One area where successful owners of family and other closely held businesses consistently drop the ball is planning for the next generation of management to lead their companies. As case studies and statistics show, the key to transferring ownership and control of a business begins with the understanding that it is in fact a process that entails the resolution of many issues, often as complex and emotional as life itself–and certainly much more complex than merely transferring assets and conferring power. Here’s how some companies are succeeding at transferring ownership.
For David Mintzer, 87, founder and owner of the Port Chester-based printing company GFI, the goal to turn over the business to his 42-year-old son, Andrew, has progressed, but it has been seven years in the planning but is still not yet complete. A lawyer himself, the elder Mintzer is heeding the advice of both legal counsel and his accountant to transfer ownership through gifting stock over time. Meanwhile, his son is already a 20-year veteran of the business and successfully runs the day-to-day activities with complete autonomy.
Ben Ciccone, 75, chairman of the Poughkeepsie-based contracting firm that bears his name, found the transition to the next generation swift and unequivocal. His two sons, Brandon and Ben, Jr., now lead the road and bridge construction operations so that Ben may spend time pressing labor-management issues as the voluntary trade association chairman of the Construction Industry Council located in Tarrytown.
Then there’s Ed Mooney, 67, president and CEO of Fire Island Ferries of Bay Shore, L.I. With three adult children, all capable and successful in their own right, his ownership succession option is less clear-cut. Part of his empire will be divested through a combination of an employee stock ownership plan and a management buy out; another portion will be passed on to the next generation through a family trust; another portion still eventually will be sold and managed by his 44-year-old son Michael, who is now president of an FIF division, Penataquit Marine Construction.
Family-owned and controlled businesses like these account for 90 percent of all commercial enterprises in the U.S., but only a fraction survive to the second and third generation. This explains why preserving these enterprises has moved up high on the priority list both nationally and in states around the country. In New York, business succession planning is so important to the overall health of the state’s economy that the Empire Development Corp., the state’s economic development department, has initiated a campaign called “Ownership Transition Services” whereby a business owner can begin to explore succession planning options which generally fall into part or all of three categories: the succession to family members; the succession to employees; or succession to outside investors.
“Clearly, New York state wants to avoid the fourth option, which would be dissolution of a company that is domiciled here,” said Jan Stackhouse, director of the OTS program for the state. “Seventy percent of family-owned businesses do not make it to the second generation and only 13 percent carry on to the third generation,” she added.
Developing a plan for the transition of management and transfer of ownership of a business begins with the senior generation grasping the need for the succession planning process and becoming secure with the concept. The goal is not for an owner to simply walk into work one day and turn over the reins. The goal is for the owner to understand that the process is necessary for his or her own lifestyle and retirement needs. This is the only way to ensure that the business, which may have taken a lifetime to build, will survive and flourish.
Another aid would be to re-examine business succession planning itself. It is often misunderstood and sometimes viewed as a sort of “stepchild” of estate planning. Or it is feared as a mechanism to put the current owner of a business out to pasture at a time when he or she does not want to be viewed with less importance in the company or community. In other instances it is oversimplified as merely the end result of a boilerplate buy-sell agreement.
The failure to embrace the issue can also be traced to the personalities and emotions of the principals involved. Perhaps an owner is not sure how to select, train or develop his or her successor. How will succession play out in terms of lifestyle, company control, income and the ultimate financial security of an owner’s surviving spouse? Glossing over or avoiding entirely business succession planning may be more convenient than bringing a family face-to-face with thorny, sometimes painful issues involving which child should head the business, how parents can be fair to children who aren’t in the business, and ensuring that the next generation cares for loyal employees.
The best way to ensure that your business has a future is by planning for that day which will become the present. Experts say the cornerstone of a successful transfer process begins with ensuring that competent management is in place to run the business in the future.
“There are two key areas that must be addressed for an internal transfer to be successful: One area is ownership transfer, the other is management succession,” observes Gerald Mirra, vice president of Corporate Plans Associates, Inc., of Armonk, NY. The firm specializes in benefits consulting and business continuity planning. “A company does not have a comprehensive business continuation plan unless it deals with both of these areas.”
Perhaps it is more understandable to cast it in these terms: Management succession deals with the “people” part of the equation; ownership transfer addresses “money” issues. “The two are separate issues that may even occur on different time lines and may have different durations. To tackle both issues at the same may be a lot to ask if the timing isn’t right,” added Mr. Mirra. It may also explain why all too many family and closely-held business owners (one third are age 61 and older) have to sell outright or liquidate a part of their firm to pay estate taxes.
To paraphrase the late Erma Bombeck, family businesses, like families themselves, can often be the ties that bind and gag. From one perspective, a business founder may know in his or her heart that the day will approach when the reins of the business must be relinquished to a capable son, daughter or key person, but that doesn’t make the obstacles any less prodigious.
Upcoming articles will show how these businessmen, and others, succeeded where so many others have failed.