessary.
In such cases, he said, a company may lose clients who recognize that an executive has extended beyond his stay. On the other hand, Braun said, some business owners leave too early and then struggle to find a substitute for their time and resources.
“I kind of wanted something in between,” he said, adding, “You don’t just wake up one morning and say, ‘I’m done,’ unless you have to for health reasons.”
As the founder/partner of GEM Asset Management in Plymouth, MI, Alexandrowski has worked with clients on succession plans, and he recommends that a retirement be preceded by a three-to-five-year planning window.
Still, he acknowledged that succession planning can make for a difficult conversation with clients in their 40s or 50s as they are often still in “indestructible mode” and not wanting to recognize that circumstances such as health can change quickly.
“If you do nothing and are incapacitated or die, confusion and power struggles could disrupt the business. Key functions may not be overseen, and operational efficiency and quality may decline. Significant value could be lost.”
Early on in the succession-planning process, Alexandrowski, a member of the Ann Arbor Chapter, suggests having an advisor, such as a financial advisor or accountant, who can serve as a “thinking partner.” Then, as the time approaches to create a legal document, a law firm or consultant with expertise in the business can be brought on board.
“Once you have decided on who may succeed you,” he offered, “creating a buy-sell agreement with a qualified attorney is advisable.”
Braun said he began by talking with his wife, Linn, who serves as his company’s bookkeeper and handles its taxes.
“The important thing was to get her on board with the timeline and the structure,” he said.
After that, Braun consulted several long-term friends and his children, one of whom works in the financial services sector.
“I think it’s more about deciding the journey first, then seeking out legal and accounting help,” he said. “I would say a consultant could be good, but I relied more on what I knew and on friends and our attorneys.”
Initially, he expected creating the plan to be a simple matter.
“I thought that I only needed to think about succession narrowly – who was going to take my place at the foundation,” said Durant. “It was the wrong question.”
Instead, he saw that the schools’ mission and sustainability had to be considered as much as the aspect of who would succeed him.
“We have been gifted with a unique mission to help the children we serve and ourselves to learn to live the complete life . . . and that mission has required a different lens to find the right people who have the right heart and spirit to do this work,” he explained. “We aren’t selling widgets and creating value with normal business investments. We’re investing in lives and helping to try to shape those lives to live a complete life.”
Because of this, he said,
Alexandrowski said that once a plan is formed, who needs to know about it depends on the size of the company.
“In a family business with less than 20 employees,” he said, “everyone should probably understand the plan. In a large organization, the leadership team should know what is to happen. Needless to say, your spouse should also be fully in the loop and it’s probably a good idea for adult children to know your intentions as well.”
In Braun’s case, he decided to be totally transparent with everyone – clients as well as staff.
“For me, it worked very well,” he said, “because in our business it’s about relationships. Transparency was key.” He communicated with everyone his company did business with through a five-minute video and letter and personally called each of his clients. “I wanted them to know,” he said.
That said, simply leaving a business to one’s heirs is likely not an option unless they are competent and ready to succeed the owner.
“If they are not prepared or lack the interest or motivation to run a successful operation,” Alexandrowski said, “this could be a disaster. Be aware of sibling rivalries and other family dynamics beforehand to avoid creating a mess that also might cause a loss of value or family peace.”
Alexandrowski said if a business is to be left to the owner’s children, it will be important that other key employees understand the plan and how and if they will continue in their roles after the leadership change.
Braun said much could go wrong with a succession plan that simply leaves a business to the heirs and lets them decide its future.
“You could lose all your clients, the valuation of whatever you have would decline dramatically, the taxes could be wrong,” he said. “The smart business owner is proactive and should be proactive about the end game, whatever that end game is.”
Braun, the president of Braun Wealth Management, followed that guideline for the company he started in Fort Wayne, IN, more than 25 years ago. Within about five years, he had a plan in place that provides for his clients and allows him to remain involved in the company, but to phase out as necessary.
“What I wanted was for my clients to be in good hands,” Braun said. “It’s a subjective term, but in our business, many relationships go back 30 to 40 years, so that personal touch, that personal connectivity, is extremely important.”A charter member of Legatus’ Fort Wayne Chapter, Braun had reached a point where he knew his three children had carved out their own paths to success and were not interested in being part of his business. He also had seen people work too long because they were unable to relinquish control or let go of their careers.
In such cases, he said, a company may lose clients who recognize that an executive has extended beyond his stay. On the other hand, Braun said, some business owners leave too early and then struggle to find a substitute for their time and resources.
“I kind of wanted something in between,” he said, adding, “You don’t just wake up one morning and say, ‘I’m done,’ unless you have to for health reasons.”
‘Never Too Early’
Indeed, the point of succession planning is to be prepared for the unexpected – an executive’s illness or even death. “It’s never too early to start the discussion about how you’d like to transition out of your business,” Steve Alexandrowski said.As the founder/partner of GEM Asset Management in Plymouth, MI, Alexandrowski has worked with clients on succession plans, and he recommends that a retirement be preceded by a three-to-five-year planning window.
Still, he acknowledged that succession planning can make for a difficult conversation with clients in their 40s or 50s as they are often still in “indestructible mode” and not wanting to recognize that circumstances such as health can change quickly.
“If you do nothing and are incapacitated or die, confusion and power struggles could disrupt the business. Key functions may not be overseen, and operational efficiency and quality may decline. Significant value could be lost.”
Early on in the succession-planning process, Alexandrowski, a member of the Ann Arbor Chapter, suggests having an advisor, such as a financial advisor or accountant, who can serve as a “thinking partner.” Then, as the time approaches to create a legal document, a law firm or consultant with expertise in the business can be brought on board.
“Once you have decided on who may succeed you,” he offered, “creating a buy-sell agreement with a qualified attorney is advisable.”
Braun said he began by talking with his wife, Linn, who serves as his company’s bookkeeper and handles its taxes.
“The important thing was to get her on board with the timeline and the structure,” he said.
After that, Braun consulted several long-term friends and his children, one of whom works in the financial services sector.
“I think it’s more about deciding the journey first, then seeking out legal and accounting help,” he said. “I would say a consultant could be good, but I relied more on what I knew and on friends and our attorneys.”
Maintain the Mission
As founder of Detroit’s Cornerstone Schools and president of the foundation supporting them, Clark Durant has undertaken a similar process for both entities, but one that differs from most business-succession plans because of the schools’ distinctive mission.Initially, he expected creating the plan to be a simple matter.
“I thought that I only needed to think about succession narrowly – who was going to take my place at the foundation,” said Durant. “It was the wrong question.”
Instead, he saw that the schools’ mission and sustainability had to be considered as much as the aspect of who would succeed him.
“We have been gifted with a unique mission to help the children we serve and ourselves to learn to live the complete life . . . and that mission has required a different lens to find the right people who have the right heart and spirit to do this work,” he explained. “We aren’t selling widgets and creating value with normal business investments. We’re investing in lives and helping to try to shape those lives to live a complete life.”
Because of this, he said,
“I’m not looking for a replacement for me. I’m looking for a person or persons whose heart is animated by our mission more than anything else, and who has experience in achieving the things necessary to it.”
Who’s in the Loop?
Through the succession-planning process, Durant, a member of the Detroit Chapter, has enlisted friends to pray and has sought the advice of his daughter, Maggie Durant Sturges, who serves as chief strategy and design officer at Cornerstone Education Group. He expects her to be part of the ultimate succession plan.Alexandrowski said that once a plan is formed, who needs to know about it depends on the size of the company.
“In a family business with less than 20 employees,” he said, “everyone should probably understand the plan. In a large organization, the leadership team should know what is to happen. Needless to say, your spouse should also be fully in the loop and it’s probably a good idea for adult children to know your intentions as well.”
In Braun’s case, he decided to be totally transparent with everyone – clients as well as staff.
“For me, it worked very well,” he said, “because in our business it’s about relationships. Transparency was key.” He communicated with everyone his company did business with through a five-minute video and letter and personally called each of his clients. “I wanted them to know,” he said.
Choose Wisely
Regardless of the methods they use, business owners who have spent years building their companies clearly must do something to plan for the future or risk losing their investments.That said, simply leaving a business to one’s heirs is likely not an option unless they are competent and ready to succeed the owner.
“If they are not prepared or lack the interest or motivation to run a successful operation,” Alexandrowski said, “this could be a disaster. Be aware of sibling rivalries and other family dynamics beforehand to avoid creating a mess that also might cause a loss of value or family peace.”
Alexandrowski said if a business is to be left to the owner’s children, it will be important that other key employees understand the plan and how and if they will continue in their roles after the leadership change.
Braun said much could go wrong with a succession plan that simply leaves a business to the heirs and lets them decide its future.
“You could lose all your clients, the valuation of whatever you have would decline dramatically, the taxes could be wrong,” he said. “The smart business owner is proactive and should be proactive about the end game, whatever that end game is.”
Succession’s Best Practices
Drawing on his experience in law, business, and education that included finding the right people to run a rail company, Clark Durant has identified several “best practices” for succession planning.
The first is to start early and then to ask, “What am I missing?”
“Ask others about yourself and the way you’re planning – what you might be missing, and what needs to be added to create a greater value proposition for the succession you’re planning,” he said.
Steve Alexandrowski also advises making sure a business or entity has sufficient liquidity in the event of a sudden change in leadership. He said key person life insurance, which covers replacement costs or debts following the death or disability of an owner or top executive, is worth considering.
“Before all that, though,” he added, “spending time in thought and prayer on what you’d like to happen to your business if you are no longer in charge, is a great idea.”
Byron Braun recommends paying well for good advice from lawyers and accountants.
“It’s worth every penny,” he said. “I don’t think it’s a time to skimp.”
However, no matter how good the lawyers are, Braun said, it is prudent to read and examine the document they have produced thoroughly.
“Read it 20 times, read it 50 times before you sign it. If you sign something, honor it, see it through, and if there’s a bump in the road, try to work it out,” he suggested. “Get it out in the open, whatever it is.”
