GT Succeeding at succession: establishing your goals and objectives Canada
Succeeding at succession: establishingyour goals and objectivesOctober 2011What they don’t know goals that take the needs of all your Similarly, as the owner of a family stakeholders into account can lead to business, your primary goal may be tomight hurt you. Flexibility. disputes and business disruption. maintain ongoing family control of theNimbleness. Creativity. To avoid these consequences, you need company. Your lenders may think yourThese are the traits that to create well framed succession planning family successors lack the skills required to goals and objectives, align them with your maintain or enhance business value. Fordifferentiate many privately business strategies and goals, and their part, your intended successors mayheld businesses from their communicate them with both your wish to engage in other pursuits entirelylarger competitors. business and personal stakeholders. By and may not be interested in assuming the focusing everyone’s activities on reaching reins of ownership.Surprisingly, these same traits can mask a clearly defined targets, you do more than Notably, these examples are just the tipcritical weakness. Very often, owners and motivate your leaders and managers. You of the iceberg as owners of privately heldmanagers of privately held businesses, also establish a basis for evaluating the businesses often struggle to reconcilewhich include family enterprises, investor success of your ongoing activities. Only in conflicting personal and commercialand entrepreneur-owned businesses and this way can you ensure that your objectives. This challenge becomesprofessional firms, base their decisions on successors have the knowledge they need particularly prevalent in successionpersonal experience and intuition. While to maintain your legacy. planning because a retiring owner’sthis may foster innovation, it also inhibits financial welfare frequently hinges on thetransparency. As a result, you don’t leave Different leaders, different goals company’s financial success. If ensuringonly your competitors guessing about Many privately held business owners fail sufficient cash flow in retirement leaves thewhere you plan to go next, you also leave to engage in formal goal setting because company with inadequate resources toyour management team in the dark. they believe their stakeholders share their fund expansion, this does more than When it comes to succession planning, vision of the future. In truth, this is rarely compromise your ability to provide forthis “lone wolf” tendency can wreak long- the case. An entrepreneur, for instance, future generations. It also can prevent youterm havoc. In some cases, owners may may place primary importance on ensuring from safeguarding the jobs of key staffassume that their partners, management, continued employment for key staff—an members and even can put the company’sstaff, shareholders and family members objective that may conflict with the survival at risk.understand their intentions for the future intention of investors or potentialeven if they have not been articulated. In purchasers. The managing partner of aother cases, owners may rely on their professional services firm might hold thepersonal judgment to such an extent that goal of expanding internationally, whilethey implement succession plans his or her partners are more interested inunilaterally, without consulting with the building community roots.affected parties. In either case, this failureto establish clearly defined and measurable
Goal setting challenges privately held businesses also frequently One would imagine that privately held worry about the personal repercussions if businesses would be eager to articulate they fail to treat both current and future their goals and resolve any conflicts that generations in a way that is perceived as arise. At the very least, business owners fair. All of these scenarios can make it should take the time to define where they exceptionally challenging for privately held would like to take the business, what business owners to set clear succession personal goals they hold and how to planning goals. reconcile their own objectives with those Keep in mind that the goal-setting of their key stakeholders, such as process itself can create obstacles if it is not employees, shareholders, outside investors, approached effectively. According to Dr. lenders, management and family members Marshall Goldsmith, best-selling author involved in the business. Too often a range and global leadership authority, people of barriers hinder owners from engaging in tend to give up on goals when they:“When it comes to this process. • lack buy-in or commitment to changesuccession planning, In some cases, owners are simply • underestimate the time needed to reach hesitant to retire, despite stated intentions. targetsprivately held businesses Perhaps they have failed to build a life • realize how much work is required tomust set goals designed to outside of the business and fear losing their effect changereconcile potential conflicts social network, or their identities are • become distracted by competing meshed too closely with the business and prioritiesbetween their business needs they are struggling to surrender control to • fail to realize short-term “rewards”and their personal/family their successors and staff. Perhaps they (higher profits, greater recognition,needs. Only in this way have too much of their wealth tied up in etc.) the business, making retirement financially • approach goal setting as a onetimecan they facilitate a smooth unfeasible. Whatever the cause, these project rather than a lifelong processtransition.” factors can hinder business owners from honestly sharing their plans for the future. Ultimately, it will likely be harder thanDavid White Family businesses face particular you expect to define and articulate yourGrant Thornton, United Kingdom challenges of their own. If family members succession planning goals. Navigating perceive the business as a family heirloom competing priorities, confronting your to be preserved for future generations, they stakeholders and your own potential fears, may object to an owner’s goal of bringing engaging in honest self-evaluation and in professional management, attracting addressing complex financial and external investors or retaining capital by emotional issues requires real work. reducing shareholder distributions. If too However, these types of efforts tend to many stakeholders are involved, owners of produce the best long-term results.
Embarking on the goal setting process 2. Plan for contingenciesDespite the challenges inherent in setting One of the most effective goal settingsuccession planning goals, it is critical for methods involves answering the followingprivately held business owners to engage question: if you had died yesterday, howin this process if they hope to avoid would your business be doing today? Thisconflicts that can result in deteriorating exercise frequently helps the owners ofbusiness value. Although there are no hard privately held businesses uncover criticaland fast rules for establishing effective gaps in their succession plans. Perhaps yougoals, certain best practices exist. lack key person insurance. Perhaps your processes are not sufficiently robust to1. Involve all stakeholders enable your successors to assume the reinsAs they begin to plan for succession, it is of control or your share ownershipessential that owners keep their managers, structure will lead to family rifts in yourcustomers, suppliers and other absence. Perhaps your successors requirestakeholders informed of any changes that more extensive training. Uncovering these “A lot of business ownersmay affect them. Owners of closely-held process gaps enables you to do more than are unfamiliar with thebusinesses should consult with both their strengthen your succession plan. It canbusiness partners and shareholders to also help you better clarify the vision you process to take in settingbrainstorm ideas, gain agreement and hold of your company’s future. their succession planningresolve potential conflicts. It is also goals. Working with agenerally recommended that owners of 3. Frank and honest dialogueprivately held businesses consult with their Many privately held business owners fail trusted facilitator canfamily members—even if those family to establish effective succession planning provide them with themembers are not involved in the business. goals because they hesitate to engage in perspective they need toAn owner’s succession planning decisions honest communication with theirvery likely will affect the financial welfare align their personal and stakeholders. This is particularlyof their spouse and children, which is why problematic in family business settings business objectives.”it is important that they share their where business stakeholders fear hurting Bobby Stoverintentions. This is particularly critical for each other’s feelings. Rather than telling an Grant Thornton, United Statesowners of family businesses, whose elderly founder that his role has becomedecisions ultimately may dictate their redundant, a business may expendchildren’s career paths. Finally, in gaining significant resources, and engage inbuy-in to their objectives, executives uncomfortable subterfuge, to create a falseshould ensure their stakeholders go position for him. Rather than advising abeyond tacit agreement and fully accept family member that her job has beenthe stated goals. automated, a business may allow her to create lengthy manual reports that it ultimately plans to ignore.
To overcome this challenge, it is 5. Make your goals measurableimperative for business stakeholders (and, Once you go through the effort ofwhere relevant, family members) to come defining your succession planning goals,together to discuss their roles, intentions it makes sense to ensure they are beingand plans for the future. This includes adhered to effectively. In addition toadmitting to successors that you don’t plan attaching specific timelines to theto retire or that you don’t feel they are accomplishment of each goal, considerready to assume control. Only by identifying specific actions or behavioursbroaching these challenging topics can you that your stakeholders should adopt tohope to obtain buy-in for your succession encourage the realization of your statedplan. Admittedly, this process often can be objectives. Although the metrics youfraught with the potential for conflict. For adopt will vary depending on the goalsthis reason, it is important to adopt a you are trying to achieve, goodconflict resolution process that allows you performance measures should be explicitlyand your stakeholders to work through defined in terms of owner, unit of “Open and honestthe rough spots without damaging long- measure, collection frequency, data communication with allterm relationships. quality, expected value (e.g., targets) and thresholds. This will allow you to measure stakeholders, especially early4. Consider your personal needs actual accomplishments, not just work on in the planning process,To ensure the success of their corporate performed. is critical to ensuring that thesuccession planning goals, owners ofprivately held businesses need to align right succession plan is putthose goals with their personal objectives. in place.”This includes considering a wide range ofissues related to your exit strategy, your Grant Popowich Grant Thornton LLP, Canadadesired retirement lifestyle, your pensionplanning and your plans with respect topassing on wealth to your heirs. It alsoincludes ensuring that you have access tosufficient funds to support your retirementwithout depleting corporate assets. Settinggoals around these issues in advance andcommunicating those goals across theorganization can help you avoid significanthardship following your succession.
Asking the right questions • Have you taken steps to reduce estate Simplifying the goal setting processAlthough setting goals for succession is a taxes? There is little doubt that goal setting canhighly personal exercise, the process can • Do you have sufficient health and/or be an exercise fraught with tension andbe streamlined by answering some of the life insurance? discomfort. This is especially the case forfollowing questions: • Do you have a process for resolving privately held business owners who fear• How long do you want to stay active partnership conflicts? disclosing their true intentions to their in the business? managers, successors, family members and• Do you want to remain involved in the Owners of family businesses should other stakeholders. Yet, in this process business following your formal exit? consider an additional range of above others, honesty is unquestionably• In how many years do you plan to questions: the best policy. To ease the discomfort, transfer management and/or • Does the family have an agreed resolve potential conflicts and arrive at a ownership control? statement of principles (or a family consensus, however, it is critical to work• Is it clear who your successor(s) will creed) regarding the operation of the with experienced specialists who can help be? business? you put programs in place to achieve your• At what age would you like to retire? • Is equity ownership considered a succession planning goals. Grant Thornton• What annual income will you require birthright? LLP can help. From estate and tax during retirement? • Do family members working in the planning to transaction advisory and• How do you plan to finance your business have the necessary skills to wealth management, we can help you retirement? assume control? build an effective transition strategy. With• How significant of an asset is the • Do you even want your children (or our global reach, proven track record, business relative to your overall net other family members) to work in the integrated suite of services and in-depth worth? business? knowledge of privately held businesses,• Do you want to contribute to • Do you know your children’s our practitioners truly act as your trusted charitable or philanthropic causes? aspirations or plans? guides to help you navigate the succession• How much money do you plan on • Is there an education policy for family planning process. transferring to your children? members? To find out how our professional• Do you have predetermined criteria for • Are you prepared to treat your advisers can help you establish and selecting a business successor? children “fairly” upon succession— articulate your succession planning goals,• Have you mapped out career paths for even if that doesn’t mean treating them contact your local Grant Thornton LLP your key executives? equally? succession and estate planning specialist.• Do you have any shareholders who are not involved in the management of the business?• Is your will up to date?