Succession Planning Without a Successor

By Whittier Trust

Many family businesses struggle with succession planning. For Mark’s successful real estate company, what is often an awkward and emotional transition for many family-owned businesses became an existential threat.

When there is no clear successor to take over a family business, developing a transition plan can determine if the company lives or dies. The same challenge exists when seeking a family member to lead the family’s long-term wealth planning. That’s the exact position Mark faced until he got help from an unexpected place: his Family Office team at Whittier Trust.

“Mark inherited a single apartment building from his father in 1967. He bought a second building, and then a third,” explained Neil, Mark’s Client Advisor from his Family Office team at Whittier Trust. “The value of the family business stood at more than $150 million by the time Mark started to think about retirement.”

Despite the company’s success, Mark was missing a family member who had the right experience and desire to manage a diverse portfolio of holdings. While most of Mark’s staff had been with him for decades, all were either near retirement themselves or did not have the right capabilities to run the firm. 

Succession planning principles

The challenge of who will succeed a family business owner and family leader is not unique to Mark’s real estate company. Every family business must undertake the difficult task of succession planning at some point.   
Unlike Mark’s situation, most family businesses must often decide from among several potential successors to determine who will take the reigns when a founder steps down.

In these situations, there are proven principles for managing the leadership transition. These include a focus on early and consistent communication, establishing expectations and a well-defined and objective selection process.

The goal of any succession planning process is to build confidence and support for the successor among family members, employees and business contacts. A well-thought-out and executed process is key to achieving a smooth transition. 

Not your typical Family Office

Unlike most family business owners, Mark’s challenge was not choosing from among potential successors, but that none of his current staff or family members were qualified to lead the company. This lack of talent within the company and the family left Mark without a clear successor. 

“I was on the phone with Mark shortly after a family argument,” explained Neil, “one of Mark’s nephews had wanted a role in the company that he was not qualified to have. Even though Mark was nowhere near retirement, the squabble had gotten him thinking about what came next.”

Though not ready to step away from the business, Mark knew that someday he would be. While it was difficult for him to think about that day, he understood that having a good succession plan in place was critical to the family’s financial future. Without a clear successor, it was a difficult problem. The answer, however, was closer than Mark thought — his Family Office team at Whittier Trust.

Family Offices typically serve affluent families because their needs are more complex. They are different from traditional wealth management firms in that they offer centralized management and oversight of all needs including investments, tax strategies, estate management and philanthropic planning. They understand how all of the family’s affairs are interrelated. 

Whittier Trust had a long history of managing real estate portfolios like Mark’s. Its roots trace back more than a century to the successful oil and real estate investments of Max Whittier, giving it decades of experience managing diverse real estate portfolios and closely held family companies. Because the firm was originally founded as the manager of a single family’s assets, it had a deep understanding of the unique dynamics needed to meet a diverse family’s needs — while being good stewards of intergenerational wealth.

This added experience coupled with Whittier Trust’s hands-on and personalized approach made Mark confident that they could do even more for his family business. 

A smooth transition

Four principles of family business succession planning

  1. Develop and communicate the vision for the business, maximizing the value of current staff.
  2. Start early to generate a plan that invites successor management to become involved with the business, family and employees.
  3. Balance business considerations with family needs.
  4. Ensure appropriate communication with everyone involved in the family and business.

Mark decided that rather than hiring someone new who might face opposition from staff or family members, he would expand his relationship with Whittier Trust’s Family Office service. It was not what he had typically thought the role of a Family Office to be, but Whittier Trust had the right experience, involvement with several key employees and knew many aspects of the business. In addition, Whittier was already trusted by the family and within the company. 

Mark arranged for a Whittier Trust executive with real estate expertise to join his board. Over time, as his staff retired, Whittier Trust would help manage more and more aspects of the company. By playing both a strategic and a day-to-day role in the company, Whittier Trust became accustomed to the business and how Mark wanted it managed. When Mark was ready to step away, there would be an experienced team from Whittier Trust in place to ensure continuity of the operations. This offered Mark and the family enhanced communication and peace of mind.

Whittier Trust took on another important role: working with the other family members to understand their needs and financial goals. The family members who had a stake in the business did not always have the same ideas about the future. Having Whittier Trust to help navigate those difficult conversations had made a big difference.

“Mark was hesitant at first,” said Neil. “But as he came to understand our breadth of experience and that we could not only manage the real estate business but also work with the individual family members to help them achieve their goals outside of the business, he became more and more comfortable with the transition.”  Whittier’s involvement allowed them to keep their existing real estate portfolio, eliminating any potential disruption.

Mark is still running the real estate company. While he is not quite ready to retire, he does sleep better at night knowing that whatever the future holds, the family business will be in good hands. 
  
Disclaimer: $10 million marketable securities and/or liquid assets required. Investment and Wealth Management Services are provided by Whittier Trust Company and The Whittier Trust Company of Nevada, Inc. (referred to herein individually and collectively as “WTC”), state-chartered trust companies wholly owned by Whittier Holdings, Inc. (“WHI”), a closely held holding company. This document is provided for informational purposes only and is not intended, and should not be construed, as investment, tax or legal advice. Past performance is no guarantee of future results and no investment or financial planning strategy can guarantee profit or protection against losses. All names, characters, and incidents, except for certain incidental references, are fictitious. Any resemblance to real persons, living or dead, is entirely coincidental.

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