Succession Planning Requires Teamwork

Dear Clients, Colleagues, and Friends,

“Teamwork makes the dream work, but a vision becomes a nightmare when the leader has a big dream and a bad team.”

– American Clergyman, John C. Maxwell

Paul can’t believe it’s been forty years since the night he died.

The last thing he remembered was blowing out the candles on his 20th birthday cake – then nothing. One minute he was fine, the next minute he was dead.

Fortunately, his death was short-lived. Paul’s nurse practitioner aunt performed CPR, and by the time the ambulance came, he was breathing on his own. Unfortunately, his prognosis was not good. Paul needed life-saving, highly experimental surgery that hadn’t been invented yet. After making hundreds of calls, Paul’s aunt found an enterprising doctor who quickly developed a special tool to help save him. This launched Paul on his life’s mission to get specialized medical devices into the hands of doctors around the world. Today, his company – one that has directly saved the lives of tens of thousands of people – is worth millions.

Because of Paul’s near-death experience, he understands the importance of business succession planning. He doesn’t want his inevitable death to also be the death of his business.

Years ago, Paul hired a key employee who is now poised to buy the company when he dies. To facilitate the transaction, Paul had his financial and tax people perform a fair-market valuation of the business, he had his lawyer draft buy-sell paperwork, and he had his life insurance agent put a life insurance policy in place to finance the terms of the agreement. Paul felt like he was making some smart moves.

But he neglected something… communication. Paul failed to insist that his lawyer, his life insurance agent, his financial planner and his tax advisor coordinate with each other. This might not seem like a big deal – after all, these professionals are paid good money to answer all the “what ifs” we could never think of on our own.

But “what if” our professional advisors aren’t answering the same “what ifs?”

Without communication and coordination among his professionals, Paul’s plan might not take into account hundreds of tiny little details that could cause the failure of the business succession plan. Former Laker’s coach Phil Jackson said, “The strength of the team is each individual member. The strength of each member is the team.” In succession planning, this statement could not ring more true.

Take the recent case of Broeferdorf v. Bachelor, No. 15-2117 (U.S.D.C. E.D.PA. Sept. 14, 2015), as a perfect example. In this case, Amy Bosich, the owner and founder of Flying Nurses International, executed a right of first refusal buy-sell agreement with her longtime employee, Robert Bachelor, funding his potential right to buy the company with a life insurance policy, which he owned and could control. Unfortunately, this was not a one-way buy-sell agreement, and the insurance policy terms allowed Bachelor to unilaterally change the beneficiary of the policy to himself without informing Bosich. To complicate matters, the buy-sell agreement gave Bachelor the right to refuse to exercise his option to buy the company. In the end, this is exactly what Bachelor did, declining to buy FNI and cashing in the $1M life insurance policy for himself. Bosich’s executor sued under a number of different legal theories, but there is one, inescapable fact: failure of the team members to coordinate Bosich’s succession plan resulted in a failed succession.

That would be one of Paul’s worst fears.

Paul schedules a group meeting with all of his professional advisors. He asks each of them to explain to each other what they’ve contributed to his business succession plan, and then he voices concerns about whether it will all work together. Each professional is understandably proud of their individual work and defensive about Paul’s sudden case of “what ifs,” but as they all discuss the details of the plan, they slowly discover that it actually might contain some potentially fatal holes. None of these defects would have been detected by the individual professionals, but together, they were able to get a 360° view of the plan and detect where problems might arise.

Energized with renewed urgency, Paul asks his professional advisors to coordinate a comprehensive strategy to ensure the success of his business succession objectives. As the plan takes shape, each of his advisors’ respective strengths enhances its viability. Score one for teamwork.

Our law firm works with professional advisors and their clients to develop comprehensive business succession plans. Call us now to schedule a consultation about how we can help coordinate your professionals to help obtain that important 360° view. After all, teamwork really does make the dream work. Put us to work for your dreams so they don’t die when you do.

Jeffrey M. Verdon, Esq.

Posted in Client Alert, Scenario, Succession.