The subject of succession planning and what to do with your business over time is one of the most important discussions a business owner can face. There are many ways a family business can evolve and transition over time, yet there is no right answer or perfect formula. Every family and business are different, and circumstances vary widely. Still, there are some aspects that are nearly universal, so let me share here how we’ve been navigating the succession process here at our company.
On our 11-member senior management team, the average company tenure is more than 27 years. While this is one of the things I am most proud about ABC, it’s also a big challenge as we move to the next generation of leadership. Many of them will be retiring over the next two years. I remember having this realization about 12 years ago and making the comment, “Last one out, shut off the lights.”
That said, all three of my children love ABC and want it to go on for many generations. I currently employ two children and one son-in-law. Having family that wants to be there is critical if we are going to continue to be a multigenerational business.
We have begun populating the next generation of leaders. Some are family members of our management team, while others are people who have risen through the organization. Whether it’s family or existing staff, succession planning must be thoughtful and intentional. You must identify the next generation of leaders and invest in them to have success.
Keeping it fair
As for the ownership part of succession planning, I have been gifting ownership of the business to my three children for the past five to six years. The idea is that each child will own one-third of the business, and those who work in the business will be paid commensurate to what they do in the business. As a father, it’s important to me that my children feel that the structure is fair to all.
My current plan is to work in the business for a long time, although I truly don’t want to get in the way of the next generation. I’ll continue in the role of CEO for several years and when the time is right, will transition to a different role. My son, daughters and their spouses will form the ownership team and make the big decisions related to the business.
My wife and I formed Jenkins Properties, which owns the properties that ABC occupies. We own six properties, and ABC pays rent as the tenant. When I’m no longer involved in the day-to-day operations of the business, I won’t be taking a salary, but I will still be collecting rent. The idea is that I won’t be a drain on the company by being paid for not working, but as the landlord, the company will pay rent as it has all along. As the property mortgages get paid off, there should be plenty for us to live on comfortably.
For key senior managers whose job is to drive revenue and profits, we started a deferred compensation plan about 12 years ago. The idea is to reward them for growing the business. The plan is also designed to help keep them part of the ABC leadership team: They become fully vested at the end of their careers at ABC. As many of them retire over the next two years, the plan will begin to pay them out over the next 10 years. This has proven to be a great retention and motivation tool.
As the next generation of senior managers takes the helm, we are continuing to use the deferred comp concept as a reward and incentive for outstanding performance.
It’s going to be very interesting to watch the transition of ownership and management at ABC over the next several years. What we are doing is just one way a family business can become multigenerational. I hope, pray and believe we are following a plan that will work for the family as well as for the business.