international markets. Russell plans to leverage Seghal’s contacts and expertise, while his children gain more experience in the company. Eventually, one of Russell’s progeny will be chosen to fill the top spot. They already have prominent roles in the company: H. Jerome, 34, serves as president and chief operating officer; Michael, 31, is vice president of joint venture construction; and Donata Major, his oldest child, works as an executive in Russell’s concessions business.
Other BE 100s CEOs are (following Russell’s lead by not rushing to place their children at the next rung of leadership. For example, the transition to the next generation has not been simple at H.F. Henderson Industries, the $24.6 million electronics components manufacturer in West Caldwell, New Jersey (No. 80 on the 1996 BE INDUSTRIAL/SERVICE 100 list). ‘The most difficult part of planning for the future is two-fold,” explains 68-year-old CEO Henry F. Henderson Jr. First, you try to gauge the personal effect that it will have on your offspring. Secondly, you want to make sure they’re qualified for that leadership role. My advisors and I look at the entire business and try to direct them toward those areas where they can best use their skills.”
Henderson is structuring the company’s three-year strategic plan. which includes the succession process. His two sons, 44-year-old Ken and 40- year-old David, have worked at the 42-year-old company most of their professional Fives. (Henderson, however, did not include his two daughters in the business. “I probably made the wrong decision there,” he laments.) Ken has a technical background, and currently serves as head of information systems and special projects. He has also managed the company’s commercial division, a unit designed to reduce its reliance on government contracts. Meanwhile, David oversees the public relations efforts.
Henderson has made one aspect of his succession plan crystal clear: his sons will not immediately ascend to the presidency of the company upon his retirement. He has tapped the company’s executive vice president, Jeff Weinsten, to assume the reins of power for a period of time. “You have to make certain that you are making the right move,” says the elder Henderson. “Just because they’re your offspring and work in the company doesn’t necessarily mean that they are leaders or want to worry about financial problems.”
AVOIDING THE TAX TRAP
Henderson is mindful of estate tax planning, like any CEO who is in the midst of overseeing a change in leadership. He is well aware of the myriad horror stories of an owner’s progeny gaining their legacy only to have to sell the company piecemeal to pay inheritance and back taxes.
In fact, only a handful of family businesses have been able to avoid paying a staggering tax bill once the founder has died and left the enterprise to his or her children.
Under the Revenue Reconciliation Act of 1993, rates can rise from 18%55% of the taxable estate–and that, of course, does not even include stare inheritance taxes.
And owners must also be careful if they sell their businesses to their children.