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Work Place | EXECUTIVE ROUNDTABLE

Deeper Issues May Be Stalling Stock Transfer

April 08, 2002

Executive Roundtable is a weekly column by TEC Worldwide, an international organization of more than 7,000 business owners, company presidents and chief executives. TEC members meet in small peer groups to share their business experiences and help one another solve problems in a round-table session. The following question and answer are a summary of a discussion at a recent TEC meeting in Southern California.

Question: I've worked in our family business for 15 years, the last five as chief executive. During that time I have done a good job of increasing sales and profit. My parents, who own all ofthe stock, are easing out of the business. For several years, I've been asking them about transferring ownership to me, but they keep putting me off. I feel like I've paid my dues and deserve to be an owner. I'm 47 years old and not getting any younger. Should I keep pushing or back off until my parents are ready to hand over the stock?

Answer: There seem to be two basic issues here--your personal feelings regarding ownership of the company and whether or not your parents have begun the complex process of succession and estate planning. It's one thing for them to refuse to surrender any stock at this point--that's between you and your parents. It's another thing if they haven't put a process in place that ensures an orderly transition during their eventual exit from the business. Failure to do so could endanger the business.

To address the first issue, start by examining your own feelings and motives. Why is it important to you to own the stock now? Is it a compensation issue? An ego thing? Does the lack of ownership inhibit your ability to run the business? Are there unspoken conflicts between you and your parents? Do they have confidence in your ability to run the company after they are gone?

Next, suggests Suzanne Frindt, a principal in consulting firm 2130 Partners in Villa Park, consider the situation from your parents' perspective. What are their long-term financial goals and objectives? What are their retirement plans and how does the business fit in? Might they consider a buyout, in which you pay to get ownership, or do they expect to keep the stock until they die? Until you know more about their situation and long-term objectives, you can't make any accurate assessments of their decisions regarding the stock.

From a succession standpoint, have your parents met with an experienced estate planner to examine the issues involved? Do they understand all the tax and financial ramifications of transferring ownership to another generation? In particular, do they understand what can happen if they suddenly die or the business has to be transferred with no funds to pay the taxes? These questions need to be answered for the sake of your relationship with your parents as well as the survival of the business.

Jim Muse, CEO of Muse Presentation Technologies in Santa Ana, recommends having a heart-to-heart talk with your parents, but only after educating yourself on all the issues.

"Start by meeting solo with an estate planner so you fully understand all the ramifications of what happens if your parents do nothing and get hit by a truck tomorrow," he said. "That should empower you to at least get the conversation started.

"Next, get clarity on your options," Muse said. "If your parents say 'no' or 'not now' to your request for ownership, what are you willing to do? Could you leave and start your own company? Go to work for a competitor? Have you considered taking a sabbatical and letting your parents have the fun of running the business full time again? That might encourage them to open up the discussions and give you some needed leverage at the bargaining table.

"Whatever you decide, you need to get comfortable with the situation," Muse said. "You can't run a business effectively if you're continually agonizing over the lack of ownership and creating friction between you and your parents."

Mark Van Ness, CEO of Sperry Van Ness in Irvine, echoes the need to jump-start talks about succession planning. He also suggests bringing in a third party to help facilitate the discussions.

"Do you or your parents know anyone who has successfully transferred a business to their children?" Van Ness asked. "If so, your parents might be more open to hearing a fellow business owner talk about what they went through. I personally know a few people who, through lack of planning, had a terrible time with the transition. One fellow and his sister ended up suing their father, and they have since become estranged for life. A few stories like that might break down some of the barriers your parents may have toward the succession-planning process.

"If your parents have doubts about your ability to run the company, you might want to explore setting up a board of advisors or directors to provide some structure and oversight. Ultimately, however, you have to figure out where you want to go with your career and whether owning the company will enable you to meet your goals. As much as possible, try to get your emotions out of the way. The more you can treat it like an employment decision rather than a family decision, the better your chances of realizing the best outcome."

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If there is a business issue you would like addressed in this column, contact TEC at (800) 274-2367, Ext. 3177. To learn more about TEC, visit www.teconline .com.

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