News outlets across the nation have announced the impending retirement of James Rohr, CEO and Chairman of PNC Financial Services Group. Effective as of the shareholders' meeting on April 23, 2013, Mr. Rohr will resign from his office, but will continue to serve as executive chairman for one year to ensure a smooth transition to his successor.
Analysts have applauded the concurrent pronouncement that the vacancy will be filled by William S. Demchak, PNC's current president. Mr. Demchak joined PNC in 2002 as the Chief Financial Officer and has since served in key leadership positions throughout the company. PNC stock rallied the morning following the announcement of Mr. Demchak’s appointment, a sign of confidence that the company’s succession plan was well-received by the investment community.
Effective succession plans are a blueprint for longevity, not only for banking powerhouses but also for family-owned and closely held businesses across America. Sadly, statistics reveal that few business owners have engaged in meaningful continuity planning, with less than one-third of family-owned businesses surviving the transition to the second generation. Of those that endure, less than half are passed to the third generation.
Whether due to oversight or intentional avoidance, far too many business owners postpone the discussion of succession planning until confronted with a crisis. A common barrier that owners face is the emotional dilemma of choosing among multiple children without triggering family disgruntlement. To complicate matters, in many cases, the child most qualified to assume control of the business lacks the desire to do so. Furthermore, founding entrepreneurs may wish to pass the company to their offspring who have taken an active role in the business, while providing equal treatment to nonparticipating children who have chosen alternate career paths.
Qualified professionals are prepared to assist business owners in overcoming these obstacles. For example, children could be provided with equal ownership of the business, with participating children receiving voting rights and nonparticipating offspring receiving nonvoting interests. Alternatively, treatment among children could be equalized by transferring the business to active children and purchasing life insurance policies of appropriate value to benefit the inactive children.
Each family business experiences its own unique opportunities and challenges, yet all face one common truth. Regardless of size, location or industry sector, a carefully designed succession plan is necessary to ensure a company’s passage to the next generation. Business owners are well-advised to follow the example of PNC by investing the time and resources to ensure a smooth transition of leadership. Schneider Downs' experienced advisors would welcome the opportunity to discuss how we may assist your family business in preparing for the years to come.
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