Some people accuse me of being a ‘stuck record’. I keep endlessly repeating the same points and asking the same questions over and over again.
Despite accusations that this is due to memory lapse associated with old age, the truth is that I keep repeating myself because the messages are important, and many people simply don’t get them.
One of my questions is this:
“As a family business, you probably consider a strategic plan, a budget, and a marketing plan as business imperatives. But what about your business succession plan? That’s just as important. Do you have one?”
My blog article this month is to confess that there is one more plan that needs to be added to that list, the emergency board plan (or EBP). The article is inspired by an excellent piece written for the STEP Journal by Hayden Bailey, Partner at the London law firm, Boodle Hatfield.
In my work, I spend a lot of time focusing on the long-term impacts on family business of the retirement or death of the founder. These are essential questions. However, Hayden’s excellent article also reminds us not to forget about the short-term impacts.
This is especially relevant in the CEE region where many family businesses are tightly controlled by the original founder from the 1990s who also usually has a very ‘hands-on’ approach to the business. The founder exercises absolute control over the business and makes all the important decisions. That is perfectly fine – and in fact for many of my clients, it is an essential part of how their world functions. It is often also a question of trust. “I can’t trust anyone but myself to do this.”
But what then happens when the founder is suddenly and unexpectedly unavailable? This can be because of death, but it is more likely to be a result of health issues. It can be temporary, for example in the case of hospitalization, or it can also be permanent. In my experience, when this happens there is an initial period of total business paralysis. Nobody really knows what to do, key projects grind to a halt, important and necessary decisions are not made, opportunities are missed, and unnecessary costs are incurred.
This is why an EBP is an essential part of the wider succession planning process.
What is an EBP?
A business succession plan sets out the steps to be taken to ensure the long-term continuity, management, and control of your family business. In contrast, the EBP is designed to provide a way for the founder to decide the immediate things that should happen. This can include:
How to manage the announcement of the death or incapacity, both internally and externally. Who should be told? (Consider key customers and suppliers, external lawyers, banks, and other stakeholders)
Legal Authority to Act
Who has legal authority to manage the business in the short term? There needs to be someone, or more likely some small ‘committee’ that is able to meet at the earliest opportunity to deal with high-priority day-to-day management issues such as bank loans, financing, debt management, cash‑flow issues, and bank‑signing authority. (It is very important that the necessary legal authorities to act are set up in advance – as by the time the problem arises it will be too late).
The plan can name trusted friends or advisors who can be brought in to ‘steady the ship’ in the interim period before the longer-term business succession solutions kick in or the founder recovers. If you have an Advisory Board and/or Family Council, what role do they play here? (Families often play an essential role in longer-term solutions, but you need to bear in mind that in the immediate aftermath of an event like this, their capacity to act can be limited). This group needs to deal with the bigger issues and ensure that nothing important is missed or lost. Key issues include the status of ongoing transactions, negotiations, and legal proceedings. They also need to set a roadmap and identify which issues need to be dealt with in the next week, the next month, and until the founder returns or the longer-term succession solution kicks in.
The plan should also set out a program for reporting to the family – including details of what should (and what should not) be shared, with whom, when, and how often.
If the succession plan includes a supervisor or Advisory Board, it is very important that they are also fully informed, not least so that they can make sure that whatever is happening is consistent with the founder’s wishes and vision.
So, an EBP is important. For some families, this will be a chapter in a much larger long-term succession plan. For other families it will be a separate document. The form of the plan is not so important. What is important is that it exists. As with business succession generally, failure to properly plan will inevitably lead to cost, conflict and, missed opportunities.
Image credit: Owen Blacker