Succession

ENT 486

succession

The process of transferring rights or responsibilities from one entity to another, often in the context of leadership, property inheritance, or ecological succession.

family ownership and management

continuation of family ENT legacy, but can also cause family legacy and generational conflicts

mixed management family ownership

which combines family oversight with professional management strategies to balance family interests and business growth.

non family management, family ownership

a structure where the family retains ownership of a business while hiring non-family professionals to manage operations, allowing for expertise-driven growth and decision-making.

family management mixed ownership

a structure that blends family and external ownership, integrating familial ties with varied professional management styles.

mixed management, mixed ownership

a governance structure that combines elements of both family and external management with diverse ownership models, aiming to leverage the strengths of each.

nonfamily management, mixed ownership

a governance structure where non-family professionals manage a business that has both family and external ownership, promoting efficiency while retaining family influence.

transfer to employees, MBO

a process where ownership of a company or its assets is transferred to its employees, often through a buyout that involves management participation.

strategic buyer

a company or individual that purchases another company to achieve strategic objectives, such as market expansion or synergies.

sources of complexity

multiple stakeholders with diverging claims, multiple succession,and varying levels of preparedness.

succession framework (6 steps)

clarifying goals and priorities

reviewing firm’s strategy

planning transition of responsibilities

valuing the firm

financing the succession

structuring tax and legal setup

incumbent view

the perspective held by the current leadership on how succession should be managed, often biased by personal interests and the existing organizational culture.

family successor view

the perspective of family members who may take over leadership, focusing on preserving legacy and family values while addressing their own readiness and capability for the role. 57% discount expected.

affective commitment

strong belief of acceptance of organization’s goals, desire to contribute to them, confidence in ability to do so

normative commitment

feelings of obligation to pursue a career in the family business

calculative commitment

perceptions of substantial opportunity costs and threatened loss of investments or value if not pursued

Imperative commitment

sense of obligation to family and business traditions, driving individuals to continue their involvement.

strategic challenges-

stagnating performances, leadership vacuum, diversified products, intertwined assets and the need for effective succession planning.

roadmap of succession

a structured plan outlining the process and steps for transitioning leadership and management roles within an organization.

net asset value

the total value of an entity's assets minus its liabilities, used to assess financial health and sustainability. estimates according to the balance sheet

EBITDA

a measure of a company's overall financial performance, calculated as earnings before interest, taxes, depreciation, and amortization.

estate tax

levied on transfer of the state of deceased person, property is transffered via laws of intestacy

gift tax

a federal tax imposed on the transfer of money or property from one individual to another while the giver is still alive.

trusts

legally structure transfer of family firms, wealth from one generation to another

grantor retained annuity

allows existing owners to remove block of shares from estates, transfer a trust (GRAT)

charitable remainder-

incumbent transfers shares of stock to trust

Intentionally defective grantor

grantor allowed to place shares in trust with purposeful flaws, ensure continued income tax for wealth

parental altruism

induces parents to care for children

dual class shares

divide estate equally in value, not in control

ESOPS

places all parts of ownership into employees hands

MBOs

pass firm control over to management team

LBOS

external funding, transfer of ownership, maybe because of the creation of a new company