Two high-profile founders and CEOs picked earlier this year to make major announcements. Amazon CEO Jeff Bezos announced he would leave his post, and Merck’s chairman and Chief Executive Officer Kenneth Frazier announced he would retire as well. On July 5, Bezos formally stepped down as Amazon CEO, where he is focusing on new products and initiatives for the company. Frazier officially stepped down in late May.
“Succession planning is about knowing when the time is right to let someone else manage your business,” says James Jack, head of the UBS Business Owner Client Segment.
Developing a CEO exit strategy, including choosing and preparing a successor, could take many years. A lack of planning can be costly for the business as well as the owner, who may be forced to sell in a hurry at a low price. A lack of planning also may increase the likelihood of costly disputes among family members — explaining why 70% of family-owned businesses do not survive even one generation after the founder moves on.
Amazon’s succession plan was discussed on an annual basis, according to Brian Olsavsky, the company’s finance chief. Bezos has transitioned into the role of executive chairman where he’ll focus on new products and initiatives, such as his privately funded space flight company Blue Origin. Andy Jassy, the current chief executive of Amazon’s cloud computing division, has taken his place as CEO. At Merck, Frazier, who is one of only four Black CEOs running a Fortune 500 company and oversaw the pharmaceutical company as it developed cancer immunotherapy treatments, has been succeeded by Robert M. Davis, the current executive vice president, global services and chief financial officer. Frazier will also stay on as executive chairman for an undetermined transition period but plans to focus on public service in the future.
“Some people want to get completely out, and others still want to be a part of the business that they’re so proud to have built,” says Jack. “Having a good management team in place allows owners to be ready for new opportunities or help mitigate risk from unforeseen challenges.”
Here are four ways entrepreneurs can benefit from succession planning, according to UBS.
- Maximize the value of your business
In the event of a sale, the amount raised can have a major impact on a number of entrepreneurs’ goals, including retirement plans, taxation, compensation levels, insurance, shareholder agreements, and corporate finance strategies. But an entrepreneur leaving a business to family members also wants to ensure it has the maximum value and long-term potential.
- Secure harmony among the next generation
Disagreements over the running of a business or the distribution of assets can cause breakdowns in family relations. Succession planning can help to overcome these problems by, for example, defining how businesses pass between generations.
- Be ready to seize new opportunities
There are examples of high-profile serial entrepreneurs who continually look for the next business opportunity. A good succession plan can help this type of entrepreneur to embark on a new venture or move into philanthropy at short notice.
- Preserve your legacy
A well-considered and rigorous succession plan can be the best way to ensure that your staff are treated well after your exit and that your ethical values — including environmental, social, and governance (ESG) frameworks — remain core to the running of the business and its financial performance.
As demonstrated by Bezos and Frazier, early and thorough succession planning can set you and your business up for success even after you part ways.
Visit the UBS Are you exit-ready? site and reach out to your Andrew Burish and his team, The Burish Group, to start the conversation about your succession plan.
Andrew Burish is a Financial Advisor at The Burish Group at UBS. He can be reached at 608-831-4282 or Andrew.burish@ubs.com. The Burish Group is a team of over 40 financial professionals with over $5.2 billion assets under management.
UBS does not provide legal or tax advice and this does not constitute such advice. UBS strongly recommends that persons obtain appropriate independent legal, tax, and other professional advice.
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