Many years ago, our attorney advised us to implement a succession plan. He wanted to make sure we had a plan for continued operation of our company should I become incapacitated or unable to serve.

As a business owner and an owner of investment real estate I was not sure what he had in mind, and I ignored his advice until the Malaysia Airlines Flight 17 was shot down over the eastern Ukraine in July of 2014.

As a regular traveler to India, I looked up the track that our Emirates flight to India was taking. Much to my surprise, the track from the west coast (Seattle) lead over the north pole, over Russia and the Ukraine towards Doha, or Dubai then on to India. In any case the flight we were taking flew over dangerous territory and I decided that it was the time for us to implement a succession plan, in case we were knocked down by a SAM missile.

What is this kind of succession planning all about?

As a leader you always need to be thinking about a plan B. It’s your responsibility to create a road map for your family or senior management to follow. Ambiguity is a dangerous place to be. Without clear instructions, it’s not clear who should fill your spot, this could create confusion which could result in personnel conflicts, a dysfunctional company, needless uncertainty for middle managers and staff, detriment to credit / lender relationships, and difficulty with customer retention.

Once you have drafted such a plan with your attorney, significant others, and management team you will want to share it with the key people in your organization that will have to implement your plan.

Remember also having enough money to deal with staffing and other transitional expenses may be an issue. You will want to put in place key-man and short term/long-term disability insurance, as part of your planning process to smooth out the bumpy ride that could occur when a key person is unable to work.

To give you a simple guide in drafting such a plan, I have modified and inserted some key language from a corporate plan below. A plan like this needs to be in writing (paper or electronic) with a copy for your CPA and Attorney and kept current. The key people around you ( including your spouse) would all have a copy of this plan and review it annually.

Sample Plan

For purposes of this Plan, the President or Owner’s death, permanent disability, or temporary disability will be referred to as the “Event”, and the terms “permanent disability” and “temporary disability” are defined in the Corporation’s bylaws (the “Bylaws”).

The procedures to be implemented under this Plan include taking these steps, in the following order, after the Event occurs:

1. Acting President/Owner (Owner) After Event. The acting President/Owner/Owner has temporary authority and is designated in a shareholder resolution, which may be amended from time to time. Until amended, the shareholder resolution dated the same day as this Plan governs. The Acting President/Owner/Owner shall have all of the authority of the President/Owner until the next special meeting of the Board/Key family members of Directors after an Event.

(Note) If there are no Board/Key family members or directors, then the Owner can preset the new leader of the company. This leadership mantel can be changed every year if you like to meet the changing needs of your company.

As soon as possible but no later than one week after death or incapacitation.

By the end of the first week after the Event, the Acting President/Owner/Owner and the Board/Key family members of Directors shall hold a special meeting of the Board/Key family members, if possible, to address the following matters.

a. Notify each bank in which the Corporation has an account to establish or confirm and modify, if necessary, the signing authority of the Corporation’s officers for the accounts.

b. At the special meeting the Board/Key family members shall appoint a successor President/Owner for a term, which the Shareholders desire to be the same individual appointed as the acting President/Owner.

c. Communication:

How this is handled will drive the future success of the company (your investments). You need to make sure there is no Ambiguity. The messaging must show a well-oiled hand off from one leader to another, to demonstrate that a clear succession leadership path has been adopted.

d. Develop and begin to execute a communication plan, which should include, to the extent appropriate communications with:

i. Employees of the Corporation/ Family members.

ii. The advisors (CPA, Banker, Attorney); and

iii. Key clients, referral sources, and other stakeholders.

e. Appoint a key (Chief) Operating Officer to manage the day-to-day operations of the Corporation, which the Shareholders desire to be the individual identified in the Shareholder resolution.

f. Consider whether to begin a search for a long-term President/Owner.

2. Event Impacts. The President/Owner and Chief Operating Officer shall work together with the management team and with the Board/Key family members to address the impacts of the Event on the Corporation, including by addressing and reviewing the following:

a. The status of all properties managed by the Owner/Corporation

b. Financial statements, including a current balance sheet and profit and loss statement (which may be pro forma if statements current within thirty days are not available).

c. Cash flow, working-capital needs, financial resources, and other financial matters.

d. Borrowing and other credit needs.

e. Insurance policies and bonding, and confirmation of adequate coverage.

f. Retaining clients and customers, securing new business.

g. Staffing and other personnel needs.

h. Monitoring receivables and payables.

i. Preserving other business relationships and contacts.

j. Any new day-to-day management or service issues that may be appearing.

We tend to forget

We typically have an aversion to planning for death or incapacity, but unfortunately life is unpredictable. Planning ahead will prove to be an invaluable demonstration of leadership and kindness toward those who have to carry on. The plan should be updated every few years to keep the information and the thinking fresh and accurate.

To help smooth out the bumpy ride, you should buy disability and key man insurance and implement a succession plan before any Event occurs. Unfortunately, these events do happen, and one such event prompted the writing of this article.

Clifford A. Hockley, CPM, CCIM, MBA

Cliff is a Certified Property Manager® (CPM) and a Certified Commercial Investment Member (CCIM). Cliff joined Bluestone and Hockley Real Estate Services 1986 and successfully merged that company with Criteria Properties in 2021 to establish Bluestone Real Estate Services.

He has extensive experience representing property owners in the sale and purchase of warehouse, office, and retail properties, as well as mobile home parks and residential properties. Cliff’s clients include financial institutions, government agencies, private investors and nonprofit organizations. He is a Senior Advisor for SVN| Bluestone.

Cliff holds an MBA from Willamette University and a BS in Political Science from Claremont McKenna College. He is a frequent contributor to industry newsletters and served as adjunct professor at Portland State University, where he taught real estate related topics.

Cliff is the author of two books 21 Fables and Successful Real Estate Investing; Invest Wisely Avoid Costly Mistakes and Make Money, books that helps investors navigate the rough shoals of real estate ownership. He is the managing member of a real estate consulting practice, Cliff Hockley Consulting, LLC. designed to help investors and commercial brokerage owners successfully navigate their business. He can be reached at 503-267-1909, Cliffhockley@outlook.com or Cliff.Hockley@SVN.com.