Systematic planning is key

Over 70,000 companies in Switzerland will be affected by succession in the next five years, according to a study on company succession by the University of St. Gallen and Credit Suisse. Less than 50% of them have a succession plan. While it is mainly associated with the sale of a company, succession is not merely a transaction or a fiduciary issue, but above all a personal transaction in which relationship-related and psychological factors determine success. If succession fails, it’s often because the solution was developed with just the owner in mind, instead of aligning the needs, capabilities and roles of all parties involved from the outset. But a holistic, systematic approach reduces the potential for conflict within the stakeholder groups.

Dr Andreas Schmid of Schmid + Partner AG specialises in these consulting needs – based on a holistic approach that includes not only the firm but also the owner (family) and its assets. Ideally a third party gets involved two to five years before the desired transfer of the company, and enjoys the trust and acceptance of all those involved.

The stages at a glance

A systematic approach is half the battle. In general, the succession process consists of four stages:

• Doing the analysis: Based on individual interviews, workshops and discussions, the current situation is assessed. This includes the ideas and goals of relevant stakeholders and the company.
• Developing options: In this step, potential succession options are examined, and the succession strategy is determined (internal or external, asset allocation, etc.). This often has an impact on corporate strategy, especially if it is managed by a third party in the future.
• Preparing the transaction: A company valuation is carried out to determine the purchase price. It is also essential to develop a communication concept for employees, customers, and other stakeholders. Depending on the preferred solution, the search for successors or buyers starts.
• Handing over the company: This stage includes the actual company transaction with all associated fiduciary and legal measures.

Of hurdles and remedies

The following non-legal or fiduciary challenges are most common in succession planning:

1. Conflicts of objectives, interests and emotions: Don’t make succession decisions alone, include relevant stakeholders. Conflicts of interest must be discussed and resolved early on. Be aware: succession is a compromise business. It’s fine if the discussions are intense as long as they are dedicated to the cause.
2. (Mis-)communication: Communicate succession openly and transparently, so that your employees and stakeholders do not lose trust or are taken by surprise.
3. Search for successors: This is a key task. Create a requirements profile, start the search early and with professional support.
4. Staffing of key positions: Take care of other positions that may become vacant with succession. After all, successors have a cultural impact. Tenured employees may leave before or during the handover.
5. Interaction between owner and successor: The handover to the successor requires intensive interaction. When choosing a successor, make sure that the “chemistry” fits. When you have handed over, let the successor do his thing.

Succession planning has its pitfalls – but these can be mastered. It’s worthwhile to deal with succession planning as early as possible and to involve a neutral and professional partner.

Four intermediary-specific success factors

Among intermediary firms, especially, succession is topical. Many company founders are now approaching retirement age at a time when rising regulation in Switzerland means that some firms are likely to take the opportunity to merge. Claudia Riesen, Team Head Intermediaries, Bank Julius Baer, explains how intermediaries can plan successful successions.

1. What is your role in the future?

Think about how you envision your role in the future and the transition phases you would like to go through. Would you like to completely transfer your portfolio to a trusted partner or remain a consultant to your clients for a transition period?

2. Which investments are useful up front?

Decide on possible investments in the strategic pillars in order to complete the offering, organisation and narrative for potential future partners.

You might achieve a better result if your business and organisation is on top of its game. And you might be the best positioned to achieve this, given your in-depth knowledge of your clients and the organisation – from investments in the leadership team, to reviewing the legal and organisational setup or strengthening the brand.

3. Who is your optimal partner?

Consider different partners to determine the best way to continue your legacy. One of the options is the handover to another intermediary who shares your style and value, and can continue to serve your clients the way you envisage. With our large network, we might be able to help you find a match. If that is not working for you, you might consider a transfer of all or a part of the assets to a bank that provides independent advice  similar to the way that you do. Julius Baer considers this option depending on the situation.

4. Wealth planning for you

In all cases, a holistic private wealth plan of your own is important, including your optimal and tax-efficient pension plan. Our wealth planning experts at Julius Baer can provide you with the optimal succession solution to meet your needs. Our specialists understand and are happy to discuss the entire range of holistic advice, including supplementary pension, philanthropy, relocation, financing, trust services and much more.