Willard "Bill" Jonathan Tillotson Jr. followed Rule No. 1 in succession planning: He started early.
So when he died at 82 on Oct. 14, control of the Pittsburgh financial advisory firm he helped build in the 1960s passed as expected to his daughter, Kim Tillotson Fleming, and the company's small group of employee-shareholders.
It is tricky enough for aging small-business owners, including financial advisers, to line up future owners for their firms. It is even trickier when the plan involves family. But Hefren-Tillotson Inc. recently pushed through these challenges.
The handoff of the 62-year-old firm offers lessons — some routine, some quite savvy — for advisers and their clients with closely held businesses. Fleming became president of the firm about 14 years ago, signaling the transition to clients and employees. But the plan's transition period was a bit of a moving target, a common quality in succession plans when business owners walk away at their own pace.
Fleming said her father told her, in 1996, "In two years, I'm going to slow down." But he stayed involved in the firm, which now has 160 employees and $6 billion of assets under management, until the day he died.
During decades in the business, he had seen plenty of damaging transitions at other advisory practices, so it was important to him to map out something that would work, Fleming said. "He'd seen other firms fail because they didn't have a succession plan," she said.
A smooth succession also was important for credibility with clients. "A big part of what we do," Fleming said, "is working with privately held businesses that have their own needs for succession planning."
Even at the largest publicly held companies, entrepreneurs and deeply ensconced business managers can be remarkably hesitant to line up their own successors, in part because it is not much fun to plan one's own departure. Bank of America Corp. in Charlotte, N.C., has faced a turbulent year under new Chief Executive Brian Moynihan after the bank's longtime CEO Ken Lewis glaringly neglected to pick a successor. At Apple Inc. in Cupertino, Calif., investors continue to wonder what a future without guru-founder Steve Jobs would look like.
Devising transitions at family-owned businesses is even trickier, especially when it comes to questions of who will manage the business and how many family members and nonfamily members will own it. Hefren-Tillotson encourages its family-owned-business clients to emulate its own guiding principle regarding control: "We want the shareholders to be the people that work in the company," said Fleming.
The firm has "tight agreements" to make sure this stays true, she said, noting that family-owned businesses can hamstring themselves by "having too many nonworking family members that are shareholders."
About 10 years ago, the firm developed a detailed stock plan to expand employee ownership and help keep valuable staffers. But Fleming said detailed stock plans still do not insulate family-owned businesses from a creeping nepotism.
"You have to earn your way into it," Fleming said. "If someone's not the right fit, you have to make the decision that's best for the business, not for the family."