Leadership For The Future

Succession planning: Does any term spark more fear and trembling in the mightiest business baron? The thought of stepping down from the pinnacle of power causes such dread that most managers put off planning for smooth leadership transitions.

The reasons for such apprehension are obvious. Designing a succession program demands not only time and effort, but also sensitivity. Understanding the psychology of the people affected by a transition seems as important as knowing the intricacies of accounting rules and tax laws.

And, of course, planning for one’s own departure strikes unpleasant vibes. "Many people are unwilling to address an issue that is tied up with their own mortality," says William J. Rothwell, a professor of human resource development at The Pennsylvania State University, State College, Penn. "It’s like getting a phone call from someone who wants to sell you a tombstone."

That’s not all: Doing the job right means involving everyone likely to be affected by the changeover. That can be traumatic. Individuals will have conflicting expectations of their positions once current ownership changes. Especially in a family business, the topic of transition can open old wounds you may like to think have healed forever. 

Do The Right Thing

Failing to plan adequately for the death of a business owner can have tragic consequences. When the time for transition comes, hurt feelings can scuttle the smooth operation of the business. Furthermore, unanticipated federal and state inheritance taxes can be so severe that the business may need to liquidate to pay the debt. There’s a lot at stake, and successful business owners will take a proactive stance.

"As an employer, you need to get your act together now," cautions Rothwell. "Systematically develop your own workforce to meet your future needs internally. You need to take advantage of the talent you have right now and build it so you are ready to seamlessly hand off power at the right time."

Rothwell’s key point is this: While we tend to concentrate on the traumatic event of a change in business ownership, it’s smarter to take a wider view of succession planning. It’s really an ongoing process in which you anticipate and plan for the retirement or departure of important individuals throughout your business.

The term "succession planning" can actually be misleading, says Rothwell, because it implies leadership change is set in stone rather than a dynamic process, the details of which will change as key personnel leave the business. "The term ‘succession planning’ seems to guarantee or promise people a promotion," he says. "It tends to communicate that management has decided among themselves what will happen, without input from the staff." A better term, he says, is "leadership development" which communicates the desire of the business to develop the management skills of many individuals.

Rothwell’s suggestion is to project the estimated retirement dates of key individuals in your whole workforce. Then analyze the areas of greatest risk to the healthy continuation of your business. The results are often surprising. Succession planning, then, involves a two-level process. First, there is the immediate need to establish a plan for transition when the current ownership retires. Just as important, though, is the need to have an organic and ever-developing system that will anticipate the departure of important players at all levels. 

Tax Planning

Hit The Books

For a better grip on best practices in transition management, Effective Succession Planning, (Second Edition), by William J. Rothwell concentrates on ensuring leadership continuity and building talent from within the business. The book is sold through Amazon.com, or order direct from publisher AMACOM at (800) 714-6395.
Specialists in the field will be interested in Succession Planning For Results, a pricey but comprehensive research report from Cutting Edge Information, a Durham, N.C., research organization. The report describes best practices from many corporations in the areas of designing, implementing and measuring the effectiveness of succession plans. One especially attractive feature of the report is a 65-page section with excerpts from 11 actual succession plans at top companies. You can download a free condensation of the report from www.cuttingedgeinfo.com. Their phone number is 919-403-6583.

The tax consequences of business succession deserve special attention. As do many other countries, the United States levies a tax on property passed along at the owner’s death. The term "estate tax" refers to a levy against a property prior to transfer, while an "inheritance tax" often refers to that which is levied on the individual receiving property from the estate. From the standpoint of financial planning, working in tandem with these taxes is the "gift tax." This is intended to prevent large estates from avoiding taxation by lifetime giving. Finally, there’s one more level of complication: states have their own estate taxes that come into play along the federal versions.

There is good news — the tax laws are changing to allow more liberal transfer of assets. You’ll find a schedule of such changes on the Web site of the IRS, mentioned later in this article. Suffice it here to state one key point: reductions to federal estate, gift and generation-skipping transfer taxes are gradual over the next seven years. 

Seek Outside Help

When it comes to designing a workable plan that everyone can accept, it’s smart to seek outside assistance. There is plenty of help around for those who look. If you already have a trusted financial advisor, that individual may have a background in estate planning and can put in place a program that will preserve your business assets. If you are seeking a good advisor, your bank may make a recommendation.

What if your current advisors aren’t knowledgeable about this specialized area? You aren’t alone. There is a wealth of information out there on the Internet, from lists of attorneys and consultants specializing in the field to the latest news on tax law changes. Even if you have an experienced advisor, it’s helpful to peruse this information so you know what questions to ask.

1. The Estate Planning Links. No contest: Here’s the best portal to Web sites of succession planning information. There are scores of links here, from consultants in the field to advice and published stories on taxation.

Point your browser to www.estateplanninglinks.com and review the offerings. Make a point to click on the "Bookstore" link at the upper left.

2. The Family Firm Institute. This is a great resource for finding consultants who will help with both the psychological and financial aspects of succession planning. You’ll find this organization’s Web site at www.ffi.org. Click on "Consultants and Speakers" at the left side of the screen for direct access to a useful search engine.

3. The Legal Information Institute. Kudos to Cornell Law School for putting together this site outlining key legislation and recent court decisions. When you’re seeking information about a particular legal wrinkle in the estate and succession planning fabric, the place to go is www.law.cornell.edu.

Once at the site, click on "Law About…" in the menu to the left. Click on "Taxation" in the submenu and you’ll see a link to "Estate and Gift Tax." Now you’ll go to a page with great links to federal and state resources as well as links to the laws that relate to the Federal Estate Tax (the Internal Revenue Code. 26 U.S.C. 2001) and the Federal Gift Tax (26 U.S.C. 2501.)

4. Forbes Estate Planning. Visit www.forbes.com/estate_planning for continually updated news about the field. It includes contributions by leading business people and links to other financial information.

5. Internal Revenue Service. At www.irs.ustreas.gov, click on "Businesses" at the lower left side of the screen, then on "Estate and Gift Taxes." This takes you to a screen with many links to the latest tax law changes in the subject area. The information on this site clarifies some of the fine points on such matters as annual exclusions and annual tax rates.

If there’s any one message shared by all of these sources, it’s that the wise business owner takes steps early to plan for a smooth business transition. As difficult as it is, succession planning must be approached. The time required can be reduced considerably by leveraging the services of your accountant, attorney and other outside experts.

Leave a Reply

More From Finance/Operations...
Gaillardia x grandiflora 'Arizona Apricot'

February 25, 2015

National Garden Bureau Designates 2015 As Year Of The Gaillardia

Gaillardia, also known as the blanket flower, is a member of the sunflower family (Asteraceae) and a long-blooming pollinator plant. It is fitting that the National Garden Bureau has specified 2015 as The Year of the Gaillardia.

Read More
IPPS Sharing Plant Production Knowledge Globally Logo

February 25, 2015

International Plant Propagators Western Region Sets Annual Meeting Date

The annual meet for the International Plant Propagators' Society (IPPS) Western Region has been set for this September. It will take place September 23 to 26 in Modesto, Calif., and will include learning sessions, tours to local nurseries, a research poster display and poster presentations, various networking opportunities and an awards banquet to close the event.

Read More
Evolvulus Blue My Mind

February 24, 2015

Blue Ribbon Bloomers For Greenhouse Production

Grow what consumers want! Surveys show that blue is one of the top preferred colors of today’s consumers. Here are twelve top recommended blue-flowering Proven Winners annuals and perennials to suit your spring production cycle.

Read More
Latest Stories
IPPS Sharing Plant Production Knowledge Globally Logo

February 25, 2015

International Plant Propagators Western Region Sets Ann…

The annual meet for the International Plant Propagators' Society (IPPS) Western Region has been set for this September. It will take place September 23 to 26 in Modesto, Calif., and will include learning sessions, tours to local nurseries, a research poster display and poster presentations, various networking opportunities and an awards banquet to close the event.

Read More
myers industries Lawn and Garden Logo

February 24, 2015

Myers Industries, Inc. Lawn And Garden Business Sold, N…

The management of Myers Lawn and Garden Group, along with Wingate Partners V, L.P. have recently acquired the Myers Industries, Inc. Lawn and Garden business. The new company is named The HC Companies, and will continue as a North American leading provider of horticulture containers supplying the greenhouse, nursery and retail markets.

Read More
american-hort-logo

February 17, 2015

AmericanHort Announces New Board Members

AmericanHort recently announced the election of new officers and members to the board of directors. Each will assume their positions on the board during Cultivate’15, July 11 to 14 in Columbus, Ohio.

Read More
All American Selections

February 17, 2015

All-America Selections Elects New Officers, Names New J…

While meeting during the Flower and Vegetable Seed Conference in Tampa, Fla., hosted by the American Seed Trade Association, All-America Selections elected new officers for a two-year term. Read on to learn about the new officers, as well as all of the new judges that were added in 2014.

Read More
Greenhouse Grower.com on your desktop, on your phone, on your tablet

February 11, 2015

GreenhouseGrower.com Relaunches With Responsive Design …

Greenhouse Grower magazine, the nation’s leader in profits, production and education for greenhouse growers, announces the launch of its completely redesigned website, GreenhouseGrower.com. The new design is the product of direct user feedback and GreenhouseGrower.com analytics, and includes responsive design for ease of mobile use.

Read More
Andy Higgins

February 3, 2015

MasterTag Names Andy Higgins As Its New President

Former CEO and president of Ecke Ranch, Andy Higgins, joins MasterTag as its new president. He brings more than two decades of industry experience to the position.

Read More
Syngenta Bioline Hires Ronald Valentin For Technical Lead Role

January 28, 2015

Syngenta Bioline Hires Ronald Valentin For Technical Le…

Ronald Valentin has been appointed technical lead for Syngenta Bioline, effective January 2015. He will be responsible for technical support of Bioline biological control agents and will be instrumental in helping growers develop integrated pest management (IPM) solutions.

Read More

January 27, 2015

Give Equal Time To The Number Crunchers

Before investing in a new business opportunity, check in with the financial gurus of your organization to make certain you have the cash flow to back up your efforts.

Read More
Plant Introductions, Inc. partners Mark Griffith, Dr. Michael Dirr and Jeff Beasley and Bailey Nurseries President Terri McEnaney.

January 20, 2015

Bailey Nurseries’ Purchase Of Plant Introductions Inc. …

When Bailey Nurseries purchased its long-time breeding partner, Plant Introductions, Inc. (PII), in early January 2015, it freed the PII team to concentrate on what they do best: develop new plants. Bailey Nurseries will take on the business management side of the partnership, but otherwise the relationship it has enjoyed with PII for years will be largely unchanged.

Read More
Plant Introductions, Inc. partners Mark Griffith, Dr. Michael Dirr and Jeff Beasley and Bailey Nurseries President Terri McEnaney.

January 13, 2015

Bailey Nurseries Acquires Plant Introductions

Bailey Nurseries has acquired Plant Introductions, Inc. (PII), effective January 1, 2015. PII has developed numerous innovative new varieties that have been marketed worldwide, many introduced by Bailey Nurseries.

Read More

January 7, 2015

How Inflation Affects Your Business And Why You Can’t I…

Awareness of the true increase in costs after inflation is a necessary part of good financial management for greenhouse operations.

Read More

December 4, 2014

New Developments In Shipping/Logistics Software

Improved shipping and logistics software from Picas Software and MapMechanics makes it easier for growers to plan loads efficiently and automate day-to-day distribution planning.

Read More
Fritz Dramm

December 2, 2014

Dramm Corporation Welcomes Back Fritz Dramm

Dramm Corp. recently welcomed Fritz Dramm as the new fertilizer production and compliance manager. Dramm previously worked at the company through high school and college, and is back after 20-plus years.

Read More
Sarah Harwood

November 24, 2014

Take Control Of Your Operation’s Succession Planning Pr…

Proper business and estate planning with your intentions clearly expressed can ensure your goals for the future of your business are fulfilled.

Read More

November 24, 2014

Succession Planning For Growers

Succession planning is a sensitive subject, but one that needs to be addressed when deciding on your operation's legacy. Greenhouse Grower caught up with two growers who shared their process and provided tips for a smooth transition.

Read More

November 24, 2014

BrightFarms Pioneers Hydroponic Greenhouses For Urban A…

BrightFarms brings fresh, local produce to underserved areas with hydroponic greenhouses located on neglected urban spaces.

Read More

November 10, 2014

NGB, AFE To Join In #GivingTuesday On December 2

The American Floral Endowment will participate in #GivingTuesday on December 2, a national movement to encourage charitable giving.

Read More

November 8, 2014

Amid Drought, Californians Talk Water

As extreme drought conditions continue, the state looks at how it manages its resources, while growers try to conserve and meet changing consumer needs.

Read More