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| The PRO-Productivity System (tm) | |
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SUCCESSION
"Ownership is not a set of legal rights, it's a state of mind. You can't give people that state of mind in one fell swoop. You can only nurture it through education. -- Jack Stack Springfield Remanufacturing12
In private companies, the adversarial model of labor-management relations is seldom so deeply ingrained as in the industrial giants which claim most of the space in the media or academic theories. Bureaucratic layers of management are not much of a problem. Founders often know all their employees by name, and they know their spouses and kids too. (Despite this easy familiarity, however, many founders are surprised at the result of confidential employee surveys which expose the actual attitudes of employees towards the company and the working environment.) Entrepreneurs are cost conscious not because of some business school theory, but because they are spending their own money.
Yet entrepreneurial companies frequently do suffer from a distinctive labor-management tension of their own: the very experience and stature of the founders inhibit junior family members, successor managers and rank and file from developing their full potential as decision makers, a process which includes the opportunity to make some mistakes. This is a principal reason why only 40% of well-established family businesses survive the transition from the first generation of management to the second.
Carefully implemented, the PRO-Productivity System (tm) is designed to train the company to function as a self-sustaining enterprise which values, but does not depend exclusively, on the unique capacities or secret knowledge of its founding managers. The very existence of an Employee Stock Ownership Plan can help attract and retain professional managers who are prudently wary of tying their careers to a company without a succession plan. Menke & Associates, Inc. frequently designs selective stock-based compensation programs in parallel to the nondiscriminatory ESOP to assure that successor managers are sufficiently on the risk of the company.
The ESOP permits founding shareholders to realize the value of their investment in the company while they pass voting control on a separate, discretionary timetable to the next generation of managers or family members.
An Employee Stock Ownership Plan creates an ongoing, in-house market for the shares of a private company. Founding shareholders gain the ability to sell some or all of their stock at a pace which suits their needs. Under certain conditions, sellers can even cash out tax free. Please consult the Menke & Associates booklet ESOP Pros & Cons to learn more about the process of selling stock to an ESOP.
Laying the groundwork for succession in a company is one of the most challenging, yet rewarding tasks of a business owner. Justifiable pride results from establishing a corporate system which survives and flourishes beyond the immediate influence of the founders. Even younger entrepreneurs rest easier in the knowledge that the company will continue to function if fate should cut them short.
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