1. Keep it in the Family
Planning for Succession
Presented by: Jon Lefebvre and Yasmine Shaalan
BMG320

2. Agenda
● Rationale for research
● Key points on succession planning
● Succession matrix
● Succession planning overview
● Succession planning model
● Components of succession planning
● Three levels of succession planning
○ Managment
○ Ownership
○ Transfer taxes
● Pros & Cons to family succession
● Recommendations

3. Rationale for research
● It is estimated that approximately 70% of family businesses do NOT
survive the transition of ownership
● Baby boomers retirement void
● Family owned businesses are the backbone of the American economy
o Account for 63% of U.S. Gross Domestic Product
o Generates 60% of the country’s employment
o Account for 78% of all new job creations
● Family firms comprise 80-90% of all businesses in North America

4. Key Points
● Three main focuses: Management, Ownership, Transfer taxes
o Difference between management and ownership
o Lawyer and/or accountant should be consulted with respect to transfer taxes
● Lead-time is crucial to a successful transition
● Important to have a key employee or employees in the top management
team (TMT) to assume more responsibility during the transition
● Succession has many parallels to employee retention

5. Three Levels of Succession Planning
● Taking away from and simplifying the succession matrix we can break
succession planning down to three main points:
1) Management
2) Ownership
3) Transfer taxes
● If executed properly, these three factors will lead to a smooth transition
between both management and ownership as well as minimizing the cost
of transition.

6. Management
● Management is NOT the same as ownership
● Top management team members who are leaving should begin allocating
certain tasks of their own to possible successors
o either key employees or their own blood
● Focus on employee retention; want most suitable candidate
o Retention tactics include: Employee agreements, nonqualified deferred-
compensation plan, stock option plans, change-of-control agreements, and/or
advisory board

7. Transfer of Ownership
● It is important for the current owner of the business to considers the best
option(s) for transferring ownership
● Owners often face certain dilemmas such as:
o How do I treat multiple children equally? What if none of my children are
interested in my business? When is the best time for me to pass the torch?
● Common techniques used to address these issues:
o Sell to active children, use voting and nonvoting shares, leave non-business
assets to inactive children, reward active children for their hard work equally,
establish conditions and assurance for active children, provide retirement income
for business owner, buy-sell agreements

8. Succession Matrix

9. Transfer Taxes
● Transfer taxes can claim over 50% of the value of a business
o this can lead to the business having to take out debt or liquidate in
order to keep the company alive
● There are a number of strategies that can be used to minimize transfer
taxes which will ultimately lead to a more profitable business
o Techniques and strategies used by owners to minimize taxes at the
time of the transition include: Gifting techniques, sales strategy, freezing
techniques, statutory relief, and/or life insurance applications

10. Owner-Managers and Succession
Planning
● “I’m not going to retire,”
● “I can’t figure out the financial payout,”
● “I’m too busy with clients,”
● “I’m not going to die anytime soon”
● Owner-managers usually have a personal vision to retire and pass down
the family business “someday,” but he or she may not have adequately
considered what it will take to make that vision a reality.

11. Components of an Integrated Succession
Plan:
Family
● Goal Articulation
● Family information and communication
Business
● Business Strategy Assessment
● Management Talent Assessment
● Corporate Structuring
● Current Business Valuation
● Retirement Planning

12. Five Principal Stages of a
Succession Planning Model
Ongoing Enabler: A well-defined strategic planning process
Identification
of target roles
and positions
Determination
of core
competencies
and skills
Identification/
assessment
of successor
candidates
Stage 1 Stage 2 Stage 3 Stage 4 Stage 5
Desired
Outcome
Business
case for
proactive
succession
planning
Leadership
developmental
programs
Organizational
and continuity
leadership
capability
Ongoing Enabler: Leadership Support

13. Stage 1: The Business Case
● The Mission Statement
● Considering the longer-term impact of:
o Industry sector, market share, competition, and barriers to growth
o Long term business strategy for growth
o Independent business valuation and the potential to increase brand
equity over time
o Timeframe for implementing a succession plan
o Commitment, ability and leadership potential of family members

14. Stage 2: Identification of Target
Roles
● Not just “slotting” family members into roles
● An assessment of the key positions needed to achieve business goals.
o Serves to set priorities among the key positions that will support or
drive growth.

15. Stage 3: Determination of Core
Competencies and Skills
● In order for family members to be considered for key positions or as
successor candidates, there must be a commitment to developing the
necessary skills to meet future business needs.
● Family members must be fully involved and have access to opportunities
to develop an effective succession strategy.
● The Case of Samsung

16. The case of Samsung
● Samsung’s chair Lee Kun-hee’s health has been
deteriorating
● Lee Jae-yong, his son, joined Samsung in 2001.
o 10 years later he had the title of vice-chairman
o Employees think he is unproven as a manager
 Yet he is qualified

17. Stage 4: Identifying Successor
Candidates
● No free passes!
● Determining whether family members have what it
takes
o A family member may be identified as a potential
successor candidate but not want the
responsibility.
o Another may want to be the leader but not want to
invest the time to develop the skills needed.

18. Stage 5: Leadership Development
● Review of current and required training and development practices
● Accepting positions outside of the family firm
o Practical, first hand experience outside of the comfort zone of the
family firm is a huge benefit!

19. Skills Missing From Boards
● HR-Talent Management
o 58% in Family Owned
Business boards
● Succession Planning
o 26% in Family Owned
Business boards
● Strategy
o 23% in Family Owned
Business boards

20. Pros and Cons of Passing the Business to
a Family Successor
● Advantages:
o Reduces third-party involvement
o Gives the predecessor the option to maintain
involvement and influence within the business
● Disadvantages:
o It can be difficult to identify and train the right
successor
o Potential for conflicts at work and/or in the family

21. Recommendations
● Evaluate company's worth
● Find and develop top talent
o Most in line with company values and their predecessor
● Successful knowledge transfer
● Recycle the Boomers
o Part time or project basis
● Set in place a succession plan between five and ten years before you expect the transition to
take place
● Have regular meetings
● Keep it professional
● Get outside help

22. Food for thought
● Minority owned businesses that will no longer be minority owned
o Creates competitive disadvantage
● Do gifting techniques not give enough incentive to the successor?
● Should the successor work up slowly or jump right up?
● When should someone draw the line or pull the plug on an
unsuccessful successor? Who should do it?

23. Questions?
● Rationale for research
● Key points on succession planning
● Succession matrix
● Succession planning overview
● Succession planning model
● Components of succession planning
● Three levels of succession planning
○ Managment
○ Ownership
○ Transfer taxes
● Exit strategy
● Recommendations