Morry Stein's fear of flying prompted him to leave written instructions with his sons about how to handle the family business, Camp Echo Lake, if he and his wife were ever to die in a plane crash. Ironically and tragically, Morry was one of 68 passengers killed in the crash of an American Eagle plane in October 1994, en route back from a camping association meeting where he had been raising funds for inner-city children to attend camp.
Tony Stein, Morry's 32-year-old son, had been planning to re-enter the Warrensburg, New York, summer camp as co-director the following month. Instead, he was cast into that position sooner than expected. "It all happened so quickly, I forgot about the written instructions," says Tony. "It wasn't until after the funeral that I found the papers and realized we had done everything exactly as my father suggested."
The transition, though painful, was about as smooth as could be expected under the circumstances because of Morry's diligence in regularly sharing "the state of the camp" with his three sons, two of whom were interested in joining the business. "About 10 years ago, we started having business meetings around the dining room table at my parents' house," Tony says. "We talked about new program ideas, the future of camping, how we could raise tuition, when we would enter the business, what our strengths were and what we liked to do . . . things like that. Dad, who had an MBA from the University of Chicago, was a big believer in preparing for succession."
In his written instructions, Morry told his sons who his trusted advisors were, whom to call on if something were to happen to him, how to handle various employees, where to find information they would need such as his will and a net worth statement, and a written pep talk. "In essence," says Tony, "the pep talk said, 'Whatever happens, you guys will be fine.'"
Keeping the Company Intact
When the head of a family business suddenly dies or is so severely disabled he or she can no longer run the company, the people who have to pick up the pieces are in mourning or severely stressed. Handling succession issues at such a time can be overwhelming. While you may be able to postpone the grieving process (as long as it is not postponed permanently), the business at hand can't wait.
The Stein family, for example, immediately sent a letter to their camping "family" (staff, alumni, customers) telling them what happened but assuring them that Camp Echo Lake, which the family had run since 1946, was important to them and that they were going to keep it going. "My mother, Amy, brother George and I spent a lot of time talking with key staff," Tony says. "They needed contact with the family during this period. A lot of [employees] thought of Dad as a father."
Within a couple of weeks, Tony and George (who directs the camp's daily programs and is its chief marketer) were visiting bankers and vendors to let them know they were serious about the business and to share their plans for moving forward.
Sudden disability is often more splintering for a family business than sudden death. Rhanda Salameh's grandfather, for example, did not have a clear picture of who was going to succeed him in his Illinois granite manufacturing firm when he suffered a stroke nearly four years ago. "The only thing we knew for sure was that controlling interest in the firm would pass to family members, and I would have a greater share than others," Salameh says. A clinical social worker by profession, Salameh knew she would ultimately be involved in the business in an advisory way but never expected to be thrust into the role of president.
Taking charge was no easy matter. "Over the course of a week or so, I had a number of conversations with my grandfather and got his approval to get involved in pending business matters," Salameh says. For a year, she wrestled with the gritty details of negotiating union contracts and hassling with lawyers, not to mention keeping operations running. Meanwhile, her recovering grandfather still yearned for a role in the company.
"Ultimately, I told him I would be willing to devote all my time to running the company, but I needed full authority to make decisions-consulting with him when he was physically able to do so," Salameh says. It was difficult, but Salameh was able to establish her authority with the shareholders and the board of directors, thanks to help from her grandfather's personal attorney, who confirmed the founder's wishes. A year later, with her grandfather's approval, Salameh sold the company. She's now a family business consultant with LSI Resource for Family Business Management in Oakbrook Terrace, Illinois.
"Disability brings with it uncertainty," says Pat Frishkoff, director of the Austin Family Business Program at Oregon State University in Corvallis. "You are dealing with the continuing care of the family business head, and you don't know whether the person will return. In one situation, a father was diagnosed with cancer, and initially it looked as if he would die very shortly. The children rallied, adding even more business responsibilities to their already full plates, and one of the sons took charge. Then the father went into remission, returned to work and undid all the changes the children had instituted. The son who had taken over went back to being a peon." The business and the family suffered from the upheavals.
"Heads of family businesses should think about this: If you can't afford one day away from the business, how do you think it will survive if you're gone six months or forever?" suggests Frishkoff. "You have to stand tall and face the issue of sudden death or a long disability."
One man, Frishkoff recalls, attacked the problem very pragmatically. He came into the office one day, called in his key people and asked them, "If I had been hit by a truck this morning and died, how would you handle it?" Then he went home and asked his family the same thing. He culled through their ideas, picked out the best, added some of his own and wrote up a simple interim plan.
An interim plan for sudden succession should include the family head's advice on:
Who the interim successor should be. Should an outside CEO be hired? Should a family management team take over? A spouse? A child?
A proposal for the disposition of the business. Should it be sold? Should the family get more involved?
Who should be called on to help set the direction of the company. The plan should provide a list of the business's trusted advisors.
Key success factors that should be watched and monitored. Cash flow? Payroll compared to revenue?
Pre-tax profits? Average time of receivables? Variations in a good customer's order?
Location of important documents and who has access to them. Estate documents, life insurance policies, official company records and so on.
Sources of cash. If a business owner is incapacitated but alive, life insurance does not kick in, and disability insurance pays only minimally. Where can the family go to get money immediately?
A personal statement setting forth the guiding principles on which the family runs the business.
For help getting started in writing your own succession plan, turn to two useful resources: Action Checklist for the Family Business Owner/Manager and Action Checklist for the Spouse of the Owner/Manager. These two checklists are available from the Austin Family Business Program, Oregon State University's College of Business, Corvallis, OR 97331 for $10 each. The checklists don't provide you with answers, but they clue you in on what you must do to prepare for sudden death or disability.
Patricia Schiff Estess is president of Working Families Inc., a New York City consulting firm that publishes the newsletter Working Families, and author of Kids, Money & Values (Betterway Books).