Business Succession Planning

By: Clifford Hockley, Senior Advisor and Principal Broker

Who is going to run your company or care for your investments if you die or become incapacitated? Have you planned ahead?






Many years ago, our attorney advised us to implement a succession plan. His thoughts focused on managing the company in case I was unable to.
As a business owner and an owner of investment real estate I was not prioritizing the significance and urgency to set up the succession plan, so I ignored his advice. I kept putting it off for later. Then I started traveling internationally and a Malaysia Airplane was shot down over eastern Ukraine in July of 2014.

As a regular traveler to India, I tracked the flight plan of the daily flight and much to my surprise, the flight plan from the west coast (our flight left from Seattle) lead over the north pole, over Russia and Ukraine towards Doha or Dubai then on to India. The flights we were taking were flying over dangerous territory and in case we were knocked down by a SAM missile, I decided that now was the time to plan for my leadership succession. This is still an issue even for the airlines that are allowed to fly over Russia unless you are one of the 36 countries whose flights are currently being blocked from overflights.

What is succession planning all about?

As a leader, you always need to have a backup plan. It’s your responsibility to create a road map for your family or senior management to follow. Ambiguity is a dangerous place to be. Without clear instructions, it’s not clear who should fill your spot and this could create confusion resulting in personnel conflicts, a dysfunctional company, needless uncertainty for middle managers and staff, detriment to credit/lender relationships, and additional difficulty with customer retention.

Once you have drafted such a plan with your attorney, significant other, and management team you will want to share it with the key people in your organization that will have to implement your plan.

Remember that the financial strength of the company is at risk if the decision-making leader is incapacitated. You will want to put in place a key person and short-term/long-term disability insurance, as part of your planning process to smooth out the bumpy financial ride that could occur when a key person is unable to work.

To give you a simple guide in drafting such a plan, I have modified and inserted the key language from a corporate plan below.  A plan like this needs to be in writing (paper or electronic), a copy delivered to your CPA and Attorney, and kept current. All of the key people around you need to have a copy of this plan and review it annually.






Succession Plan Sample

For purposes of this Plan, the President or Owner’s death, permanent disability, or temporary disability will be referred to as the “Event”, and the terms “permanent disability” and “temporary disability” are defined in the Corporation’s bylaws (the “Bylaws”).

The procedures to be implemented under this Plan include taking these steps, in the following order, after the Event occurs:

Acting President/Owner (Owner) After Event. The acting President/Owner/Owner has temporary authority and is designated in a shareholder resolution, which may be amended from time to time. Until amended, the shareholder resolution dated the same day as this Plan governs. The Acting President/Owner/Owner shall have all of the authority of the President/Owner until the next special meeting of the Board/Key family members of Directors after an Event.

Note: If there are no Board/Key family members or directors, then the Owner can preset the new leader of the company. This leadership mantel can be changed every year if you like to meet the changing needs of your company.

As soon as possible but no later than one week after death or incapacitation.

By the end of the first week after the Event, the Acting President/Owner/Owner and the Board/Key family members of Directors shall hold a special meeting of the Board/Key family members, if possible, to address the following matters.

  • Notify each bank in which the Corporation has an account to establish or confirm and modify, if necessary, the signing authority of the Corporation’s officers for the accounts;
  • At the special meeting the Board/Key family members shall appoint a successor President/Owner for a term, which the Shareholders desire to be the same individual appointed as the acting President/Owner.
  • Communication:
    TIP: How this is handled will drive the future success of the company (your investments). You need to make sure there is no Ambiguity. The messaging must show a well-oiled handoff from one leader to another, to demonstrate that a clear succession leadership path has been adopted.
  • Develop and begin to execute a communication plan, which should include, to the extent appropriate communications with:
    • Employees of the Corporation/ Family members.
    • The advisors (CPA, Banker, Attorney); and
    • Key clients, referral sources, and other stakeholders.
  • Appoint a key (Chief) Operating Officer to manage the day-to-day operations of the Corporation, which the Shareholders desire to be the individual identified in the Shareholder resolution.
  • Consider whether to begin a search for a long-term President/Owner.
  • Event Impacts. The President/Owner and Chief Operating Officer shall work together with the management team and with the Board/Key family members to address the impacts of the Event on the Corporation, including by addressing and reviewing the following:
    • The status of all properties managed by the Owner/Corporation
    • Financial statements, including a current balance sheet and profit and loss statement (which may be pro forma if statements current within thirty days are not available).
    • Cash flow, working-capital needs, financial resources, and other financial matters.
      Borrowing and other credit needs.
    • Insurance policies and bonding, and confirmation of adequate coverage.
    • Retaining clients and customers, securing new business.
    • Staffing and other personnel needs.
    • Monitoring receivables and payables.
    • Preserving other business relationships and contacts.
    • Any new day-to-day management or service issues that may be appearing.

Remember, Don’t Wait

We typically have an aversion to planning for death or incapacity, but unfortunately, life is unpredictable. Planning ahead will prove to be an invaluable demonstration of leadership and kindness toward those who have to carry on.

To help smooth out the bumpy ride, I would encourage you buy disability and key man insurance and to implement a succession plan before any event occurs. Unfortunately, these events do happen, and one such event prompted the drafting of this article.

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