Anticipating versus improvising
“The impact that improvisation may have on the business may lead to irreparable damage”
Businesses (whether family-owned or not) need to be able to anticipate unexpected events such as the sudden absence (whether due to death, disability or disappearance) of key people, which may have a significant impact both on the ownership and the governance and management of the business as well as on its surrounding environment (customers, strategic suppliers, stakeholders, executives, etc.).
The impact that improvisation may have on the business may lead to irreparable damage depending on the power vacuums and/or struggles that may arise after the triggering event. For this reason, it is advisable to draw up a contingency plan.
What is a contingency plan? It is the result of analyzing the organizational system of ownership, governance and management of the business with a view to: (i) detecting the level of dependence that the business has on certain key people in those areas, and (ii) anticipating and planning an orderly and swift power transition should such absence occur.
Which businesses should have a contingency plan? Any business should have a contingency plan of greater or lesser scope or complexity, bearing in mind that every business always has one or more people who are key to its success and, whether we like it or not, those people may unexpectedly leave for some reason.
What impact can a failure to anticipate a death or extended absence have on a business? The permanent absence of key people at a business, whether due to death, disability or other reasons, may lead to a temporary deadlock in its governing bodies and a halt in its management activities, in addition to conveying an image of disorganization or disorientation in light of the power vacuum generated, which may have an adverse impact on the trust generated in the various stakeholders as well as in the market, with the image costs that this may entail.
What specific form should the contingency plan take? Depending on the structure and size of the business and on the level of risk if the triggering event occurs, the contingency plan can be more or less complex. Accordingly, it is necessary to distinguish several phases to be able to adapt it to the needs of the business.
The first phase consists of assessing the business’s level of dependence on certain key members, and of defining the triggering events, that is, the death or absence of certain people that would seriously affect the business, thereby triggering a deadlock or power vacuum. The second phase would involve working on each triggering event, indicating the deadlocks or vacuums that would arise and ascertaining the will of the people involved and designing the legal documents in which such will be expressed (last will and testament, powers of attorney, incapacity planning, bylaw amendments, side agreements, etc.).
The third phase entails drawing up the road map and procedures manual, that is, establishing in a coordinated manner the different actions to be taken (both commercial, civil, contractual, etc. and information to third parties) from the moment the triggering event occurs until the client’s will is finally implemented and there is an immediate handover or new representation in the ownership, governance and management of the business.
Garrigues Family Business Department