Succession Planning for Businesses and not for Profits

Pope Francis has taken over leadership of a powerful global organization. The Catholic Church has the advantage of a centuries old historical tradition for selecting the Pope’s successor. There is a readymade loyal staff of followers to help the new leader transition into the position, learn the demands, responsibilities and mechanics of his new role, and to provide support for the new leader to define and chart his own mission.

Does your business or not-for-profit have a succession plan? In times of crisis, having a procedure and path to move forward is critical to survival of the entity. The emotional demands are tolling; there must be a built in blueprint plan that can be followed in a mechanical way. In a real sense, people will be “going through the motions” while they process all that is happening and the impact it will have on them. Having a pre-established procedure to turn to will be a blessing; those making decisions will have a map to follow.

Some important questions to ask:

  1. Who will make interim decisions until a new leader is chosen or put in place?
  2. Is key information recorded and readily available for the new leadership to reference and use as the organization moves forward?
  3. Has the new leader been trained and groomed to take on the new leadership role? Does the successor know the organization’s core values and mission?
  4. Are the key people prepared to really accept, and support, the transition of leadership?
  5. Will the outgoing leadership be honored and respected for its accomplishments? Has their contribution been recognized and promoted?
  6. Is there a strategic plan to address challenges of the new leadership?

Studies reveal that more than half (55%) of CEOs who will retire before 2018 have not chosen their successor and almost half (47%) of family businesses have no plan to transition leadership if something happens to the company leader. Realistically, it can take years to train a leader. Many situations do not happen in a regular fashion. They need to be in a monitoring position for long enough to see how different situations are handled.

The result may be that a spouse who has not been actively involved in business operations is suddenly thrust into the role of primary decision-maker, a role s/he is ill prepared to take on, especially during the family and emotional crises brought on by death of a spouse and parent.

Why do family business leaders avoid creating a succession plan? Two reasons top the list: reluctance to let go and fear of the disapproval of those not selected as successor. The trait of a good leader is knowing when to leave. It is also being able to resist in the face of pressure and emotional overreaction of family members who are not selected as the successor.

When Mom or Dad Can No Longer Make Decisions

Where a family member is disabled or has diminished physical or mental capacity, guardianship proceedings may be an option. However, taking this step must be carefully considered because these court proceedings are often very difficult on the family. They can be expensive if they are contested or family members fight over who should be given control. (They can cost tens of thousands of dollars.)

If the person afflicted with diminished capacity is cooperative and willing, a durable power of attorney may be a good option to consider. The principal (sometimes called the allegedly incapacitated person or AIP) can sign a document giving authority to a trusted agent to act in financial and legal matters. (A health care proxy is necessary for medical decisions). A durable power of attorney generally costs $100-$1,000 and can be prepared and executed with your attorney. This option is available only where the principal has sufficient capacity to sign a legal document and understands the nature of what he or she is signing. If these circumstances exist, this is the most cost effective option for the family to consider.

Article 81 of the Mental Hygiene Law balances the right to autonomy and self-determination with the social responsibility to protect those who are not capable of caring for themselves. It is important to understand that guardianship is intended to provide support in the least intrusive manner possible. The more capable the person is, the less assistance they will require in handling legal and financial affairs. The court will limit the role of the guardian to what the person needs to prevent him/her from suffering harm. The law focuses on when the person is likely to suffer harm or cause harm to others. A person who makes decisions we don’t agree with – or that seem eccentric – is not necessarily incapable from a legal perspective.

We look at how the person copes with activities of daily living (“ADL’s”) like bathing, toileting, grooming, cooking, eating and banking. The court will evaluate whether there is clear and convincing evidence that the person cannot understand the consequences of his/her actions or physical and mental limitations. The court will also consider the person’s known preferences, wishes and values – trying to reserve the greatest amount of self-determination and independence. When substituting the judgment of others, we try to figure out what the person would have decided for themselves if they were not incapacitated.

If you find yourself facing these difficult circumstances, consulting with an attorney can help you understand these and other options that may be available. The best planning is that which is done in advance with powers of attorney executed well before there is a diminished capacity situation at hand. It is always best to decide for yourself who should make decisions on your behalf when the time comes rather than leave it to a court to make such decisions for you.

Tracy Jong assists CARES, a not-for-profit group benefitting those suffering from schizophrenia and their families, we understand the unique challenges families face in these circumstances. Call our office if we can help your family find answers to the best way to handle the legal and financial affairs of a schizophrenic family member.