Legal-Ease: Paradigm barriers to seamless business succession

Every business succession plan looks different, and various, unique aspects of every person involved and every business means that the who, what, how and when that succession happens is immensely diverse.

In my office, we refer to the business owners who will soon or are currently transitioning out of a business as “seniors” and the people who are transitioning into a business as “juniors”, despite ages of the people not always mirroring the descriptions. This column will use these descriptions for the roles of people in business succession.

Despite the diversity of the situations, a few common thought patterns or structures — called “paradigms” — can make transition especially challenging. These misunderstandings are less about “negativity” and are more reflective of seniors and juniors finding themselves in roles that are completely new.

First, new seniors or juniors can sometimes characterize or visualize their new roles and resources as perks. For example, a senior may say, “Once the juniors become partners with me, I will get a company car, because of my seniority.” This perception is not illegal or necessarily wrong. However, resources, due to seniority or ownership, are best thought of as outsized empowerment tools to advance the business. Seniority or positions of leadership or ownership are not simply unidentifiable, personally advantageous resources.

International business consultant Jack Keller describes this perspective best in the context of expense accounts. According to Keller, “An expense account is not a perk. An expense account may be a tool, a resource or a weapon, but an expense report is not a perk.”

Second, what has been unquestionably the best practice or position up to this point in time, may need to be changed sooner rather than later. For example, a full analysis of a retail business can determine that that business is most cost-effectively served by one credit-card machine. Incremental change annually over several years can be seen each year as inconsequential. However, compounding change year-upon-year makes the need for changed practices and positions more imminent than can often be recognized by seniors in the context of succession planning. Thus, a second credit card machine may be overdue.

Third, independent from financial considerations, seniors and juniors need time — usually multiple years — to work together. This “arranged work marriage” can be uncomfortable for the seniors and the juniors. However, seniors’ wisdom and juniors’ ambitions together are much more valuable than the separate values of wisdom and ambition added together. The old adage is that one mule can pull 1,000 pounds, but two mules can pull 2,500 pounds. But, if one mule is wiser and the other mule is stronger, the total that those two mules may be able to pull might exceed 3,000 pounds.

Finally, juniors and seniors must create a relationship that is governed by consensus rather than votes or power. The capitalist world is one of proposals and counterproposals. Within a business, this management and governance structure seldom yields the best results. Win-win decisions are hard to reach, but their value is always exponentially higher than any formal “negotiations”. A default culture of consensus will overcome a stubborn attribute of less successful business successions.

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By Lee R. Schroeder

Guest Columnist

Lee R. Schroeder is an Ohio licensed attorney at Schroeder Law LLC in Putnam County. He limits his practice to business, real estate, estate planning and agriculture issues in northwest Ohio. He can be reached at [email protected] or at 419-659-2058. This article is not intended to serve as legal advice, and specific advice should be sought from the licensed attorney of your choice based upon the specific facts and circumstances that you face.