The Missing Succession Plan
The Missing Succession Plan
www.LifePro.com
Without a plan, a successful business owner may leave his heirs
a diminishing business.
Building a successful business is hard. Protecting and
preserving it to remain strong and viable after the owner's
death can be even harder. Recent studies have shown that only
about 30% of closely held businesses survive after the founder's
death. That's why business succession planning is so important.
It can create a bridge to help the business transition to the
next generation of ownership.
Unfortunately, many business owners don't consider succession
planning a critical part of their business's future success.
Many founders don't have a sense of urgency to finalize a
succession plan and keep it up to date. Owners like these should
hear about Mark McCormack's succession plan for his company IMG.
His story shows what can happen when succession planning is all
talk and no action.
A Marketing Genius
Many readers have heard of Mark McCormack. He was #209 on Forbes
magazine's list of the 400 wealthiest persons in the United
States in 2002. In 1993, Sports Illustrated named him the most
powerful man in sports. This was amazing because he wasn't an
athlete; rather, he was an entrepreneur who created two
industries: sports marketing and sports representation.
He was the founder, chairman, and chief executive of
International Management Group (IMG). He founded the company in
1961 and built IMG into a full service agency that has handled
the business affairs of some of the world's most celebrated
athletes, entertainers, and other public figures. It has 62
offices in 25 countries and employs more than 2,000 people. Its
estimated revenue for 2003 was $1.2 billion.
Mr. McCormack was the first sport agent, and his first client
was charismatic golfer Arnold Palmer. He was the commanding
general of "Arnie's Army."
Mr. McCormack was an entrepreneur with vision. He saw the
potential of merging television with sports. In the process, he
enhanced his athlete clients' earnings as well as those of
historic sporting events such as the Wimbledon tennis tournament
and the British Open golf tournament. He also created such
sporting events as "The Skins Game" and "The Super Stars
Competition." Although Mr. McCormack built his niche in golf and
tennis, he gradually broadened IMG's client base to include
professional athletes from other sports, fashion models, and
entertainers.
He also was a best-selling author. In 1984, his book, What They
Don't Teach You at the Harvard Business School, was on the New
York Times' best seller list for more than 21 weeks.
Not the Retiring Type
Mr. McCormack was the only owner IMG ever had. He scoffed at the
idea of retiring. In an interview with a London Times reporter
in 2002, Mr. McCormack was asked why he didn't retire.
He said: "Because I get to play golf with Arnold Palmer and
Tiger Woods and tennis with Monica Seles, and I get to go to
Wimbledon and Paul McCartney's wedding. My God, it's terrific."
And surely it was.
This entrepreneurial and marketing genius passed away on May 18,
2003, at the age of 72. He suffered a heart attack on Jan. 16,
2003, and lapsed into a coma. He remained there until his death
five months later.
Almost Perfect
Not only didn't Mr. McCormack retire, there was something else
he didn't do -- he didn't finalize a succession plan. At his
death no plan was in place for IMG's future ownership.
According to Forbes (July 8, 2002), IMG had no shortage of
seasoned management talent. The top 20 or so executives had an
average tenure with IMG of 20 years or more. Most had worked in
several divisions and understood Mr. McCormack's vision of how
the pieces of IMG fit together.
Succession planning apparently was discussed often at IMG.
Forbes quotes Mr. McCormack as saying: "We spend hours and days
talking about my death. We refer to it internally as 'The
Event.'"
Despite all the discussions, Mr. McCormack apparently didn't
sign off on a final plan. Perhaps he believed he had more time
and saw no pressing need to make a decision. Perhaps he couldn't
find a perfect solution. Perhaps he still was having so much fun
running the company that he didn't want to imagine a time when
he would be separated from it. Whatever the reasons, when "The
Event" occurred, there was no plan.
The Fallout
After Mr. McCormack's death, IMG's future wasn't clear. Many
options were on the table. The Wall Street Journal (June 2,
2004) reported that Mr. McCormack's death left a large estate
tax. It wrote that IMG had hired Rothschild North America to
explore a range of options, including a possible sale.
Recapitalization, fresh investment from an outside firm, and
shedding individual assets were other potential strategies under
consideration. Golf World (July 11, 2004) reported that the
company was investigating several options including a
management-led purchase. IMG sent an internal memo to its
employees stating it was in the process of identifying
"financing partners to enhance profitable expansion and provide
current owners with liquidity."
To make the most of the available options, IMG made some
financial changes. It did three things to improve its financial
condition. First, it sold some of its assets. Second, it
terminated 500 positions, about 20% of its employees. Third, it
imposed management pay cuts. Golf World (Oct. 8, 2004) quoted an
IMG source as saying, "The passing of Mark enabled us to make
some difficult decisions that might not have been made otherwise
because of his emotional attachment to the company."
In early October 2004, IMG announced that it had reached an
agreement to be purchased by the investment company Forstmann
Little & Co, and that the sale would close in 2005 for $750
million.
His Legacy
Mark McCormack leaves a rich legacy. He was the marketing genius
who helped TV sports become what is today. He was also the first
and most successful sports agent.
But as shrewd as he was, Mark McCormack failed to protect the
business he had spent more than 40 years building. By failing to
finalize a succession plan, he left his company vulnerable. He
let down the 500 employees whose jobs were eliminated after his
death. He also let down the IMG managers who saw their
compensation reduced.
He almost certainly would not have wanted these things to
happen. What he probably wanted was for his loyal managers to
take over ownership and continue to run IMG as a family. He
needed a comprehensive plan to achieve this result.
Unfortunately, there was no plan and IMG had to be sold.
We can learn a lot from Mark McCormack and IMG. In succession
planning, talk is cheap. Only action counts. A succession plan
must be in place before it is needed.
As Mark McCormack and IMG learned, the time available is
limited. "The Event" doesn't wait for an appointment; it can
show up at a most inopportune time.
Time and again succession plans using life insurance have kept
businesses financially viable after an owner's death. Perhaps a
finalized plan and life insurance death benefits could have kept
IMG independent. Mark McCormack's example may help motivate
other business owners to finalize and implement their own
succession plans before time runs out.
www.LifePro.com
This article originally appeared in LIFE INSURANCE SELLING,
and is reprinted by permission. Copyright 2005 Peter L.
McCarthy, JD, CLU, ChFC, MBA