Gregory Monday, American Bar Association Business Law Section member and shareholder with the law firm of Reinhart Boerner Van Deuren, in Madison, Wisconsin, is the author of The Lawyer’s Guide to Family Business Succession Planning: A Step-by-Step Approach for Lawyers, Business Owners, and Advisors, which the Business Law Section published in June 2020. Gregory offers his insights and expertise on family succession planning in this Q&A.
Question: What triggered your interest in family business succession planning?
Answer: Before I attended law school, I worked in several family businesses, and I enjoyed those experiences. I learned to respect the courage of entrepreneurs and owner-operators. I appreciate the contribution that family businesses make to the economy and the communities in which they operate. Also, I love my job because I can help make families happier. That's a pretty good way to spend my work hours.
Question: In your book, you detail the planning process for business succession. What common mistakes do business owners make when it comes to succession?
Answer: The biggest mistake is not planning at all. Proper business succession planning can help a family business in many ways. It can avoid succession crises, but it also can lead to tax savings, better business practices, greater financial security for the senior generation, and opportunities for personal development for members of the next generation. A second big mistake is not planning for a change of governance mechanisms to adapt them to successor ownership. For example, when ownership passes from the founder to the founders' children, the business's governance structure needs to change to accommodate and define the input of multiple new owners. A third big mistake is not planning for the senior generation's life after exit from the business. This mistake can cause senior generation managers to stay too long or to suffer lifestyle impairments in retirement.
Question: I found it interesting how retirement is linked with succession. Do they go hand in hand or does one trigger the other?
Answer: Often senior generation retirement is inextricably linked to ownership and leadership succession. First, senior generation leaders may be unwilling or unable to retire until members of the next generation are ready to take over managing the business. Often this requires a succession plan that adapts governance and management structures to optimally support the leadership skills and participation of the next generation owners. Second, senior generation leaders may be unwilling or unable to retire because they remain economically dependent on the business and its continuing success. Business succession planning can provide a secure and viable economic future for senior generation owners after they retire and transfer their ownership interests. Unless the senior owners can retire, there may be no business succession until they die. That's a circumstance that is bad for everyone involved.
Question: The appendix material in your book is fantastic! The lawyer has a wide range of issues to confront in succession planning—in your opinion, what is the most difficult part for the practitioner?
Answer: The most difficult part of family business succession planning for the lawyer is the broad scope and diversity of issues that the lawyer must address. The purpose of the book is to help identify those issues and to suggest ways to address them. Sometimes it is important for the lawyer to get help from colleagues or the clients' other advisors. Business valuation, tax elections or choice of entity, nonqualified retirement plans, and disability insurance are all examples of issues that may require the lawyer to collaborate with other advisors. The book will help the lawyer spot these issues, even though they may not be in the lawyer's areas of core competency. Family business succession planning is a collaborative, long term project, and that can become confusing or messy if the lawyer doesn't keep it organized. The appendix materials in the book provide ways to stay organized with respect to the big picture and the details.