Overnight Succession Planning ahead ensures business goes on--even when tragedy strikes.

Morry Stein's fear of flying prompted him to leave writteninstructions with his sons about how to handle the family business,Camp Echo Lake, if he and his wife were ever to die in a planecrash. Ironically and tragically, Morry was one of 68 passengerskilled in the crash of an American Eagle plane in October 1994, enroute back from a camping association meeting where he had beenraising funds for inner-city children to attend camp.

Tony Stein, Morry's 32-year-old son, had been planning tore-enter the Warrensburg, New York, summer camp as co-director thefollowing month. Instead, he was cast into that position soonerthan expected. "It all happened so quickly, I forgot about thewritten instructions," says Tony. "It wasn't untilafter the funeral that I found the papers and realized we had doneeverything exactly as my father suggested."

The transition, though painful, was about as smooth as could beexpected under the circumstances because of Morry's diligencein regularly sharing "the state of the camp" with histhree sons, two of whom were interested in joining the business."About 10 years ago, we started having business meetingsaround the dining room table at my parents' house," Tonysays. "We talked about new program ideas, the future ofcamping, how we could raise tuition, when we would enter thebusiness, what our strengths were and what we liked to do . . .things like that. Dad, who had an MBA from the University ofChicago, was a big believer in preparing for succession."

In his written instructions, Morry told his sons who his trustedadvisors were, whom to call on if something were to happen to him,how to handle various employees, where to find information theywould need such as his will and a net worth statement, and awritten pep talk. "In essence," says Tony, "the peptalk said, 'Whatever happens, you guys will befine.'"

Keeping the Company Intact

When the head of a family business suddenly dies or is soseverely disabled he or she can no longer run the company, thepeople who have to pick up the pieces are in mourning or severelystressed. Handling succession issues at such a time can beoverwhelming. While you may be able to postpone the grievingprocess (as long as it is not postponed permanently), the businessat hand can't wait.

The Stein family, for example, immediately sent a letter totheir camping "family" (staff, alumni, customers) tellingthem what happened but assuring them that Camp Echo Lake, which thefamily had run since 1946, was important to them and that they weregoing to keep it going. "My mother, Amy, brother George and Ispent a lot of time talking with key staff," Tony says."They needed contact with the family during this period. A lotof [employees] thought of Dad as a father."

Within a couple of weeks, Tony and George (who directs thecamp's daily programs and is its chief marketer) were visitingbankers and vendors to let them know they were serious about thebusiness and to share their plans for moving forward.

Sudden disability is often more splintering for a familybusiness than sudden death. Rhanda Salameh's grandfather, forexample, did not have a clear picture of who was going to succeedhim in his Illinois granite manufacturing firm when he suffered astroke nearly four years ago. "The only thing we knew for surewas that controlling interest in the firm would pass to familymembers, and I would have a greater share than others,"Salameh says. A clinical social worker by profession, Salameh knewshe would ultimately be involved in the business in an advisory waybut never expected to be thrust into the role of president.

Taking charge was no easy matter. "Over the course of aweek or so, I had a number of conversations with my grandfather andgot his approval to get involved in pending business matters,"Salameh says. For a year, she wrestled with the gritty details ofnegotiating union contracts and hassling with lawyers, not tomention keeping operations running. Meanwhile, her recoveringgrandfather still yearned for a role in the company.

"Ultimately, I told him I would be willing to devote all mytime to running the company, but I needed full authority to makedecisions-consulting with him when he was physically able to doso," Salameh says. It was difficult, but Salameh was able toestablish her authority with the shareholders and the board ofdirectors, thanks to help from her grandfather's personalattorney, 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 forFamily Business Management in Oakbrook Terrace, Illinois.

"Disability brings with it uncertainty," says PatFrishkoff, director of the Austin Family Business Program at OregonState University in Corvallis. "You are dealing with thecontinuing care of the family business head, and you don't knowwhether the person will return. In one situation, a father wasdiagnosed with cancer, and initially it looked as if he would dievery shortly. The children rallied, adding even more businessresponsibilities to their already full plates, and one of the sonstook charge. Then the father went into remission, returned to workand undid all the changes the children had instituted. The son whohad taken over went back to being a peon." The business andthe family suffered from the upheavals.

Fire Drill

"Heads of family businesses should think about this: If youcan't afford one day away from the business, how do you thinkit will survive if you're gone six months or forever?"suggests Frishkoff. "You have to stand tall and face the issueof sudden death or a long disability."

One man, Frishkoff recalls, attacked the problem verypragmatically. He came into the office one day, called in his keypeople and asked them, "If I had been hit by a truck thismorning and died, how would you handle it?" Then he went homeand asked his family the same thing. He culled through their ideas,picked out the best, added some of his own and wrote up a simpleinterim plan.

An interim plan for sudden succession should include the familyhead's advice on:

Who the interim successor should be. Should an outsideCEO be hired? Should a family management team take over? A spouse?A child?

A proposal for the disposition of the business. Should itbe sold? Should the family get more involved?

Who should be called on to help set the direction of thecompany. The plan should provide a list of the business'strusted 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 agood customer's order?

Location of important documents and who has access tothem. Estate documents, life insurance policies, officialcompany records and so on.

Sources of cash. If a business owner is incapacitated butalive, life insurance does not kick in, and disability insurancepays only minimally. Where can the family go to get moneyimmediately?

A personal statement setting forth the guiding principles onwhich the family runs the business.

For help getting started in writing your own succession plan,turn to two useful resources: Action Checklist for the FamilyBusiness Owner/Manager and Action Checklist for the Spouse of theOwner/Manager. These two checklists are available from the AustinFamily Business Program, Oregon State University's College ofBusiness, Corvallis, OR 97331 for $10 each. The checklistsdon't provide you with answers, but they clue you in on whatyou 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 newsletterWorking Families, and author of Kids, Money & Values(Betterway Books).