Fredrikson attorneys Doug Hiatt, of counsel, and Caitlin Houlton Kuntz, shareholder, co-hosted a panel discussion on shareholder succession for bank owners at the recent Acquire or Be Acquired industry conference in Phoenix, Arizona. Hiatt and Houlton Kuntz, who have decades of combined experience serving the banking industry, led a dialogue with a pair of bankers during the 40-minute breakout session on January 26.
Houlton Kuntz stressed three points:
1) Shareholder succession is as important, if not more important, than management succession planning for all banks, but particularly for banks intending to remain independent.
2) Shareholder planning is imperative for survival; banks that lack a succession plan are more likely to face a sale-of-last-resort.
3) And, succession planning is a team effort. Candid communication among key bank stakeholders, financial advisors, and legal counsel is necessary to build an effective succession plan and facilitate uncomfortable conversations.
Hiatt noted that shareholder succession planning takes into account many factors, including the inevitability of change, differing goals among members of the shareholder group, and the impact of the death of a key shareholder.
“Strategic and succession planning are important,” Hiatt stressed. “They work together and neither is a one-time event, but an on-going process. If you revisit the plan frequently, you will be more prepared to handle unexpected shareholder situations as they arise.”
Hiatt said professional advisors can help existing or new shareholders deal with the myriad issues that can arise upon the death of an owner or other unexpected change. These include: regulatory filing obligations, disrupted vendor payment schedules, tax obligations and legal issues related to estate settlement, plus much more. He stressed it will likely cost less to do this as part of planning rather than deal with it at the time of the unexpected event.
Houlton Kuntz said planning for shareholder succession, along with the costs and liquidity needs that come with shareholder transitions, is a “fiduciary responsibility” of board members. “If the board leaves that part of the puzzle unsolved, and suddenly someone passes away or there is a family rift, or other disruptive event, minor liquidity issues can turn into big problems for the organization,” she said. She stressed that directors owe the same duties of care toward all shareholders, regardless of their priorities or level of involvement in the organization.