Despite the fact that “success” is the dominant part of the word succession, planning for the future management or sale of a company is something wealth managers have not done very well for themselves. Over the past few years, Russ Prince and I conducted a series of studies for the accounting firm Rothstein Kass on succession issues facing privately held investment-related businesses. The findings were dramatic and, in certain situations, appalling:
• Just 29.8% of surveyed firms were prepared for the death of a key executive. The remaining 70.2% were either unprepared or “didn’t know.”
• Just 10.1% were prepared for the disability of a key executive compared to 89.9% that were unprepared or “didn’t know.”
• Roughly 35% were prepared for a voluntary or involuntary termination of a key executive, leaving the other 65% unprepared or uncertain.
• Just one-quarter have a formal succession plan, but nearly 60% of these plans haven’t been reviewed in more than three years.
• Just one-third have a buy/sell agreement outside the operating agreement, but more than half of the agreements have not been reviewed in at least three years.
Sadly, these figures are not unique; many operating companies are in similar circumstances. When asked why their most valuable asset has been left exposed, the most common reason cited by owners was that the day-to-day operations of the company were so consuming that it left little time to plan for disasters that seem distant and improbable.
These days, it’s still rare to find a firm that has chosen to address its succession scenarios head-on, draft a plan and see it through to a definitive conclusion.
This issue of Private Wealth includes an interesting and insightful feature story on Ballentine Partners, a high-end wealth advisory firm in New England that has done just that, taking nearly three years to carefully learn and manage the many moving parts that can impede progress. Having had lengthy discussions with its executive team, I believe you’ll find their story impressive and inspiring. Best of luck with your planning efforts!
