The basic terms of succession planning

Legal agreements experts recommend including in a succession plan: Buy-sell agreement: A buy-sell agreement stipulates how an owner’s share of a business is transferred in the event of death, disability, retirement, termination of employment or other circumstances. This agreement establishes how the departing owner’s shares will be obtained by the remaining partners, which Julius Giarmarco, chair of the trusts and estates practice group at Giarmarco, Mullins & Horton PC in Troy, said can help assure a smooth transition of ownership and business continuity.

Voting share conditions: Anyone who owns stock in a company has a right to vote on business decisions. A succession plan can include certain conditions that must be met to dictate who has the right to vote. These conditions can include requiring a certain level of education or professional experience.

Employment contracts: These de ne each family member’s job responsibilities as well as their salary or wages, bene ts and other terms. Giarmarco said having these set prior to the next generation taking over can help avoid future con icts. Noncompete agreement: A noncompete agreement can dictate if, how and when owners and o cers can engage in other businesses. Gerard Mantese, an attorney at Mantese Honigman PC in Troy, who has had many clients litigate over noncompete agreements, said it’s a critical document.

cession planning. Eckrich helps the family facilitate discussions and set goals around current roles and responsibilities, as well as future goals for leadership roles and retirement.

As part of that process, he interviews family members and key nonfamily executives to assess their strengths and weaknesses. After he compiles the information, he helps the family develop a framework and roadmap to navigate a smooth transition of leadership and ownership over time.

“It’s important to have an unbiased, outside perspective involved in the process,” said Zehnder.

“He sees things di erently (from me) because it’s my (family).” owner, Judy Zehnder Keller, became ill. (Zehnder Keller passed away last year from lung cancer).

Michael Zehnder, formerly general manager of the Bavarian Inn Lodge and Frankenmuth River Place, succeeded his mother, Zehnder Keller, as president of the Bavarian Inn Lodge.

Implement key agreements

As the rst episode of “Succession” begins, son Kendall Roy tries to close a deal as he frets over a public announcement that he will succeed his father as CEO.

Scenarios like this illustrate why company attorneys come in handy.

documents to include is a buy-sell agreement, which stipulates how an owner’s share of a business is transferred in the event of death, disability, retirement, employment termination or other circumstances.

Without a buy-sell agreement, Giarmarco said, the business is transferred to the bene ciaries in the owner’s will or trust, who may not be the desired successors. at could leave the company in the hands of people without experience or interest in running the business, he said.

“ ey can stay in there and potentially wreak some havoc on the business because they’re owners, and they’re entitled to certain rights under Michigan law,” Giarmarco said.

Explore outside leaders

Come to terms with the fact that heirs may not be ready or capable of running the family business.

can’t get along and come to terms, he said, “Sometimes selling the business is the best succession plan. Putting family members in charge of a business who don’t get along will probably lead to the destruction of the business over time.”

Keep things fair for nonemployee heirs

When all the heirs in a family-owned business can’t be active in the company, Giarmarco said owners can use other tools and assets to keep things equitable.

One of the easiest solutions is to make the children who won’t get ownership of the company life insurance bene ciaries. He also suggested handing down other assets, such as the buildings their businesses occupy, enabling nonemployee heirs to collect rent.

Zehnder said the family hired Christopher Eckrich, a senior adviser from e Family Business Consulting Group in Fort Wayne, Ind., in 2021 to assist the company with ongoing suc-

Zehnder said Eckrich was also instrumental in helping the company reallocate some of the roles and responsibilities of fourth-generation family members when former president and Bavarian Inn Lodge

Julius Giarmarco, chair of the trusts and estates practice group at Giarmarco, Mullins & Horton PC in Troy, said a succession plan should include legal agreements that set terms around areas such as job status, compensation and bene ts and ownership stakes.

“Having these terms set prior to the next generation actually having total control over the company will go a long way to avoid a lot of con ict,” Giarmarco said.

Experts say one of the most critical

“If you’re going to have a continuation of a family business, it’s important that you have good management. And if the genetic line doesn’t provide that, then you have to get them to improve. More businesses fail over management transitions than ownership transitions,” said Richard Segal, principal at Bloom eld Hills-based Segal Consulting Inc.

Sometimes, the next generation is too young or other relatives don’t have the right skill set. In those situations, Segal often recommends hiring a bridge executive to run the company for a limited period — perhaps 5 to 10 years — until potential heirs have the training and preparation to run the company properly.

However, when family members

Family

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“ e kid was resented (by the nonfamily employees) because he didn’t have the knowledge or the real-world sophistication to be in the role,” he said.

As a result, the son had to step back from his executive role and move into a subordinate position within the company. Eventually, he left the rm. Five years later, he returned more seasoned and experienced but was not placed in an executive position.

“I think the family learned a lesson,” LoVasco said.

Hold family members accountable

One way to ensure family employees add value to the company is to hold them to the same standards as nonfamily employees, including hiring and termination policies and performance meetings or reviews, said Dennis eis, principal with Lansing-based business consulting and public accounting rm Maner Costerisan. Boards of directors can help.

“An under-performing or disruptive family member can have a wide-

“I’m a firm believer that the business should go to those family members that are best suited to carry on the business and then figure out a way to do something for the children that don’t fit into it,” said Giarmarco.

“Succession” is classic example of how lack of planning can have a widespread negative impact on family relationships and wealth.

However, Giarmarco said owners who can get through these kinds of issues have a good chance of helping the family business survive and thrive.

“Family businesses need to remember that succession planning is a process, not an event,” Heinrich said. “Don’t delay the conversation because it’s uncomfortable.” spread negative impact on company morale, productivity, pro tability and value,” eis said.

Requiring family members and nonfamily employees to follow the same employment policies improves morale, buy-in and motivation of nonfamily employees and leadership, he said.

Manage con ict

eis urges companies to deal immediately with family members who can’t get along.

“Ask yourself: What would you do if you were not limited by the family dynamic?” eis said. “ is will help expose the signi cant negative impacts your family members are having on the business, and that is the rst step toward resolving them.”

He recommends family companies develop and implement plans to resolve di erences within a speci c time frame.

“If the situation doesn’t improve over the timetable established, one or more of them may need to move out of their role or potentially out of the business,” eis said. “Making (the potential for leaving) real for them and holding them to it may be one of the most important issues you ever resolve.”