In the News

The biggest threat to incapacitated business owners

Monday, May 1, 2000
by Janice Rosenberg

The biggest threat to incapacitated business owners is that so much of their business is based on their personal relationships with bankers, customers and suppliers, says Andrew Keyt, executive director of the Family Business Center at Loyola University in Chicago. If the owner is taken out of the loop, what does that mean for those outside people?

"In the best case, they know other members of the management team and things will go smoothly," Keyt says. "In the worst case, a line of credit isn't extended, or maybe suppliers don't have as generous credit terms to offer. If suppliers are concerned about getting their money, they won't wait 90 days."

Any company where the leader contains all the knowledge is threatened by the possible illness of that leader, Keyt says, adding: "The more the leader can delegate and share with people working for him, the lower the threat."

Having access to people from outside the company who can step in is another way of addressing the problem.

* * *

As Myrna Pedersen planned time away for surgery in January 1995, she figured Joan McGrath, her partner in Pedersen/McGrath Associates, a Chicago media and presentation training firm, would be in command.

But two unexpected events left both women scrambling. First a post-surgical complication sent Pedersen back to the operating room for a second procedure. Second, while Pedersen was recovering at home, McGrath's mother died suddenly.

McGrath and Pedersen called all their clients personally to explain the situation and reassure them that their needs, especially those that were urgent, would be met. "Initiating the calls ourselves was crucial in maintaining the rapport we had worked so hard to build," Pedersen says.

Depending on a "professional resource file" they had built when they had started their business, the two women found people to fill in for them as necessary.

Business owners, without resources files of their own, may find help at temporary employment services specializing in professionals. "Bringing in a temporary CEO who has financial skills and a general familiarity with the industry can keep things running on a temporary Band-aid basis," says Marc J. Lane, a Chicago attorney and expert in business succession strategies.

To take the first step toward creating policies that go into effect when the CEO becomes incapacitated, business owners must face the fact that they are mortal and subject to the whims of fate. Older business owners are especially concerned that having a plan - even one meant only for temporary absences - sets the stage for a more permanent or general relinquishing of control.

Regaining control need not be a problem, says Lane. The key is to choose a second-in-command, then assign that person specific responsibilities that would be taken on as needed. Lane sees this arrangement - which must be in writing - as comparable to an employment agreement.

"It gives the employee the flexibility to discharge his or her responsibilities, but it does not preclude the owner removing the contingency and restoring the status quo," Lane says. "If the business is operated as a sole proprietorship, you might want a power of attorney granting this person the authority to make decisions and implement them. If it's a corporation, the bylaws should handle governance issues identifying the vice president and saying under what circumstances he or she succeeds to the authority of the president."


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