Family Business Succession Plan

IOPARA INC. WIND TURBINES AND AERONAUTICS SUCCESSION PLAN

Family Business Management

Succession Plan

IOPARA Inc. Wind Turbines and Aeronautics

Lecturer: Dr. Liza Gernal

By: S.Surugiu, M.Lamo, I.Yunus

American College of Dubai Fall 2012 Session 1

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Company Profile

Company Name: IOPARA Inc.

Services and Expertise: Wind Turbines and Aeronautics Consulting

Industry: Renewable Energy

Company Classification: Top 10 Consulting in VAWT ( Vertical Axis Wind Turbines)

Operating Years: 1991-present (restructured in 2009)

Team:

Ion Paraschivoiu, Ph.D., Engineering

Professor at École Polytechnique de MontréalFounder and President of IOPARA Inc.

Marius Paraschivoiu, Ph.D, Engineering

Professor at Concordia UniversityComputational Fluid Dynamics (CFD) Expert

Liliana Surugiu, Ph.D, Philosophy of Sciences

Social and Environmental Impact Assessment Expert

Sabina Surugiu, Bsc.( Student)

Regional Representative MENA Region

Alexandru Surugiu , Bsc. ( Student)

Regional Representative for North America

Farooq Saeed, Ph.D.

Professor at King-Fahd University of Petroleum & MineralsComputational Fluid Dynamics (CFD) Expert

Wei Liu, Ph.D.

Wind Resource Assessment Expert

Norbert V. Dy, M.Ing., ing. jr

Ph.D. Candidate at École Polytechnique de MontréalWind Turbine Design Analyst

Country of operation: Montreal, Canada.

Website: www.iopara.ca

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Abstract

For most family and closely held businesses, planning for succession is the toughest and most critical challenge they face. Yet succession planning can also be a great opportunity to maximize opportunities and create a multi-generational institution that embodies the founder’s mission and values long after he is gone. The industry of renewables is a rare yet unique place for family businesses. In this case, IOPARA Inc. will be looked at as business of intellectual property as its asset.

This succession plan was created using the founder's beliefs, statements and strategies. It provides the reader an in-depth insight into its family business operations, policies,

cooperation of FMEs and the FBL, future planning and ultimately –a succession strategy .

Introduction

88% of current family business owners believe the same family or families will control their business in five years, but succession statistics undermine this belief. Only about 30% of family and businesses survive into the second generation, 12% are still viable into the third generation, and only about 3% of all family businesses operate into the fourth generation or beyond. The statistics reveal a disconnection between the optimistic belief of today's family business owners and the reality of the massive failure of family companies to survive through the generations.

A family business is a company that two or more members of the same family own or operate together or in succession. Succession is the act of succeeding another and the right to do so; as defined by Webster New World Dictionary. Family Business Succession is the act of succeeding an organization to a family heir or the decision to sell the business to another

party .

Why, one might ask, is it important for family businesses to create a succession plan? As one author put it, “businesses are tenuous things; if your family is out squabbling about what is

going to be done with this asset; the business is going to suffer”.

As well, almost every research article/journal written about succession planning states that more than 70 percent of family owned businesses do not survive the transition from founder to second generation. What can be even more startling is that only 5 percent to13 percent of family business transitions are completed to third generations. With the failure rate of transitions from one generation to the next, one may be inclined to ponder on why companies do not create these strategies.

IOPARA Inc. does have a succession plan incorporated into its overall business plan, that gets updated and discussed frequently as this is part of innovation, and IOPARA is a

constantly-changing, ever-growing business .

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Why Business Owners Don’t have Succession Plans

In lieu of these findings, one must discover why family businesses don’t create succession plans when the failure rates are so astonishingly high. There are a multitude of reasons for why businesses don’t use them and one could be associated with the fact that the successor does not believe that the predecessor will ever retire.

A recent study conducted by Arthur Andersen’s American Family Business Survey found that between a quarter and a third of leaders of family businesses either don’t intend to retire or plan to remain involved in some capacity in the business throughout their lives. In relationship to this affirmation, IOPARA's founder is very clear and objective, through personal observations of other businesses, that his business needs a clear planning and strategy of succession, as this marks the survival of the company.

Another justification of this is that the talks of succession are such a taboo subject in the family because it deals with money and death. The United States is notorious for lagging in communication about money and death, and mixed in with the greed the western civilization is infamous for; it is no wonder why communication of these issues are never brought to light. As Susan Ward put it; “succession planning can be especially complicated because of the relationships and emotions involved - and because most people are not that

comfortable discussing topics such as aging, death, and their financial affairs”.

The mindset of the FBL at IOPARA, complemented by his FMEs, simply do not belong to a ''taboo mentality''. Definitely, certain things that are problematic or faulty in nature would not be discussed openly, but overall, issues related to business are usually put straight-forward. It would be false to state that IOPARA is the perfect family business, or that it does not have any issues, and it is perhaps admitting its faults and defects that maintains it in an

exemplar position .

Family Business Succession Plan

The First Element

Creating and Sharing Personal Vision Statements

Out of tens of thousands of businesses in the renewable energy industry, and narrowed down to the wind turbine energy, an important element is the family business leader's personal vision statement. The particularities of such personal beliefs lie in the owner's own motivation and passion, commitment and ambitions. It could be realistic and bold to state that A scientist-researcher in the aerodynamics field will always have ''pocket visions' 'and be less prone to material fulfillments and requirements, as scientists usually see their achievements from a self-satisfactory perspective. This perspective is a window to scientific achievements, such as publications, awards, recognition, inventions and the overall patenting/copyrighting of unique scientific progresses.

Dr. Ion Paraschivoiu, Founder and C.E.O of IOPARA Inc., is strongly linked to the idea of using natural resources for self-sustainment. He believes that the Earth alone can provide for its inhabitants without its constant exploitation and drainage of resources. He goes by a simple,

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yet complex, oxymoronic vision statement: ''The sun, wind, soil and water have never-ending generosity, and it is all for free''. this personal vision statement is accompanied by a retirement plan that implies passing this vision on to future generation in order to achieve maximum self-fulfillment The ''free'' element does include expenditure on technological equipment and research, but overall the return is reliable and long lasting, and expenses constitute an overall 5to10% of the current input into energy.

Material Desires

A father of three, Dr. Ion Paraschivoiu had a rough childhood. Growing up in a single-parent household, he was sent to study at the boarding school at the age of 11. The will to succeed on a personal level served a base motive for excellence in studies, early entrepreneurial activities, and ultimately-family motives. His main material desire was to offer what he did not have access to as a child to his future offspring, as well as to contribute to philanthropic activities, to which he dedicates sizeable amounts of personal income regularly.

Amount of Time to Spend Working in the Family Business

The FBL believes in commitment, dedication and persuasion as key ingredients to success in any field.

The above values are reinforced by him into every FMEs and Non-FMEs agenda, through every aspect and nature of the business structure. For instance, the duties that the employees are to perform require a disciplined manner of systematic, lucrative perfomance, such as answering to potential/clients' enquiries, updating schedules, organizing calendaries

and to-do lists, as well as future planning .

The amount of time to spend working is usually longer than in a non-family owned business. But, considering the office's actual location and most of the meetings occuring at the owner's residence, this time is fairly spent in a family environment.

Role in the family business

When asked about family, Dr. Ion paraschivoiu answer's is universally applicable in his colision of family-busniess daily routine, and it is expressed as : '' when you consider having a family business your most important asset is your family'' . In IOPARA's portfolio, each FME has not just willingly offered their involvement into the business, but was also asked of a personal vision statement as well, thus the compatibility of the two is a primary element in hiring decisions. To begin with the spouse, Liliana Surugiu, acts a Chief Trust Officer and a Socio-Environmental Impact Consultant, in which Corporate Social Responsibility is included. His eldest son is an engineer in the same field, being groomed to become the next FBL in the Second Reign, and the nephews and nieces carry the business representative work in their

respective countries of residence .

Thus, roles are divided carefully and according to each FME's strenghts and each quality is carefully analyzed in order to add the most value to IOPARA.

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Emotional Rewards from the Family Business

The FBL's primary reward is that of an emotional nature. The business offers all the members of the family continuous closeness, interaction and communication. The industry of the business is noble and unique, and it is most of all part of an overall beneficial, positive approach to the nature, economy and scientific advancement. The business's current activity and planned continuity and growth provide its participants with a balanced life, a stable income, increasing opportunities of self-development, excellent mentoring and establish the essentials to a future dynasty.

Semi- or full Retirement

It is clearly stated in both the company's vision statement as well as the founder's personal vision statement that all employees, whether FMEs or non-FMEs, are the solid base of the business's structure. In the process of its development, every new step to advancement provides future securities, and on the contrary, reminds every employee that the legacy includes future generations as well. In the retirement context, Dr. Ion Paraschivoiu has carefully considered important realistic perspectives, such as age, ability and health. His personal retirement has already began, as he cedes most of the current projects to the future FBL. As for its employees, IOPARA recommends a pension scheme, used by the C.E.O, where employees are advised to plan and manage their finances to achieve higher retirement accounts and better social security insurances.

Compatibility of Company Vision Statements with Personal Vision Statements

At IOPARA ''the company'' and the FBL are not two different entities, the company is indeed, almost entirely-him, as we have to re-mention, the nature of IOPARA's services is purely intellectual. However, to enable the existence of the company, it is necessary to have a supporting system for both IOPARA and its founder, and that support system consists of its FME and Non-FME employees, who share his visions, if otherwise- are always welcome to suggest theirs. This cooperation enhances an overall vision statement, and helps the two complete each other harmoniously. Both company and personal vision statements are lucratively synchronized towards a strategic direction, that would make possible a long-

range company vision .

Compatibility of Co-FBL's Personal Vision Statements

Presently the company does not have co-FBLs. However, it is important to mention that the company did not enter a joint-venture due to incompatible vision statements with a potential Co-FBL. IOPARA is a risk-assuming company in terms of ideas, technology, innovation and research. But restructuring it would erase the ''family'' business concept,

which is an extreme risk .

The Second Element: Hiring and Firing FMEs

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In a family business, the ''business is business' slogan does not apply with ease, as it would facilitate the company to become a ''Business-First''-type, instead of ''Family First'' or a combination of both. While IOPARA Inc. advocates a productive combination of both, it is definitely more inclined towards family bonding and family-member oriented.

Hiring/firing are probably some of the toughest tasks of an FBL or a family business council, as it can some time provoke negative reactions or weaken relationships. The ethics of these

decisions are now strongly influenced by emotional aspects .

Hiring/Firing Policies

As every other well-structured business, IOPARA has its own policies regarding hiring and firing, that apply to every FME and Non-FME. That can be explained by firstly- a very democratic view of the FBL on career progression as an individual achievement, and secondly- due to the fact that in a 50-year long career, Dr. Ion Paraschivoiu has established

family-like relationships with his business partners and Non-FME employees .

FME Eligibility

At IOPARA, background, gender, age, belief, and field of operation is never considered. Positions are open to anyone as long as the candidate can prove him/herself in different situations, demonstrates the ability to sync with the family business dynamics, is willing to learn and can add something new and valuable to IOPARA.

Evaluation of Potential New Family Member Hires

The eligibility of every potential employee is, in the company's written policy- individual, situational and opportunistic in nature. If the future employee has proven ambition or track record in a particular field that is necessary to the business, the candidate is eligible. If the candidate is a fresher, undergrad or even a teenager, a subjective evaluation on the person's behavior, intelligence, abilities, personal vision and SWOT statements are all to be

considered by senior FMEs and the FBL .

Dismissal of FMEs

FMEs are to be dismissed either through trial and repeated error, common agreement between the other FMEs, or resignation. IOPARA is a unique type of business- it does not require anyone to attend an office, complete a certain degree, work a certain amount of time. It is that what makes it an interesting concept to join and the opposite, quite difficult to cope with, as the company requires only one thing- delivery. Delivery and performance, as long as not achieved through unethical practices, are the main factors to someone's advancement and personal gain at IOPARA. Dismissal has yet never happened with an FME. The founder believes it is the voluntary work that comes out of personal ambition to succeed that keeps FMEs on the right track. Particularly, this is due to the fact that only 25% of immediate relatives are involved with the company. These are candidates that chose to join the company's cause and mission voluntarily.

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Considering the Pros and Cons Before Saying Yes to Becoming an FME

The FBL does not persuade or invite family members to join his business. It is personal choice and interest that attracted its current employees to IOPARA .

Motivation to Join the Family Business

Personal motivation is an undisputable necessity in any activity. Motivation is linked to success only when voluntary and positive. Lucrative objectives, aims, and positions can be reached or missed according to one's motivation. A clear policy at IOPARA is that positive motivation is the only motivation to be factually considered. Negative or material motivations are undesirable ingredients at the company, as well as in the renewable energy industry.

The FBL/ The Other FMEs

The FBL's seniority and experience in the industry, as well as over 40 years of teaching and training experience, provide a good place in the company for any candidate who considers mentorship and intellectual growth. Tyranny, rigid schedules, orders and sanctions are not in IOPARA's agenda, as its employees and C.E.O use a human-wise interaction with shared beliefs, such as- we are adults and can solve issues diplomatically, and – we cooperate, not compete, for the company's benefit.

Life Balance and Work Role

As referred to in many paragraphs throughout this research paper, IOPARA Inc. is an unusual place to work in and provides a lot of free time. In fact, work is independent and one can choose how much he/she would like to dedicate to the company and what are the rewards

they seek .

The Finances of the Business

The business was initially a project sponsored by the Canadian Aeronautical Centre for Research and Development, directed and proposed by Dr. Ion Paraschivoiu. After the completion of their intended purpose- the biggest vertical axis wind turbine in the world, sole proprietorship was rewarded to the current FBL, who restructured and added family value to it. After collaborations with 15 countries worldwide, IOPARA has a strong financial

background and promising future finances .

The Bias of the Non-FME against Nepotism

The FBL does not encourage nepotism and even the usage of ''FME and Non-FMEs'', as one of the roots of this business was strong cooperation with non-family member associates and

partners .

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The Third Element: Compensating FMEs

Under this aspect, a company must also address methods to guarantee that key employees remain with the business upon the death, disability, or retirement of the predecessor. Grassi and Giarmarco gave four techniques that can help to assure that the key employees remain with the management team. Out of the following, IOPARA is using no.1, and 3.

1 (Employee Agreement: A written employment agreement will establish the key

employee’s duties, compensation, and fringe benefits. To protect them, the agreement

can establish a set term and provide them with a severance pay if their employment is

terminated without cause (which would have to be defined in the agreement as well.)

2 (A non-qualified deferred compensation (“NQDC”) plan (sometimes referred to as a

“golden handcuff” plan): This is an agreement where the business promises to pay the

key employee a benefit at the loss of the founder. In return, the company gets

continued employment through the specified term provided in the contract. The benefit

is that neither the company nor the receiver has to report any payment until it is made;

thus no extra taxes or expenses will have to be incurred. The tradeoff is that the

company gets a promise from the key employee to not leave before the specified date,

and the employee gets a promise not to be terminated earlier than the date. A violation

on either party results in the loss of the benefits or the required payment of all salary

that was promised.

3 (Non-qualified Stock option plans: A contract between the company and key employees

that give them the right to purchase a specific number of the company’s shares at a

fixed price and a vesting period is placed on them that sets the time standards for when

they can be sold back. This helps motivate the employees to do their best and ensure

that they will remain on the team as to maximize the profit until the shares can be

cashed in. A general rule though, is to write into the contract that the shares cannot be

sold to third party outsiders, but yet they have to be sold either back to the company of

to the current owners (It must also be written that the selling of the stock must be voted

on by the board and sold back equally to the group so if there are more than one

owners involved, they remain equal with their shares.

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4 (A change of control agreement: These generally provide that the key employee’s terms

and conditions of employment (i.e., duties, compensation, benefits, etc.) will not be

adversely changed for a set period following the transfer of the business to the next

generation of owners. If they are fired, then the agreement will ensure that they

continue to receive the amount agreed upon, as if they still worked there, for the length

of the contract.

Equal Pay FME Compensation Policy/ A Clear, Deliberate and Consistent Compensation Policy

IOPARA has an Equal Pay Compensation Policy for every entry, mid-career and senior-level employee. It states commission percentages, bonuses and incentives, basic salary and allowance packages. It is to be considered that IOPARA's profits are project-wise, thus

commission splits and shares are the most common sources of income for its employees .

An important detail about the structure of the organization is that the founder and the Chief Trust Officer are the only exclusive employees of the company. The rest of the FMEs represent the company from distance and usually have other full-time jobs as well, to gain experience in different fields relevant to the industry of activity of the company. The concept and nature of IOPARA make it possible- a consulting based on intellectual property, project designing, a sales and marketing department, an agreement and a profit. These are the

literal steps and necessities of every project developed by the company .

Desires for FME Material Lifestyle

FMEs are advised not to seek sole material rewards out of the green energy business. The purpose of the company is to contribute to energy development and ecological preservation of the environment, in which IOPARA is actively involved.

Resentment of Family Members not Active in the Business

Although not universally possible, in some businesses like IOPARA, there is less space and compartment for resentments. The model of the way the company functions simply allows no resentment to happen, unless unavoidable and due to other personal reasons. Another employee policy provides every member who is non-active in the business, the right to equal commission and profit sharing if the particular member introduces a new project or directs

clients through referral to the company .

Excessive FBL Compensation

This subject can be touched with a hint of humor. The FBL is over 65 years of age, grew up in modest conditions, enjoyed luxury in considerable amount, but is, nevertheless an ''old-school'' person with no particular hobbies to invent into except turbines and technology.

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The Fourth Element: Selecting the Family-Member Successor

The third level is to determine who will manage the business and to develop the

management team. It is important to recognize that management and ownership of the

business are not the same. The day-to-day management of the business may be left to

one child, while ownership of the business is left to all of the children (whether or not

they are active in the business). It is also possible that management may be left in the

hands of key employees (or outsiders) rather than family members.

Procrastination

Procrastination is an unavoidable subject in most of family businesses. Likewise, IOPARA's founder admits that perhaps that is indeed one of the very true defects of the company's leadership. Dr. Ion Paraschivoiu understands the necessity and imminence of retirement,

and has an occupational dilemma that most of FBLs deal with upon retirement .

Birthright

One of the reasons pointed out for the lack of succession plans was the early ideologies of

primogeniture, to which there are a couple of strategies to overcome the problem of having more than one child in line for control .

•Executive Committees: Under this method, a family turns over the company to two or

more children who will run it jointly as an “executive committee.”12 If the company only

wants one “head person,” then they can take turns acting as active president rotating

every year or two.

•Split Duties: The predecessor can give each child a different area of responsibility with

equal importance. This can be done by dividing the owners stock equally and allowing

each member to take over a department in which they are the strongest at, i.e. accounting,

finance, management, human resources, sales, and/or any other individual departments

that the firm has .

IOPARA uses the ''split duties'' method as an exodus from competition and future disagreements between FMEs. However, Dr. Ion's two sons have taken different paths as the eldest followed his father's footsteps, and the youngest chose freely a completely different

field of activity .

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Communications and Objectivity

The future FBL is trained/ mentored to maintain quality communication manners, to represent IOPARA's integrity and competence in a similar manner as it was initially established. It sis crucial to avoid deviations from the ''patented'' way the company manages

projects and attends client in order to keep the idea and trademark alive .

Such requirements and specifications are also communicated with objectivity to the future FBL, to establish a solid, sincere, communicational channel between the two .

Needed Passion

Dr. Ion Paraschivoiu argues that passion constitutes 90% of all successes. While it may not be necessary for the other FMEs to demonstrate and possess passion towards engineering and the energy industry, it is important for each participant to be committed and passionate to their respective fields- marketing, business, sales and socio-economics. The successor demonstrated and stated a personal passion towards the industry, and that is what makes a second reign possible.

Needed Vision of the Big Picture Potential

The successor is required to understand basics in business and transactions, legal matters and copyrights, diplomacy and public relations apart from the engineering aspect of the C.E.O/Presidential position. An expanded vision and an outlook at tomorrow's picture of the renewables energy as an ever-growing industry will push and motivate the FBL to keep up

with the current standards of IOPARA and facilitate innovation .

The Fifth Element : Grooming the Family Member Successor

Leadership development is a much-missed ingredient in many family businesses. On the FBL's ability to coordinate, direct and lead depend most of factors of the business's survival and growth, as well as peaceful FME, Non-FME interaction. Being a business leader does not only oblige one to facilitate and improve every operation, but it also attaches additional

requirements such as- keeping the business in a state of stability and progress .

Certain qualities of an FBL can only be trained and embedded within a candidate, or learnt the hard way through experience. In the case of IOPARA, such knowledge is already available

and passed on to the next FBL through mentoring and fathering .

Transferring the Wisdom of the FBL

The FBL has an accumulated quantity of experiences, failures, achievements and personal wisdom theories. Transferring this wisdom does not guarantee a copycat-like result to be mirrored on the successor, but it provides a solid base ground for learning.

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Having a Successor Development Plan

Such development plans can start their implementation in anticipation to the new successor. In cases like IOPARA, Dr. Marius started his ''training'' at early years of childhood. It was a combination admiration, following an example, inspiration and desire to achieve the same

recognitions as his father did .

Nevertheless, at these early stages of behavioral observation, Dr. Ion Paraschivoiu could foresee that one of his sons would follow his career path and was prepared to present him with all the support that might be needed, such as : education, mentoring, mediating, advising and overall polishing of these abilities.

Such educational techniques transformed into a development plan which now has objectives, targets, improvement techniques and involvement into the business.

Giving up Control

''When you build up a business from scratch through years of hard work, one tends to get accustomed with leadership and control. Giving it up is similar to quitting smoking- for successful results, it has to be gradual''. The above is the C.E.O's personal statement regarding control. His view on this matter is that it should be done step by step, until one

decides on its own that the time of leading has come to an end .

Involving the Successor in the Company's Strategic Planning

The successor is working hand-in-hand with the current FBL in all matters of strategic, business, research and development content .

Allowing the Successor to Make Mistakes

IOPARA allows its FMEs and future FBL to make mistakes. It is believed in the company that without mistakes there would be no work ethics, experience, technical knowledge or striving to excellence. Advancement in science is achieved through trial and error, and as a successor, the FME's time to make mistakes is now. As an FBL there are higher expectations,

more pressure and personal desire to excel .

Investing Enough in the Successor's Training

The successor's training is as important as the FMEs'. There is an equal input of finance and efforts into every FME that presents a potential key employee or FBL. The current successor in line is a professor at the Concordia University in Canada. His educational background goes back to private schools and the M.I.T. University of Michigan, U.S.A. Continuous courses of certification, training, conferences and individual research, as well as actual working

experience are believed to enhance his capabilities as an FBL .

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The Sixth Element: Aligning the Culture of the Family Business with the Company Vision

Culture can break or make certain family businesses. An overall analysis of family businesses worldwide can point out similarities and differences, according to each geographical zone

and its respective cultures .

Culture is to be considered as a set of shared values, attitudes, beliefs, traditions and views on participation and leadership. It is important to work in adaptation according to the place of business operations, in order to keep standards or mutual respect, understanding and to increase local customer bases.

FMEs and Non-FMEs Interpreting Communication Differently

IOPARA's employees (FMEs and Non-FMEs) constitute a variety of cultural backgrounds. Its successful operation proves the actual, peaceful co-existance between its people of eventually very different views and mentalities.

Communication can come about in a very difficult way sometimes. Some non-FMEs do not possess working proficiency in English. This can be very challenging to deal with. But at IOPARA these obstacles are overcome through all available instruments: translators, training, language courses, etc.. The importance of these candidates' skills is higher than their language proficiency. Some experts are rare and extremely skilled, and language

barriers this should not be an impediment if they can add true value to the business .

Unclear Guidelines as to what Business Discussions are not Allowed

While many businesses may have guidelines restricting topics and discussions, IOPARA believes that anything from proprietorship to financial data can be discussed with the FMEs. Opposing this so-called by some ''risky'' freedom of discussion, IOPARA's policies encourage exchange of ideas and information, and confidential information is, of course, not discussed.

The rest of business discussions follow a free flow within the company .

FBL's Willingness to Open to FMEs' Innovations

The FBL's attitude towards innovation is agreeable and introverted. It is precisely thinking out of the box and bringing in new, unique concepts that paved the road to IOPARA's establishment. Employees' suggestions are to be always considered and innovation is welcome into any area of activity, such as project planning, finances, business strategies and

development, marketing and communications, etc .

Cultural Attitudes toward Female FMEs

Female FMEs equal the male employees' number-wise. There is no specific attitude or gender differentiation. This is the sum between both the FLB's personal attitude towards

women and the overall family's cultural background .

Sibling Rivalry

Sibling rivalry is present on IOPARA's podium in two separate cases. The first one is a past rivalry between the sons of the founder, which ended when the youngest one chose a different career path.

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The second, present case is a clash of interests of the two Business Representatives and Managing Directors. The siblings, brother and sister, have lately decided to share areas of influence geographically, according to their residence areas. Currently one is the Regional Representative for North and South America and the other –Regional Representative for the MENA Region. They both have access to other projects globally, including Europe, Africa and

Asia. This strategy and specification of jobs has helped dissolve any precedent rivalry .

Work Ethic Expectations

All IOPARA employees are expected to follow basic and industry-specific ethical principles .

The ethical code of IOPARA describes briefly the do's and don'ts in every business matter: financial transactions, project planning, quality control, accounting, business proposals and negotiations, contracts, agreements and third-party agreements, joint-ventures, patents and

trademarks .

Clear Policy for Evaluating FMEs

Employees are frequently evaluated performance-wise, rewarded and given constructive criticism or appraisal. The policy is unwritten, however, since the number of the employees is low, the FBL has clear policies in evaluating FMEs, either in the technical department, of which he is qualified to evaluate, or business-wise, given evaluations of achievements, clients and profit brought into account.

Required Alignment

The communicational channel between elders and children at IOPARA is well-functioning, practical and relaxed. Problems can be directly discussed, rapport and report are establishments prior to the existence of the business. It is important to mention that family businesses succeed when it is not the business that causes alignment and requires its FMEs and FBL to communicate regularly, but it has been a present value prior to the company

activities .

The Seventh Element: Addressing Spousal Business Partners' Multiple Role Challenges

Spousal role challenges can be very acute and pressuring. The survival of a business depends greatly of the spousal situation of business partners/co-owners. Individually, each case would prove that effective communication and cooperation would ultimately maintain a

family business and help achieve its desired targets .

Compatible Vision Statements

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It is quite common to have a dominant spouse in every marriage, whose vision would become universal in that situation. This dominance can be expressed through multiple tools:

education, experience, human relations, strategy and many other business-related aspects .

IOPARA's FBL's spousal life presents a harmonic symbiosis of business and marriage. The compatibility of the two has deep roots into their similar background, expertise, career and

opinions .

Clarified Areas of Spousal Business Authority

The technicality and operational activity is handled by the FBL, while the business development and project management, CSR and socio-economic issues are handled by the spouse. This provides a divided, structures area of authority and provides comfort and self-

satisfaction to each spouse .

Commingling Business Role Responsibilities/ Similar Views on who Should be in Charge

General decisions, critical analysis, hiring/firing and structuration are common areas of influence and responsibilities. Commingling these plus the daily responsibilities facilitates a flow of strong rapport and diminishes competition.

Marriage, Rather than the Business- Centre of the Relationship/ Problems at Work Spilling Over into Spousal Life

As areas of authority are split, some general are to be managed by both and other FMEs.

Possessing divided control over other aspects can easily be interpreted as accustomed control, which sometimes causes clashes. These clashes and other disagreements regarding each other's areas of activity, bring about criticism, misunderstandings, unapprised

achievements and ignored efforts .

In the long-term in a family business, spouses may engage in professional competition and neglect marriage obligations. IOPARA's leading spouses have encountered that problem in the first years of operation. Their continuously increasing matrimonial problems have stopped the business from growing, and an alternative route had taken the business back to its initial phase. Duties were re-divided, the company was re-structured, and after an in-depth analysis the FBL has decided to keep the company in a home office, as the services of

his consultancy do not require a public office .

Making Time for Themselves

Hence the restructuration has provided the family a much needed closeness to reinforce a new, once loosed-up bond, time has become available and physical presence is not an issue

anymore .

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The Eight Element: Recruiting, Retaining, and Inspiring non-FMEs in a Family Business

Concerns About Long-Term Job Security/Career Development Opportunities

The FMEs are never lured into unfruitful job descriptions. The recruitment process starts with voluntary interest on behalf of the family member or the outsider professional, or otherwise with the FBL spotting a desired candidate to fill in a vacant position or add a

position/department to the company's structure .

Rewards, career progression and long-term job security are dependents of personal achievements, commitment, delivery and work ethics. IOPARA engages in providing water for seeds, cultivating talents, enhancing career jumps on a vertical scale, and its employees are treated as irreplaceable assets and valuable people. The human aspect plays a big role.

IOPARA's FBL quoted A. Carnegie: ''... take away my factories, my steel, my money, and all my assets, but give me my people, and in four years, I will reestablish myself .''.

An FME reporting to a Non-FME

It sometimes occurs that an FME would have to report to a non-FME, and vice-versa.

At IOPARA is seniority, expertise and age that create respect and mentoring relationships .

Important, complex tasks are given to employees according to their qualifications an capabilities, not the family ties. The team respects each other and their professions, and

sees reporting to an FME as a hassle-free process and vice-versa .

Knowing and Working With Family Business Dynamics

Each business has its own dynamics, a set of strategies and manners, rules and visions. In this context, IOPARA considers carefully the training period, in order to help the new employee blend in and feel comfortable. However, as individuals, every FME has their own style and dynamics. Blended into one pot, the company's dynamics was created, and it is

one of the main differential aspects of the company .

The Ninth Element: Transitioning Ownership to Family Members

Percentage Split of Ownership

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The percentage split was created to beneficiate the entire family by providing one or two members of each parent-child group a source of income and future security. The FBL possesses 50% of the ownership, securing his spouse and younger children, the eldest son and successor-15% (presently), the regional representatives -10% each (two members) and his second son -15%. The representatives, however, earn the highest commission

percentage split of each incoming project 25% out of total profits .

Income to Support Retirement Lifestyle

IOPARA's FBL has once implemented his own model of savings and retirement planning.

According to this model, he advises every employee to willingly save 15-20% of their current incomes to secure a realistic sum upon retirement that can also be used as capital for entrepreneurial activities at old age. Retirement pensions are provided by governments, and

rarely companies( in cases where the FME has dedicated over 30 years to the business) .

Gift and Estate Taxes

To avoid forced liquidation, there are a number of lifetime gifting strategies that can be

implemented by the business owner to help minimize the estate taxes. IOPARA appeals to

two for most of the time/situations:

Gifts in Trusts: One advantage of making gifts in trust for the benefit of the active

children is to protect them from their inabilities, their disabilities, their creditors, and

their predators, including divorced spouses. Another advantage to making gifts in trust

is that the assets in the trust at the children’s deaths can (within limits) pass estate-tax

free to the business owner’s grandchildren through a generation-skipping or dynasty

trust. Setting up a family trust can help simplify complex family needs and

responsibilities and removes the family from day-to-day business operations while

retaining their voting rights as stockholders.

5) Gift to Charity and Corporate Repurchase: Business owners who are charitably

inclined can gift some shares to children and the remaining balance to charity. Several

months later, the corporation can then redeem them by repurchasing the charity’s

shares, leaving the charity with liquid assets and the children as the sole shareholders

of the corporation. As long as the charity is a public charity, the redemption of the

charity’s shares may be achieved with either cash or a note. The reason for doing this is

to reduce the number of shares that will eventually need to be transferred to the active

children. This strategy saves income, gift, and future estate taxes. The business owner

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receives a current charitable income tax deduction, avoids capital gains taxes, and

reduces his/ her gift and estate taxes. It is important that there be no prearranged

agreement that the charity’s shares will be redeemed. Specifically, on the date of the

gift to the charity, neither the corporation nor the charity may be bound to affect a

redemption.

When and how Partners Must Sell Their Respective Ownership to Other Family Partners or Back to the Business

Such conditions have not been put into effect. IOPARA has a very small number of employees, half of which are non-FMEs who provide their services to IOPARA as independent contractors, consultants, partners, etc. Permanent employees are FME's, and such regulations have not been put in place yet. However, the successor should implement conditions determining or restricting ownership, as the business expands.

Conclusion

The key take away from the previous content is that succession planning is complex and anintegrated system that requires patience and sincerity in communications. The issues a business like IOPARA has to deal with are not always comfortably communicated about, but with the value and vigor in a family they can be conquered. As the company’s model presents, it is very beneficial to construct an advisory board to help begin the process of creating the actual succession plan. The owner must recognize and communicate their personal goals, objectives and financial needs so that the successor and advisory board understand what direction to take the plan in. When communicating these ideas, they must be realistic and attainable or the entire plan can be invalid. The next two steps are some of the most difficult to deal with, but are the crucial points of the entire plan. Deciding who will manage and own the business entity is a daunting but critical stage to help reach the summit point of a well-built, robust plan. It has been stated numerous times in this paper that the two are not one in the same. They are completely different issues and should be handled as such. Management can be left to multiple key employees while the ownership is succeeded to others. When choosing who will manage the company, the predecessor should take all merits into account and leave it to the most deserving and best suited successor.

Ownership, on the other hand; should be dealt with vigilantly. An owner does not want to create more issues inside of a family then life already presents. Therefore, it needs to be in writing and agreed upon by the family as to how the ownership will be devised and dealt with appropriately.

As a side bar note; one of the best ways to get the talks of management and ownership going, families should consider times when they are all truly together and in good spirits

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Once everyone is gathered around, simple communications about each other's goals and plans in life can be a great conversation starter. One cannot say what the best approach for an individual family is, but mere communication on these issues will have every member buzzing about what the futures hold.

A vital aspect is to face the morbid discussion of death. Every human understands that they will be deceased at some time. By clearing the air of this sinister topic, the rest of the plan can be worked on with a greater sense of relaxation. Keep in mind that the interaction still has to be kept sensitive, but must be addressed.

The last stage is very critical to the business, but not as critical to the family life. The tax and estate planning component of this paper is outlined merely to help gain a perspective of what needs to be done. The best advice to consult a personal financial planner, estate management team, and an attorney to help create a strategy to minimize the tax effects of the succession. This stage will normally not create large problems for the family away from the business, but should be given the utmost importance. Mainly because it holds great economic impacts on the business and should be dealt with so that the business may remain in operations after the succession plan has been implemented.

Business succession planning is critical to Dr. Ion Paraschivoiu to ensure the continuation of its family owned business, particularly if the owner plans to retire. An effectively developed succession plan provides for a smooth transition in management and ownership with a minimum of transfer taxes. Additionally, a business succession plan can provide financial security and freedom to the retired business owner and their spouse.

References

Agnes, M. "Webster's New World Dictionary''. 4th ed. 2003.

Brown, Buck. "Succession Strategies for Family Firms." Wall Street Journal (Aug. 4, 2011)

Fishman, B. ''Nine Elements of Family Business Success.'', E-Create, Mc Graw-Hill, 2009

Grassi, Jr., Sebastian V., Julius H. Giarmarco. "The Five Levels Of Practical Succession." The Practical Tax Lawyer Winter (2009).

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Family Business Succession Plan

Documents

Transcript of Family Business Succession Plan