Succession Planning In Investment Clubs- Guide for Investment Clubs in Zambia

€       What is Succession Planning?

Essentially, succession planning is a conscious decision by a SACCO to foster and promote the continual development of investment club systems and developing the capacity of employees to address emerging issues that can or will affect investment club continuity.

Traditionally, succession planning has sometimes taken a replacement approach, often focusing on executive-level positions. One or two successors might be identified and selected, probably based on the exclusive input of their immediate supervisor, and then placed on the fast-track into a senior position. However, succession planning has evolved into a process that can be used to:

•       Replenish a SACCO’s HR at a broad or specific level;

•       Identify, assess and develop employee knowledge, skills and abilities to meet the current and future staffing needs of the SACCO; and

•       Ensure a continuous supply of talent by helping employees develop their potential, as successors for key departmental positions.

No investment club can survive without an able owner or manager at the helm. In the event of a key person’s sudden death, illness, or retirement, investment clubes are often left scrambling to find a suitable replacement. Large investment clubs and small investment clubes alike can avoid a tumultuous transition by establishing a succession plan.

Succession planning include: 

•       Addressing potential exit strategies

•       Sacco restructuring

•       Mergers, acquisitions or sales

•       Recapitalization

•       valuation of the investment club

•       Transfer or disposition of intellectual property assets of the investment club

·        Earn-outs

·        estate planning.

€       Without a Plan

If an owner or shareholder does not have a succession plan in place, the stake in the investment club is either passed on to relatives as part of the estate, absorbed by other shareholders, or a combination of the two. In family-owned investment clubes, this often leads to disputes between siblings and other relatives. Those more active in the day-to-day operations of the investment club may feel entitled to larger shares than others who are less involved. In larger investment clubs, employees and clients may leave the investment club for fear of instability.

Additionally, without prior planning, remaining shareholders may not have sufficient resources needed to purchase the shares of the exiting or deceased shareholder. This can lead to a situation where a spouse or child of a deceased shareholder attains an ownership stake in the investment club which can result in disputes, stalling progress and possibly leading to a loss of assets. Furthermore, if the exiting shareholder had a management duty, her replacement may not be equipped to take over her role through such a delicate transition time.

€       With a Plan

A strategic investment club plan with a succession plan can help owners and shareholders put together a plan that facilitates a smooth transition. Plans are customarily created after employees, coworkers, shareholders and family members have been consulted and goals for the future of the investment club have been outlined. Succession planning can be tailor-made to fit any investment club model and should address the following issues:

•       Keep the investment club or shares within the family. With a retention plan, a spouse, children, or other relatives can retain control of assets.

•       Offer shareholders or vital employees a larger stake in the investment club. Interested parties stipulated in the plan will be granted the right of first refusal, or the ability to accept or reject the shares of the exiting or deceased owner before they are offered to individuals outside of the investment club. The price of the shares can be determined by a valuation mechanism agreed upon during succession plan negotiations. For example, a valuation mechanism may require that shares be offered at their prevailing market value, or require multiple professional investment club valuation appraisals

•       Address issues related to your estate plan as well as minimization of potential estate taxes.

•       Preserve “institutional memory” when you or other current managers are no longer running the show. For example, you can empower advisors to aid the transition team and ensure continuity, oversee day-to-day operations, provide provisions for heirs who are not directly involved in the investment club, and provide education and training to family members and key employees who will take over the investment club.

•       Establish measures to ensure the investment club has enough cash flow to pay taxes or buy out a deceased owner’s share of the investment club.

•       Implement a family employment plan with policies and procedures regarding when and how family members will be hired, who will supervise them, and how compensation will be determined.

•       Other arrangements can be made that would transfer the owner or executive’s interest into trusts to be paid out to family members. Assets may also be divided among employees or in other cases, it may be best to sell the investment club. With so many factors to consider, it is important that you consult an experienced investment club planning advocate who can understand all of the interests at stake and work with you to protect them.

€       Key Strategies for Succession Planning

Employees to understand they are responsible for managing their own career path(s)

Sacco to support necessary learning and development

Work environment supportive of succession planning

Leaders to have shadow leaders, who are destined to take over, either as deputies, incoming teams, or alternates.

Boards of directors utilizing a professional recruitment consultancy service such that successor is selected from a pool of candidates on the basis of perceived competency.