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BusinessSuccessionPlanning:

Maximizing exitvalue by building and

retaining your team

2Presenters

AREAS OF SERVICE

• Closely-Held, Family Owned Business

• Succession Planning

• Business Valuation

• Strategic Planning

• Mergers and Acquisitions

• Client Ambassador

AREAS OF SERVICE

• Transition Planning

• Leadership Development

• Organizational Development

• Executive Coaching and Recruiting

• Strategic and Succession Planning

• Human Resources Outsourcing

Heidi A. Bolger CPA/ABV, CMAA, CGMA

Principal

Mary L. VanSkiver CPA, MBA, PHR, CEPA

Senior Manager

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People & Leaders are Your Most Valuable Asset

Agenda

Identifying & Developing Successor Leaders

Extracting Yourself as a Mission Critical Leader

Retention Tools to Keep Your Leaders & Team Intact

Sharing Your Succession Plan (How, When and with Who)

Your Final Act of Greatness

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ESOPsManagement

Buyouts/InsPhantom Stock

Stock Appreciation

Rights

Transfer Motives

Employees Charitable Trusts Family Co-OwnersOutside (retire)

Outside (continue) Public

Initial Public Offerings

Direct Public Offerings Reverse Mergers

Going Private

Consolidate Roll-ups

Buy and Build Recapitalizations

Negotiated One-Step

Private Auctions Two-Step Private

Auctions

Buy/SellRussian Roulette

Dutch AuctionRight of First

Refusal

OutrightGiftsSCINs

AnnuitiesGRATsFLPs

IDGTs

Charitable Remainder

TrustsCharitable Lead Trusts

Transfer Channels

Internal External

Transfer Methods

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21.3%

2%

10.3%

2%29.4%1%

1%

30.9%

2% Internally (family succession)

Internally (ESOP)

Internally (Management)

Internally (Partners)

Externally (3rd Party/Strategic/PE)

Externally (Recap)

Externally (Orderly Liquidation)

Not sure

Other

Internal:Family SuccessionInternal (ESOP)ManagementPartners

External:3rd Party/StrategicRecapOrderly Liquidation

Not sure *EPI “State of Owner Readiness” Survey

Methods of Transitioning

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B CA D

25%50%

60%

80%

Polling question #1

What percent of business value may be related to the intellectual/knowledge capital of your business?

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Building Value • Alignment of

Vision/Strategy

• Leaders/Accountability

• Functional and Cohesive Teams

A Strong & Healthy Business

Vision/ Strategy

People/ Traction

Structure/ Healthy

Your Business

8The Four Capital C’s

Human CapitalMeasure of talent on your team

Customer CapitalIntegral, Unique, Contractual, Recurring, Transferable, Concentration

Structural CapitalInfrastructure: Processes, People, Technology, Facilities

Social CapitalCulture, Brand, Team, Rhythm

“...the sum of everything everybody in a company knows that gives it a competitive edge.” And“Because knowledge has become the single most important factor of production, managing intellectual assets has become the single most important task of business.” — Thomas A. Stewart

80% of value of the business is tied up in these four factors.

9Maximize Value

• Strategy, Structure and People • Marketing and Sales• Systems and Procedure

• Governance and Compliance

• Transition Options Analysis

Optimize Business Value

10Business Issues & Value Indicators

• Strength of market position

• Size

• Revenue Growth

• Margins (Gross and EBITDA)

• Revenue Concentration (customer, product, channel)

• Quality of Management Team

• Independence from Owner

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Qualitative Value Factors

INTERNAL• Strategic Plan• Management Team• Employees• Corporate Culture• Owner Independence• Systems and Processes• Product/Service Quality• Financial Reporting quality• Financial Management/stability• Age of facilities/equipment• Ability to scale• Policies/procedures• R&D• Continuous Improvement• Environmental/Safety programs• Advisory Board• Transition planning• Succession planning• Legal structure and protections

EXTERNAL• Customer Concentration• Market demand• Market position• Supply chain• Competition• Barriers to entry• Geographical considerations• Labor Supply• Marketing/Branding• Distribution Methods• Market growth opportunities• Market strategy• Community relations• Corporate reputation• Access to capital• Many others

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High

Low

High Value, Low Importance

High Value, High Importance

Low Value, Low Importance

Low Value, High Importance

Low High

Business Value Enhancement is the incremental value that a company can create at its existing and future level of sales & profitability by reducing risk and improving the quality of the company.

Value Enhancement Opportunities

IMPORTANCE

VALUE

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Engagement & Retention Strategies

Affect Value

14High Impact Team Members

Sales and profits

Potential exposure of

trade secrets and loss of

employees to competitors

Plans for expansion

Operations Morale/loyalty of other

employees

Mentoring of successor managers

Customer relations

Determine who is key or essential to the business and look at their impact on:

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• Great Culture & Clear Direction, Cash Compensation, Non-Cash Benefits, Stay Bonuses, Stock Incentives, Restricted Stock, Phantom Stock, Stay Interviews

Keeping Key Employees

• Let’s talk about generational differences…•Pride in Work

•Longevity/Career Advancement

•Visible Differentiation

•Understanding the Big Picture

•Fair Compensation

•Focus on What Matters

•Work Life Fit

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People are motivatedfor different reasons

Multi generation; find common ground in priorities and address through strategy and

design. Meaningful work, collaboration and learning

Generational differences:

• One consistent reason employees leave is due to their immediate manager.

• Lead by example, “Walk the Talk”.

It requires involvement at all levels

Communication – Clarity of Roles and Opportunity – where they fit.

Maximize Human Capital Value

17Total Compensation Pay Philosophy

18Golden Handcuffs/Golden Parachutes**

Reward key employees/ Executives for leading/remaining

with the business

Structure Benefits that keep employees

connected to business

May be a bonus plan that pays a current portion annually and contributes the remainder for

future access, assuming continued employment

Include non-compete Financial and Non-financial aspects

Golden Parachutes Carryover to new organization

**Key to have strategy and goals in place to have a plan to motivate, reward and retain those that influence goal attainment.

19Short vs. Long Term

• Initial incentive- often short term in nature, based on short term goals (annual profit, revenue, cash flow)

• Next step to base on long-term goals, i.e. increase in value over three to five years or based on a finite event.

• May have 1/3 short term and 2/3 long term criteria; percent to total compensation; weighed based on role, etc.o Individual Performanceo Company Performanceo Team Performanceo Discretionary

205 Criteria Present in a Well Designed Incentive Plan

The plan provides substantial financial rewards to key employees One

Performance standards are specificTwo

Performance standards are tied directly to increases in the company’s value, to a specific event, to a specific timeline

Three

Part of the bonus is deferred and subject to vestingFour

The plan is communicated in writing and directly to employeesFive

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B CA D

We have not identified high

potentials

Skill gaps

No development plan in place/no resources to develop

leadersAttraction/Retention in

general

Polling question #2

What is your most pressing concern related to your next generation/succession of leaders?

E

Communication – when and

how?

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Retention & Succession

BEFORE, DURING & AFTER TRANSITION

23“It’s not just succession to the top – it’s getting the right person in place for every job. Some of tomorrow's key jobs may not even exist now.” -Robert M. Fulmer, Growing Your Company’s Leaders

“The final test of greatness of a CEO is how well he chooses his successor and whether he can step aside and let his successor run the company” -Peter Drucker

“The old adage ‘People are your most important asset’ is wrong. People are not your most important assets. The right people are. Good to great depends on having the right people on the right bus at the right time.”-Jim Collins, Good to Great

24Succession Planning is Not…

25Succession Planning is…

• A process for finding and developing internal people with the potential to fill key leadership roles in the company

• It is focused on the business first and the owner second

• A good succession plan will:o Involve all of the major

shareholderso Retain the talent necessary for the

business to succeed

26Extracting Yourself, Filling in With Others

• Defining your role

• Defining your transition timeframe

• Identify internal or external candidates

• Map out a development plan

• Assign readiness measurements

• Begin extraction

• Monitor results

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B CA D

5%15%

30%

45%

Polling question #3

What percentage of business owners planning to transition the business in the next 10 years have identified, hired and

trained employees to take over key operating responsibilities?

28Vision Elements & Process

Steps:• Long term what needs to be different –

what three areas of focus do you see?

• Define the three biggest challenges to that happening

• Define a plan

• Document it

• Communicate it

• Measure it (key indicators)

• Look at key positions, employees and development

29Vested in the Vision – Future Leader Identification

Key role 2015 2016 2017 Comment

Executive Director Jane Michaels Jane Michaels Jane Michaels No change

Senior Program Director n/a n/a George MendozaGeorge should take on additional operational roles across 2014-15; if he delivers, he will move into this senior program director role in 2016

Program Director George Mendoza George Mendoza n/a If George is promoted, this role will be replaced by the new senior program director role in 2017

Program Director Sarah Miller Sarah Miller Sarah Miller No change

Chief Development Officer Tom Smith Cynthia Reed Cynthia Reed

Cynthia should use 2016 to build her skills with corporate and foundation donors, and implement a development metrics dashboard; if she delivers, she will be ready to move into the CDO role

HR Director Ellen David Ellen David Ellen David No change

Chief Financial Officer TBH in 2014 TBH in 2015 TBH in 2017 TBD – This will likely be an external hire, due to the junior finance bench

309 Box Assessment – Performance & Potential

31Vested in the Vision – 12 Months & Longer Term – Individual Development

Leader's name: Supervisor's name: Date:

Goals-12 mos

My personal goals for career and Leadership development

Activities

I will achieve these goals by performing the following activities

BarriersThese conditions could negatively impact my progress

Resources

I will need these resources (people, technology, etc.) to achieve the goal

Review

This is how I will measure my progress and success at achieving the goal

DeadlineThis is the target date of goal completion.

Individual Career and Leadership Development Plan

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Individual Career and Leadership Development Plan

Leader's name:Supervisor's name:Date:

Goals-12 mosMy personal goals for career and Leadership development

ActivitiesI will achieve these goals by performing the following activities

BarriersThese conditions could negatively impact my progress

ResourcesI will need these resources (people, technology, etc.) to achieve the goal

ReviewThis is how I will measure my progress and success at achieving the goal

DeadlineThis is the target date of goal completion.

32Examples of Employee Trainings & Development Opportunities

On The JobJob EnrichmentSpecial ProjectsCommittee AssignmentsTask Force Participation Lead Person ResponsibilitiesGiving PresentationsPrepare ProposalsInstall A New SystemLead A New Program Temporary Job AssignmentsFull Job Change

Learning From OthersWorking With a MentorTeaming with an Expert360 FeedbackFocused Interviews

Training & EducationSeminars & ConferencesContinuing EducationE-LearningCross Training

33Monitor & Review

• Review talent pool and development plans

• Report progress and make plan adjustments

• Orchestrate moves for the next six months

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Articulate to your key employees

why you are transitioning/selling

your business.

Assure them that the successor leadership will

understand and be told how

important they are to the business.

Properly incentivize them

to stay.

Stress the importance of confidentiality

EPI “State of Owner Readiness” Survey

When, Who & How – Communication Strategy

35Communication – People, Planning & Succession

EPI “State of Owner Readiness” Survey

• Do your key employees or management know what your plans for transition include?

May include:• Non – Competes• Earn outs• Contingent • Stay Bonuses

41%

33%

9%

17%

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B CA D

Compensation

Benefits

Development and training

Communication

Polling question #4

What is most important to you to focus on as you strive to engage and retain your key employees?

E

All of the above

37“Are the leaders ready to lead or are they in the right seats”?

The use of assessment tools and outside guidance can help remove the emotion and help make good successor choices.

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Please join us for our next webinar:

Saving taxes in ownership transfers and investing proceeds wiselyTuesday, June 18, 2019 | 11:00 am

Register at rehmann.com/events

Succession Planning Webinar Series

http://www.rehmann.com/events

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Thank you!

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