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News of Ollie’s Bargain Outlet CEO, president and founder Mark Butler’s death spread quickly last week, sending company officials into damage control.
The prompt naming of company COO John Swygert as interim president and CEO did little to assuage investors as the discount store chain’s stock dropped nearly 10% on the first day of the passing of its prominent face and leader.
By the end of the week, stock prices had stabilized around $60 after dropping as low as $56.83 a share.
The volatility of the value of a company is not uncommon around the unexpected exit of an organization’s leader, experts said, but what the management of a company does before and, in the short term after, sudden disruption in its leadership succession and ownership protocols, can determine its long-term success and survivability.
John Stoner, a business consulting partner and CPA with Manheim Township-based RKL LLP, said having a succession plan in place is a key component to the ongoing prosperity of a company.
“The disruption caused by the sudden loss of any key employee, whether it be the founder or the owner or just a key operational employee, is certainly a major risk factor,” he said.
Much of the work Stoner does at RKL concerns business succession planning, business valuation and helping family businesses decide how to transition when an entrepreneur or leader is gone. He advises clients think beyond the “here and now,” and take a long view of the preferred path for moving the business forward.
The best planning can always go awry, so it’s important for an organization to consider the “what-ifs,” including what happens if a key owner or leader is unable to continue in their role in the business through death, disability or a sudden resignation, Stoner said.
While Ollie’s is a large, publicly traded company, succession planning is important for small, family owned businesses as well. Perhaps more so, according to Trevor Bare, a consulting actuary at Conrad Siegel in Harrisburg.
“A company should make sure to have people in place, or being trained, to be their future leaders and are ready to step in at the time,” he said.
Figuring out in advance how a company will handle the sudden departure of a key player is often overlooked, even by large firms.
Organizations can be lackadaisical about asking a hard question, such as what is the next step if a leader gets hit by a bus? What will impact the business? Who will fill their shoes? What is the communication plan for informing customers and employees?
Most businesses are already being challenged with technological advances, more competition and changes in customer preferences, Stoner said. Factor in the loss of a boss and issues will emerge quickly. Coming up with contingency plans and a line of succession before an emergency is key.
It’s never too early for a large or small company to identify the next generation of leaders in the organization, and groom them through opportunities in education, experience and advancement so they can assume leadership roles when a sudden departure happens.
Many unprepared
Many businesses don’t have a succession plans, while others have a plan but don’t take into consideration changes that inevitably happen after a plan is implemented. A succession plans need to be reevaluated constantly to ensure key positions are filled, Stoner said.
A large publicly traded company like Ollie’s will typically have a plan in place even when it has a very visible owner like Butler, Stoner said, with the decision of next steps falling on the shoulders of the board of directors who are in place to mitigate risks.
“Every business has business risks, and a board of directors would say, ‘What are we doing to identify our risks, prioritize what we think are the more significant, impactful risks? And are we prepared to have a contingency plan that will allow the business to function normally during this period of disruption and, hopefully, stabilization over time?’” Stoner asked.
A historical example of the loss of a major company figure was the death of Walt Disney in 1966 and the subsequent search for a new leader. Stoner said there was a short period of time after Disney’s death when there were hard discussions being held to decide who was going to lead, with the board ultimately deciding on his older brother, Roy.
In many cases of companies that lose a leader who was the face of the organization, but was not involved in the day-to-day operations anymore.
“Many organizations have experienced this disruption,” Stoner said. “Some have prepared and responded better than others, but I think the public marketplace always has the sky-is-falling expectation without even knowing if the company has a plan in place and is able to pick up the pieces and sustain the business moving forward.”
Ask the right questions
A question business owners and investors need to ask is how impactful would the death or resignation of a top executive be on the long-term future of the company. They should keep in mind that the public will be watching to see if the organization has the right people to fill leadership roles, or will they need to recruit from the outside to continue the company’s vision.
Large companies that have a broad organization typically have a plan in place, Stoner said. What he sees as a more concerning issue is when an entrepreneur is the face and driving force of a business and they are suddenly gone.
Stoner said entrepreneurs in family-owned businesses are most likely to not have a succession plan, leading to the potential for disaster.
“When (an entrepreneur) is abruptly removed from the business, that’s a business that’s in peril,” he said. “But a large, diversified company probably has the business sophistication to have put in place plans – both short term and long term – on how to deal with this. But it will take some time for that plan to be accepted by the general public.”
The ownership question
An even bigger issue for the survivability of a company is when its ownership is in doubt after a sudden change. While it’s not a concern for a publicly traded company like Ollie’s, ownership has the potential to be a make-or-break factor for smaller, family-owned businesses.
Conrad Siegel’s Bare, works with smaller businesses looking to pass ownership on through an employee stock ownership program, or ESOP. Through debt, the company is sold to the employees, and over time the employees receive ownership of the company through their retirement fund.
In this case, Bare said, the seller, typically the family of the entrepreneur who left, will get a fair market value for the company. Because the ownership stays in local hands and the employees have a stake in the company, it’s more likely the organization will not experience major changes.
If a company is sold to a competitor or a private equity firm, the future of that entity is often uncertain, including possible layoffs, rebranding or relocating.
One of the main selling points of an ESOP, is that it can preserve the legacy of the owner.
“A family may be more interested in preserving the legacy of the owner than trying to squeeze every last penny out of the transaction,” Bare said. “The ESOP is a way of keeping the company alive in the community.”
An ESOP is ideally put in place before the sudden death or departure of a business owner because it can take several months for the transaction to be finalized. In the cases where an ESOP is created after a sudden change, a company’s leadership succession plan is key in keeping the business stable and moving forward during the transition.
