small
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Hire a lawyer. “An attorney can document all the respective rights and obligations of the person who is to take
over, work out compensation and detail
what will trigger that person’s stepping
in or out,” says Marc J. Lane, an attorney and financial adviser in Chicago.
Be flexible. In a family business,
although the original entrepreneur may
hope to have a family member take over,
a senior employee may be better prepared, says J. Richard Emens, executive
director of the Family Business Center
of Central Ohio in Columbus.
Get outside help. Consider contacting
a rent-a-CEO company to fill the boss’s
shoes on an interim basis, suggests
Eugene Muscat, director of the Carl and
Berta Gellert Foundation Family
Business Center at the University of San
Francisco. “There are a lot of people out
there with extraordinary experience
who want short excursions into the
business world.”
Losing a leader
How to plan for
an unexpected
succession
By Janice Rosenberg
WHEN NICK PERRINO began tending bar
at the Home Run Inn in Chicago after World
War II, the place was little more than a struggling neighborhood tavern. To entice customers, he began giving away pizzas.
Eventually Perrino became a partner in
the tavern, but, having come alone as an
immigrant from Italy at 17, he was apprehensive about growth, people and change.
Nevertheless, when he died in 1990, he left
behind a business with two locations and
considerable potential. Joe Perrino, Nick’s
son, stepped into his shoes.
“The workforce was people my dad had
brought in,” says Joe, president of Home Run
Inn Pizza, a Costco member. “They felt odd
that I was boss after they’d been with him for
30 years. I wanted to expand rapidly. They
said I didn’t know what I was doing.”
A 2007 survey by Massachusetts Mutual
Life Insurance Company, the Family Firm
Institute and the Cox Family Enterprise
Center at the Kennesaw State University
Coles College of Business, found that among
family business owners who expect to retire
in five years, fewer than half have selected a
successor. Of those expecting to retire in six
to 11 years, less than a third have done so.
Nearly a third have no estate plan beyond a
will. And only 54 percent report a clear
understanding of the impact of estate taxes,
which can jeopardize future generations’
ability to continue the business.
Succession worries are imminent. Nearly
60 percent of majority shareowners in family businesses are 55 or older. Succession of
the leadership will be a pivotal point in these
companies’ futures, yet less than 30 percent
have succession plans.
The sudden loss of a company’s leader,
whether through death, unexpected retirement or temporary disability, sends out
shock waves. But, experts agree, with insurance, succession planning, written documentation and communication, the road
ahead will be a lot less rocky.
“Plan for a crisis and have a contingency
plan in place,” advises Rick D. Hackett, professor of human resources and management at
McMaster University’s DeGroote School of
Business in Hamilton, Ontario. “Otherwise
you are being negligent to yourself and the
people who work for you.”
First, invest in insurance
Disability insurance replaces your income,
explains Mike McCartin, partner at Joseph W.
McCartin Insurance in College Park,
Maryland. It costs on average between $1,000
and $4,000 annually, based on factors including your age, health and size of monthly benefits. Alternatively, business continuity
insurance can keep a business running for a
year or two.
“Someone’s not going to buy both,”
McCartin says. “But discussing insurance
might encourage you to purchase one or the
other, or at least to put some money away for
a rainy day.”
Second, create a succession plan
A succession plan designates the person
who will replace you. It’s incumbent upon
leaders to groom and nurture people who
share their vision, and to make certain that
customers, clients and suppliers are familiar
with the talent and capabilities of that second
in command, notes Terry Flynn, professor of
