Succession Planning – A Case Study

Apr 10, 2015

IBA, as the premier business brokerage firm in the Pacific Northwest, is firmly established as a respected professional service firm in the legal, accounting, banking, mergers & acquisitions, real estate, and financial planning communities. Periodically, we will post guest blogs from professionals with knowledge to share for the good of owners of privately held companies & family owned businesses. The following blog has been provided by Bhaj Townsend of Focus & Sustain (www.foc
Succession Planning for a Privately Held Company: A Case Study

Sam and Sandra Gottsford are based in Oregon and own a family business. What started as a general commercial architectural company has become an internationally renowned retirement community architectural, construction and consultation company. They own, are part owners of or been consultant to 9 successful communities in North and South America. Their executive team is looking into the possibility of expanding into Asia. They are the “go-to” company for large and medium scale retirement communities.

Sam and Sandra, who are now in their 70s, have been advised by their business attorney to revisit their estate plan. It was last updated when Nick, their youngest son and third child was three years old. Today, their two older children are in the family business. Nick is working in Boston.

Sam and Sandra have been avoiding the subject of their estate planning. With two children in the business and one currently working for a firm across the country, they wonder how they can distribute the value of their greatest asset, their business, along with their other investments and property fairly to the next two generations.

The question for this case study is this: How can Sam and Sandra craft an estate plan that makes an equitable distribution of their wealth and assets?

Sandra, who was involved in the business for many years, takes great pride in knowing the legacy of her father and grandfather, architects of merit in Chicago, lives on through her husband and now, two of her children. She wants to see the business continue beyond the next generation, keeping the memory of her family’s legacy alive. It’s a thriving business so she would like it to continue at least long enough for them to determine if they want to continue it.

Sam would like his children to succeed him as it would be a wonderful acknowledgement to his passion and success. For now though, Sam still retains the office of President of the company. He is the final decision maker, a role, which at 70, he still enjoys. He derives a lot of satisfaction in running his company. It is his identity. He wonders if any of his children are really CEO material. He is afraid the business might lose its strong foothold if he weren’t around. He sometimes thinks that he should sell to an outsider. With its high current valuation, this might make it easier on his children. They would not have to fight over the future direction of the company.

Josh, the oldest child is 45 and the VP of marketing. He wants a shot at the Presidency but Dad isn’t quite sure he is ready yet. Josh has tried to have conversations with his Dad about this but his Dad keeps putting it off. Not yet, is the recurring mantra. When Josh went to his Mom, to intercede, she was sympathetic to his frustration but could only suggest he keep trying to talk to Dad. Josh sometimes wonders if he would do better going elsewhere or forming his own company. He clearly feels frustrated and wants a more visible leadership role in the future of this company. Being VP of marketing isn’t enough anymore.

Kristi, Josh’s sister, is ambivalent about her future with the family business. At 40, she feels that she is ready to take on more executive responsibility and input. Her drawback is the pull she has to spend more time at home with her daughter Anne who is just entering her teenage years. Kristi realizes these are potentially tough years for any child, and wants to be there for Anne.

Nick, at 34, decided to work outside of the family business. It was all the family seemed to talk about. He wanted to talk about something else. After he finished college in Boston, he took his MBA to a major manufacturing company in the north east. Although he has enjoyed the autonomy and his experience there, he and his wife talk about moving back to the Northwest. If possible, he would like to see if he would enjoy working in the family business with his siblings. He has not thought much about who should succeed his Dad as CEO.

Sam and Sandra have met with their estate and business attorneys who laid out a few ideas for them: their two active children could buy the business in advance of their Dad’s death; all three could inherit the business; a stranger could buy the business and the proceeds be distributed to the family; Sam and Sandra’s children could retain distribution rights and have an outside manager run the business.

Sam and Sandra are stuck. Which direction should they go? As Sandra quipped, she felt almost like she was on a game show, and had to pick from door one, two or three. But which one would give her the result she wanted? Sam thinks maybe they should wait a bit longer, wait until he feels Josh and Kristie are ready to take over this very successful enterprise.

Sam and Sandra want, most of all, to keep the family together. Sandra thinks a family meeting would be appropriate but doesn’t know how to structure a meeting like this, where they would discuss the future of the family in the context of distributing this big asset they have. Sam is reluctant to do this. He thinks he and Sandra can decide from the information their attorneys have shared with them. They just need to make a decision and it will all turn out fine.

What would you do? Would you accept one of the suggestions of the attorneys? Which option do you think would make all children happy?

If you would like support addressing family business succession or estate issues, Bhaj Townsend of Focus & Sustain is available as a resource at (425) 823-0934 or