A few years ago, I conducted client outreach for a law firm I handled marketing for. The exercise was simple – send a non-lawyer to find out if the client was happy with their lawyers and legal services. Amid one of these discussions with a manufacturing company’s COO, he interrupted one of my many questions with his own request, “when you return to the office, tell my attorney that if he doesn’t talk to my father, the CEO, about a succession plan in this company soon, I’ll be looking for another law firm.”
The COO of the company was the oldest son of a father who was in his 80s, was in ill health and had just married his third wife. As the company owner with health problems, the father was often absent from the company, only dropping by the office for board meetings. The son ran the company and had been doing so for ten years. With no written promises on paper, he informed me that because his father was in poor health, he was looking at a daunting potential future where his Dad’s third wife would be handed the company upon his death. In other words, the son, who had maintained and grown the company for years, was looking at an uncertain future where he believed his father’s wife would most likely sell the company out from under him.
The worst succession plan is no plan at all.
HBO’s Succession was a primer on how not to pass down a company from a dying patriarch (Logan Roy, played by Brian Cox) to his children. Pitting his three kids against each other, Logan Roy’s media empire, reportedly modeled after either Rupert Murdoch or Sumner Redstone, depending on who you listen to, was ripe with buyout offers, dissolutions, mergers and a father playing his kids like a puppeteer. SPOILER: The ridiculously entitled kids deservedly were left out of the company operations and were looking at a future where they had to share proceeds with Roy’s two wives. After Roy died, his son-in-law was the only one left in the resulting rubble to handle the operations. All this after several failed corporate coups planned by the three kids.
Yes, it’s fiction, but there are numerous pieces of this drama that have been lived out by many businesses that are not ready for the future. The link between the fictional and non-fictional accounts is that the lack of a written succession plan, especially in the case of sickness or death, can put an entire company in peril.
There are plenty of very public real-life examples of this, such as Fiat Chrysler CEO Sergio Marchionne unexpectedly dying and, with no real succession plan, finding a 12% stock drop in one day. At Apple, Steve Jobs became sick, American International’s Robert Benmosche got cancer and United Airlines’ Oscar Munoz was hospitalized, throwing their stocks into a massive decline and an uncertain future.
But the lack of a plan can also drive real-life peril in privately held companies. A friend of mine and his brother once managed a series of successful family-owned warehouses in the Detroit area. However, when their father unexpectedly died, both sons, who had built the business and were solely responsible for bringing clients into the warehouses, lost everything due to the company being embroiled in litigation and were forced to find new careers in their early 50s.
A good succession plan is the lifeblood of your company’s future, from preserving the continuity of personnel to tax planning to company management to a seamless transition for your clients. Whether it’s your family or shareholders, the lack of a plan can undoubtedly prove to be the death or rapid decline of the company. At Paletz Advisor, our CEO has had personal experience with navigating the pitfalls of family succession. It seemed apropos to focus on the point that though Logan Roy’s succession plan (or lack of it) may have been entertaining to watch, it is certainly no way to ensure a company’s long-term future.