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10/01/2007
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Succession planning: not to be delayed
BODY LOOK: International Trade Fair for Bodywear, Beachwear and Legwear (February 4-6, 2007)
12th Bodywear, Beachwear and Legwear Innovation Forum was highly successful
The explosive and dynamic issue of succession planning is currently more topical than ever before and was therefore the focus of the 12th Innovation Forum. As the timing of the trade fair clashed with SIL in Paris, the management decided that, unlike on previous occasions, the Forum should take place on the last afternoon of Body Look. Experts in politics, market research, tax law and accountancy from the
Chamber of Commerce, the retail trade and industry highlighted the question of “Passing on Body, Beachwear and Legwear Companies to the Next Generation Today and Tomorrow”. The speakers covered a variety of perspectives, illustrating not only numerous legal subtleties, but also the highly emotional level of this issue.
“The purpose of the Innovation Forum is to provide a stimulus and to convey ideas that will help both retailers and the industry to work out their own solutions,” said Frank Hartmann, Managing Director of the Igedo Company, as he summed up the goals of this industry platform – an event which is unique throughout Germany and which attracted some 120 delegates.
Hermann Fuchslocher, who runs his own business consultancy firm, HFU, provided some well-researched market data that illustrated the starting point in the fashion industry. According to a market analysis conducted by his company, the question of succession planning is given attention by about a third of all 7,500 retail shops in body and beachwear and by nearly half of all the respondents in the industry.
As fewer and fewer family members (26%) dare to venture into the fashion business, 30% of all respondents are seeking to collaborate with suppliers, other retailers, retail chains, external executives and even outsiders to the industry. About 8 per cent of all companies are failing to make any provision at all, so that they are forced to take the worst of all routes – closure or liquidation.
The HFU survey discovered the following reasons for this inertia:
• Political imponderables which prevent any reliable planning, particularly also among small and medium-sized companies (81%)
• As a result, personal imponderables (70%)
• Creditworthiness criteria for existing and new loans (69%)
• Uncertainties about regulations in inheritance law and company law (61%)
• Reluctance to address the issue of clear succession planning (47%)
Only about half of all companies in the survey said they had some form of succession planning in place that was more or less fixed in writing. It can be assumed that only about 30% of companies have any watertight succession planning with at least a legally valid transfer of authorities that covers the company’s entire business. In cases where nothing has been specified in writing under company law, the statutory legal succession principles are applied. Quite often, therefore, the problem arises that there is a group of joint heirs, so that both
the private and the corporate estates need to be split up. In about a third of all known cases, this leads to some serious loss of value.
The subsequent panel discussion clearly showed the enormous diversity of problems.
Dr. Oliver Berck from the Düsseldorf Chamber of Craft pointed out that support was available in the form of management consultancy and a business exchange as well as wide-ranging information events. These services are apparently being used more and more widely. Dieter L. Schmidt, accountant and auditor at Treumerkur, Wuppertal, explained a number of legal pitfalls in assessing the basis for a company’s valuation under the German corporate tax reform and under the German Inheritance Tax Act – two elements which are currently making it rather difficult to sort out the legal side of corporate succession. Dr. Reinhard Nacke, solicitor in tax law at Fritze Paul Seelig, Düsseldorf, highlighted a range of options, such as management buy-out and buy-in where no successors are available within the family and gave an outline of the risks that are involved when selling a company.
However, the issue of succession planning cannot be adequately dealt with under purely objective aspects. This became obvious when the floor was taken by professionals in industry and the retail trade.
“Succession planning is a highly emotive issue which is much wider than just legal regulations,” said Heinz Horn, Managing Director of Felina GmbH, Mannheim, who is planning to retire from active business at the end of this month and whose successor was presented recently. “First of all,” he added, “you need to know what you want, and secondly, despite all your emotions, you need to follow commercial principles. If you decide to plan, you’ve got a much better chance that everything will go well than if you leave it all to chance.” This last thought was underlined by
Michael Krines who runs a retail shop in Munich – known as Franziska Krines – together with his brother. Michael Krines’s mother had specified every single detail before passing on the business to her sons, thus making sure at an early stage that the hand-over would be as smooth as possible. Now that Michael Krines’s niece has joined the company, the business has already reached its third generation. “There are no pat answers,” said Michael Krines, “but what matters is that all of us – neighbours, competitors and suppliers – should talk to each other.” A further aspect was added by Claudia Rüdinger, owner of several retail outlets in Düsseldorf: “The question of succession is also a matter of vision as to how the clothes retail trade can be sustained as such.” The ideas that were put forward led to a lively discussion
between the panel and the audience, illustrating the emotive character of the topic.
The earlier the issue of succession planning is addressed, the better. Dr. Berck recommended that company owners should deal with this question about two or three years before their planned retirement. One person among the audience who had undoubtedly made the right decision was Heide Meyer, owner of Lady M., a retail shop in Berlin. Her future successor, Katharina Breustedt, took the floor and
proved that there are still young people who are prepared to accept the risk of selfemployment with both enthusiasm and commitment.
A political perspective was added by Dirk Nebel, member of the German Parliament and general secretary of Germany’s Liberal Party, the FDP. The most essential aspects, he said, are plannability, the acceptance of responsibilities, the predictability of policies and a stable political framework. The areas he identified as “building sites” were inheritance tax, the corporation tax reform, indirect labour costs and industrial law.
In conclusion, all delegates expressed their appreciation of the event and the topic which had provided them with some hands-on practical information.
The next Innovation Forum will be held in the usual time slot, a day before Body Look (July 21, 2007).
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