Succession Planning (CONT’D FROM PAGE 26)
Henry and Steven Now let’s return to our opening story. Brothers Henry and Steven were thinking of leaving the family business because father George was reluctant to move on. What was the solution? By having a private conversa- tion with George, Brownell found that the patriarch was afraid of losing control over an operation he had spent a lifetime building. On the other hand, conversations with the brothers uncovered a different mindset: They were largely concerned about finances, wanting some payback for the years they had spent with the company and some recognition of their accumulated expertise. The solution was to create a new ownership structure. “We moved Dad from 100 percent stock ownership to 10 percent, assigning him Class A shares having 90 votes each,” said Brownell. “The sons received 90 percent stock ownership with Class B shares having one vote each.” Dad retained much of his control since he could outvote the sons on major initiatives. The sons received the financial benefits of healthy dividend distributions, while enjoying the career development advantages of being the face of the business to customers, banks and investors. “When George was finally convinced after three or four years that his sons could run the business, he was will- ing to gift the last 10 percent of stock to the kids,” said Brownell. “Then he took a paid position on the board so he could provide strategic oversight and budgeting.” The
allows them to collaborate and provide critical insights while the primary responsibility for running the company shifts to the next generation.” Pinch Hitters Suppose two siblings are eager to take over the top job, but neither seems completely prepared for the role. In such cases, a non-family executive, called an interim man- ager, may take the company reins until the next genera- tion is ready. “A temporary CEO might carry the company for a number of years while helping the next generation evolve,” said Frank. An interim manager is to be distinguished from a frac- tional manager. While the former fills the gap between the departure of an executive and the arrival of another, the latter works on a part-time basis for an extended period of time, commonly at from one to five different businesses. A fractional manager might be just the thing for a family business not yet large enough to hire a full-time executive for one of the top slots, or if the next generation requires additional training. “It often happens that the founders have passed along institutional knowledge to the next generation, but skills in a certain area, say finance, may not be present,” said Frank. “A fractional CFO might step in and conduct the re- quired duties while helping train the sibling who will even- tually move into that position.”
CONTINUED ON PAGE 30
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