The Lawyers Weekly - May 21, 2010

UWE
MANSKI

“Denial syndrome” is typical of business owners who can’t conceive of not being at the helm of their enterprise — and therefore have not prepared for that eventuality. Yet with seven out of 10 of Canada’s small and medium businesses owned by aging baby boomers, the incidence of disability and death is increasing and, along with it, the risk of business crises.

ACME Electronics experienced this first hand. The controller answered a phone call one morning to learn that the CEO, the owner of the business, had experienced a heart attack the previous evening and was in the hospital. With only three people on the management team, none of whom were capable of assuming the CEO’s role, suddenly there was a serious void with an immediate impact on the company’s ongoing operations and customer commitments.

When it comes to the heart of an organization’s labour force— the executive team — many owners of mid-size enterprises have denial syndrome when it comes to planning for the temporary or permanent exit of a key person — including themselves. Based on a three-person executive team whose members are around the age of 45, actuarial statistics suggest that the chances of one member dying before age 65 is nearly 50 per cent. The risk of disability significantly raises the odds: the probability of one of those people suffering a long-term (90 days or more) disability prior to age 65 is over 78 per cent.

In the past, organizations subjected to an unexpected executive void would often experience serious profitability declines and subsequently fail, or become involved in hasty mergers or sales. In ACME’s case, the shareholders were fortunate to be able to arrange for immediate interim management support to assume responsibility for the CEO role. This allowed the rest of the team to continue focusing on their respective areas of responsibility and enabled ACME to seamlessly maintain day-to-day operations and meet customer commitments. Eventually, when the CEO recovered from his heart attack and decided to retire, the

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Having a contingency plan in place to address “the big four” — death, disability, disagreement and departure — is obviously the ideal scenario. However, this is simply not a reality for many mid-size enterprises today.

interim management team was retained to sell the business in the ordinary course, at going-concern value.

This example illustrates why interim management is expanding beyond its traditional scope of business growth and transition to encompass unforeseen absences within executive teams. Many small and medium enterprises have no contingency or succession plans in place and are unable to address sudden executive departures. While owners tend to be very protective of the physical and financial assets of their businesses, they frequently overlook protecting its vital human assets: experience, knowledge and leadership skills. Thus the voluntary or involuntary exit of the owner or other key person can precipitate the rapid demise of a business.

Often, management team
members lack the expertise or
available time to fill in for one of
their colleagues: CEO, COO,
CIO, GM or other key executive.
Given today’s intense time pres-
sures and demands, if an execu-
tive team experiences a sudden,
critical void due to death, dis-
ability or serious illness, the
company often requires an
immediate replacement. Simi-
larly, the discovery of serious
wrongdoing by one or more sen-
ior members of management can
force an immediate termination
for cause, or required resigna-
tion, leaving the remaining man-
agement team in disarray, and
the business in crisis.

Uwe Manski heads the interim management division of BDO Canada Limited, which helps entrepreneurs manage through transitions and crises. He is the former president of BDO Canada Limited.