Succession Planning, Taxation and the Proposed 2017 Valuation Regulations – Peeling Back the Onion

December 02, 2016

Listen to session attendees talk about what keeps them up at night, the roles tax and regulatory policy play, and what they’re doing to develop their leadership bench.


Dave Plaskow: Welcome. We’re here at the EisnerAmper Business Summit. I’m Dave Plaskow. We’re delighted to have with us Dave Adams of Savory Systems. Dave, what are you finding is the biggest unknown in succession planning today?Dave Adams: We’re doing well, we’re growing, but you never know, there may be some fallout. We’re somewhat of a recession-resistant industry.

DP: Let’s take a step back a second – what does your business do?
DA: We do natural flavors for the food industry.
DP:What are you doing to develop your leadership bench, so to speak?
DA: I have a core of people that are managing the company now, so I’m not as involved in the day-to-day.
DA: When you start a company you’re often doing everything as a one-man show, with contract production.
DA: This has worked out really well. I have more time to think about things and work on special projects.
DP:One of the things that is going to come into play with succession planning is the estate tax and we’ve heard about it on the federal level. Is estate planning impacting your strategic planning?
DA: Oh yeah. I’ve actually moved some shares to my daughters, so it’s protected there. My wife and I own a company, but now they each have a chunk.
DA: So that takes out a big possibility on the estate tax into a trust.
DP:And one of the things that they’re going to be talking about in the seminar is the proposed 2704 valuation regulation. Is that really a big deal? Is that something that impacts you?
DA: Well, that’s what I’m here to check on.
DP:Why is it such a big deal?
DA: Because I don’t know much about it yet. It seems everyone is giving out more money and we’re getting more taxes. New Jersey is a tough state, California is a tough state as is New York. At least New Jersey backed off on the state taxes.
DP:Any way you slice it, it’s tough for businesses.
DA: Yeah. The food business is pretty stable. But take some other industry. I know a guy around the corner in construction. If he has a recession 35% of his business goes away. How do you recover from that?
DP:Thanks for your time David. Welcome and enjoy the seminar.
DA: Thanks.
DP: Tell us your name, your company and what your company does.
Jay Benegal: My name is Jay Benegal and I’m with the Citizens Financial Group. I’m a commercial banker and I work with the legal industry.
JB: Part of what I do is provide thought content back to the industry, and succession planning is something that’s been on many legal leaders’ minds.
DP:What do you think’s the biggest unknown about succession planning?
JB: If you look at some of the statistics, when you look at the distribution of age in a firm, you know new associates come in in their late 20s and it goes to around 65, which is usually the mandatory retirement age at law firms. The concern of legal leaders is that most of the business is concentrated toward the top end of that distribution. So age 55-65 is where – in many cases – 30%, 40%, even 50% of the revenue come from, in that 10-year band.
JB: As these partners start to cycle out, either they get de-equitized, they leave or they retire. The fate of the client is the big question mark. From a legal leader’s perspective, he or she wants to make sure that they hold onto that client. So much of their revenue comes from a small population of attorneys. Most of the rainmakers fall into that category. Legal leaders want to figure out how to solve that issue.
DP: And what are these leaders doing to develop the next generation of rainmakers?
JB: That’s a great question. I think the advice that most of these people are given is get the younger attorneys involved. You look at the Millennial population and for the first time a population has grown larger than the Baby Boomer population. As these Millennials start coming into the law firms, get them involved on matters, engage them, send them for training in terms of how to do business development.
DP:Take then on calls.
JB: Take them on calls.
DP:Get them involved early.
JB: Correct. Introduce them to the clients. Let the general counsels they work with get to know them.
JB: So there are multiple hands touching relationships and not just concentrated with one or two partners.
DP:How is that impacting your strategic thought process?
JB: The way I engage law firms is from a qualitative standpoint. I work very closely with law firms on pro bono and also on diversity and inclusion.
JB: There’s a crescendo with the dialogue around diversity and inclusion in terms of how diverse law firms are better for business. So, there’s going to be a change in dynamic in terms of how law firms are going to tackle diversity and inclusion – it’s going to become more important I think with legal leaders focusing on the makeup of the firm itself.
JB: Because there’s a drop off at the partner level for minority representation and gender representation as well, and many leaders are trying to grapple with that right now.
DP:It’s a huge issue out there right now. Jay, thanks for speaking with us.
JB: Sure.
DP:Enjoy the seminar.

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