First, Do No Harm: Succession Planning for Family Enterprises. Amelia Renkert-Thomas, JD, LLM Fisher Renkert Consulting LLC. FBS Global Limited

Transcription

1 First, Do No Harm: Succession Planning for Family Enterprises Amelia Renkert-Thomas, JD, LLM Fisher Renkert Consulting LLC An affiliate of FBS Global Limited FBS Global Limited 2012 October

2 FBS Global Limited 2012 October

3 The Lear Family and Lear Health Systems FBS Global Limited 2012 October

4 G1 The Lear Family ROBERT LEAR 1945 (67) 80% ROSALIND LEAR 1947 (d1987) X KATHARINE LEAR 1962 (50) G2 1% 1% 1% DUKE ALBANY 1968 (44) Investment Banker GONERIL LEAR ALBANY 1970 (42) General Counsel DAVID CORNWALL 1970 (42) VP, Sales REGAN LEAR CORNWALL 1972 (40) PAUL FRANCE 1962 (50) Investor Key: CORDELIA LEAR 1975 (37) VP, New Product Development ROBERT LEAR JR (22) MBA program Wharton G3 GEORGE ALBANY 1992 (20) Junior at MIT GRETCHEN ALBANY 1994 (18) Senior at Milton Academy GLYNDA ALBANY 1998 (14) Freshman at Milton Academy ROBERT LEAR CORNWALL 1995 (17) Junior at Andover RICHARD CORNWALL 1996 (16) Sophomore at St. Mark s 80% = male = female = owns shares and works at LHS = works at LHS FBS Global Limited 2012 October

5 LHS Innovators in Data Management for the Healthcare Industry Robert Lear Chairman & CEO Ed Gloucester COO (6%) Earl Kent Outside counsel Goneril Albany General Counsel David Cornwall VP Sales Thomas Horatio VP Finance (1%) Cordelia Lear VP Technology EBITDA: $25M Most recent appraisal: $100M LHS board anticipates growth through acquisition of smaller competitors and startups, funded by a combination of cash and stock. FBS Global Limited 2012 October

6 Robert Lear s vision Make sure Katharine can continue to live in our Belmont house Share ownership among my children Make sure Robert Jr. gets a good start at LHS Provide for my children and grandchildren Take advantage of changes in the health care and tech market through acquisitions and finding and keeping top talent FBS Global Limited 2012 October

7 2012 Gifting and Estate Plan 10% of LHS shares (value $10 million) Robert Balance of LHS shares Home - $4M with $3M mortgage IDGT Fbo Lineal descendants Trustee: Earl Kent Marital Trust Fbo Katharine, remainder to descendants Trustee: Earl Kent Robert will also sell shares to the IDGT over time, to be paid for via dividends. FBS Global Limited 2012 October

8 First, do no harm FBS Global Limited 2012 October

9 First, do no harm This plan takes advantage of the $5M exemption BUT 1. The business plan and the estate plan are on a collision course. 2. Conflict among family members will be exacerbated. 3. Did Robert really intend that Earl Kent should be the majority shareholder? 4. Where s the leadership plan? 5. Governance isn t keeping up with complexity. FBS Global Limited 2012 October

10 Succession planning: 4 things to think about 1. Understand the business plan as well as the estate goals. 2. Understand the conflicts inherent in the family-business system 3. Be mindful of implications of putting the trustee in charge of the business 4. Go beyond boilerplate governance FBS Global Limited 2012 October

11 Understand the business plan What is the strategic plan for the business? Is there a leadership succession plan? Is there an active board? Are there agreements that will restrict or otherwise affect transfers? Loan agreements Joint venture agreements Stock option agreements What promises have been made to key staff: Advancement Stock ownership FBS Global Limited 2012 October

12 Mapping the Family-Business System: 3 Circle Model Ownership Liquidity Exit options Transparency 2 Lifestyle Work-life balance Reputation Future ownership Career advancement Expansion opportunities Compensation Family Business FBS Global Limited 2012 October

13 3 Circle Model - LHS Ownership Profits Exit opportunities Professional management Avoid nepotism Distributions Family reputation Career opportunities 4 Katharine Robert Jr. Duke Regan Grandchildren [Possible acquisition shareholders] Robert Goneril David Cordelia Ed Gloucester Thomas Horatio 5 3 Career prospects Profits Exit opportunities Growth opportunities Avoid nepotism Family Career prospects Compensation Ownership Family relationshiops Business FBS Global Limited 2012 October

14 Trustee as (Conflicted) Majority Shareholder IDGT Fbo Lineal descendants Trustee: Earl Kent 10% Ed Gloucester 6% Marital Trust Fbo Katharine, remainder to descendants Trustee: Earl Kent 80% Goneril Lear Albany 1% David Cornwall 1% Thomas Horatio 1% Cordelia Lear 1% Lear Health Systems, Inc. FBS Global Limited 2012 October

15 Trustee as shareholder FBS Global Limited 2012 October

16 Trustee as shareholder Earl Kent faces irreconcilable conflicts: family vs. business trust vs. trust beneficiaries vs. beneficiaries He owes fiduciary duties to the beneficiaries, not the business How can he balance grantor s intent with fiduciary duty? Must he sell the business? May he? Should he? Powers of shareholders vs. board vs. management Is Earl the right guy for the job? FBS Global Limited 2012 October

17 Beyond boilerplate governance Beneficiaries Assembly But for taxes I would have given my shares to my kids Provides a structure and forum for beneficiary involvement Enables trustee to take the pulse of the beneficiary group Could be granted some/all of powers typically granted to a protector Trustee may need assistance of a facilitator or consultant, at least at the outset FBS Global Limited 2012 October

18 First, do no harm 1. Understand the business plan as well as the estate goals. 2. Understand the conflicts inherent in the familybusiness system 3. Be mindful of implications of putting the trustee in charge of the business 4. Go beyond boilerplate governance FBS Global Limited 2012 October

19 FBS Global Limited International think-tank focusing on family enterprises Multi-disciplinary consulting framework: law, family dynamics, organizational development, business and tax Focused on family enterprise succession and governance Based in UK Fisher Renkert Consulting LLC FBS Global s US affiliate Professional expertise in business and law coupled with deep practical experience working with family enterprises Our practice spans family offices, FLPs, trusts, PTCs, foundations, operating businesses We work with families and their advisors We help family enterprises make big decisions better FBS Global Limited 2012 October

20 Amelia Renkert-Thomas, JD LLM Fisher Renkert Consulting LLC PO Box 3745 New Haven, CT FBS Global Limited 2012 October