Succession Planning Can Ease Transition
Sam Dreher always planned to sell H.S. Dreher Capital Management to his partner, Tom Velevis.
But a couple of stock market crashes over the years forced them to think outside the box.
“The original idea was that gradually he would buy me out, but we realized when the recession hit that we didn’t have the right plan,” Dreher says. “The way we resolved the problem is pretty neat. I think it’s clever and benefits both of us.”
Dreher, 66, and Velevis, 41, started working on a solution in January 2010 by meeting every Friday morning to discuss a business succession plan that would work.
“We each made a list of wants and had a pretty good idea of how to proceed by April or May,” Dreher says. “Then we hired an attorney and told him, ‘Make it legal.’”
Essentially, Dreher will work for Velevis under a four-year employment contract that expires in July 2014, then receive a percentage of the firm’s revenues for “a number of years” after retiring.
“We tried to negotiate the best way to do it without outside financing,” Velevis says. “There’s definitely a risk/reward aspect to it because the annual payments are not fixed.”
Dreher was more than willing to take the risk.
“I believe in the business,” he says. “If I didn’t, I could have sold it. I spent 16 years building the business, and I wanted to ensure at least the next 16 years of its success.”
Dreher says he has been working “harder than ever” since the transition, “because I love what I do, and Tom is worrying about the things I don’t like to worry about.”
Even though Velevis feels some anxiety, the challenge of having greater responsibility excites him.
“The underlying factor in making our decisions was continuing to serve our clients in the same way,” he says. “I want to make sure the practice is successful so we can fulfill our agreement.
“Sam and I have known for years that we work well together. I even let him keep his parking space out back.”
Their experience typifies the business succession planning process. Rather than a single, dramatic movement, it more resembles a flow of events that occur over time.
Like a well-run relay race, the handing over of a company should transpire so gracefully — thanks to careful strategy and proper execution — that no one in the company even feels it happen.
Unfortunately, the majority of business owners neglect to plan so seamlessly, if at all, for their own succession.
Bill Edsel, former CEO of Pinehurst Surgical Clinic, learned that lesson the hard way. He left a similar group practice in Texas to come here in 1994 but did not leave behind a succession plan.
“The group had been in business 57 years,” Edsel says. “I had been there 12 years and we had increased the number of doctors from 12 to 32. A national company bought the group, and I left. Twenty months later, the group disbanded and went bankrupt.
“It hurt tremendously. I was determined to make sure the same fate didn’t happen to Pinehurst Surgical.”
So, in January 2005, Edsel put together a senior management succession plan with the help of six other “trusted colleagues.” Then he began the search for a chief operating officer who would eventually be his successor.
“I hired one in August 2005, but he didn’t work out,” Edsel says. “He had great credentials, came in and did a good job but had some personal problems. I let him go in June 2006.”
Edsel interviewed about a dozen candidates over the next year before hiring John Rezen in July 2007. Rezen then shadowed Edsel for a year.
“We went to board meetings, committee meetings, closed-door meetings,” Edsel says. “I didn’t keep anything from him because I was mentoring him the whole time. It was an absolutely flawless transition. There were no glitches whatsoever.”
Rezen, who took over for Edsel on an acting basis in November 2008 before being named permanent CEO five months later, agrees.
“Bill did a great job of mentoring me,” Rezen says. “He went out of his way to show me the different aspects of the clinic and introduce me to everyone in the community.”
In retrospect, Rezen adds that Edsel did a “tremendous job” in planning and executing the transition.
“He has a real sense of ownership and obligation to this clinic,” Rezen says. “He wants the best for us. He wants us to be here another 60 years.”
Contact Ted Natt at email@example.com.
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