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Partnership helps organizations build better relationships—which benefits the organization internally and externally. As a consultant, I’ve seen even the most broken processes meet customer requirements when internal relationships are good. But when processes are broken and the relationships are poor, woe to the customer, who is bound to suffer as a result of this combination.

loyalty results from creating relationships with customers. By establishing partnerships internally, organizations increase their skill at developing good relationships. Successful businesses do not create loyal customers solely through price or quality advantages. These features can be quickly replicated by competitors. Customers want relationships. Customers who have a relationship with a business will be forgiving of mistakes where those without a relationship will walk. It costs about thirteen times more money to attract a new customer than to retain an old one. A loyal customer base, therefore, is much more profitable than even a huge potential market.

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Tapping into everyone’s creative knowledge results in a more viable and competitive organization. Meeting customers’ demands means more profitability, which translates into company growth and employee job security. When partnerships include unions or other employee groups, job productivity improves because of meaningful involvement in quality improvement. Inclusion enables a diverse workforce to contribute creative ideas and stimulates innovative ways of accomplishing tasks.

Saturn, the newest car division of General Motors, used this principle when starting up its manufacturing facility in Spring Hill, Tennessee. Partnering with the United Auto Workers (UAW), Saturn redesigned the manufacturing process of the Saturn automobiles. In 1999 Saturn ranked number one in quality for American cars by American consumers. Three components contributed to the Saturn partnership’s success: innovative processes produced better cars; Saturn gained market share and customer loyalty; and the Saturn plant needed more employees. This meant more members for the UAW and more profits for General Motors.

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Partnerships create unique opportunities to explore new and potentially valuable ways of reducing expenses. According to John Dasburg, president of Northwest Airlines, joint marketing programs generated most of the success in Northwest’s partnership with KLM. A less heralded example of cooperation came from joint purchasing activities.

Since early 1994, Northwest and KLM have engaged in sixty-nine successful joint procurement projects producing total savings of $31 million. These projects, all nonstrategic in scope, reduced Northwest’s expenses by $4.6 million in 1995, and future annual savings are estimated at $15 million to $20 million. Furthermore, both airlines continue to expand cost-saving activities including sharing warehouse space at Schipol Airport in Amsterdam and joint ticketing and checkin counters at various other airports.

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When organizations that have formed partnerships uniquely meet customer needs, they see their market share increase and their customer satisfaction ratings rise. When Northwest Airlines formed a partnership with KLM Royal Dutch Airlines, international travelers on both sides of the Atlantic were offered an increased number of destinations. Beyond this added value, these travelers benefited from such improvements as shared frequent flyer awards, improved reliability performance, and coordinated scheduling. Passengers saved time making connecting flights and were able to spend more time at either end of the trip—a considerable marketing advantage to Northwest–KLM’s time-conscious business travelers.

As a direct result of their partnership, Northwest Airlines increased its pretax profits by $50 million a year and KLM enjoyed a healthy $150 million-a-year pretax profit increase. In December 1997, Northwest Airlines repaid a $39 million loan to the Metropolitan Airports Commission (MAC) in Minnesota more than fifteen years ahead of schedule. The loan was part of a $45 million package Northwest negotiated in 1992 with the State of Minnesota to save it from bankruptcy.

Loans from your business associates

How will your exit affect your customers, suppliers, bankers and advisers, and should you care? Again, there are no hard and fast answers, but in general I believe that outside of special personal relationships, you should not be too bothered about these associated parties. Business is business and change in business ownership is a fact of business life: owners do not in my opinion need to be advising all and sundry. However, let us consider some special relationships. You may own a business that is the major (or only) customer of a small supplier to whom you feel some sort of responsibility because, perhaps, you have encouraged him to supply only your business. Your likely purchaser could be a ‘big brother’ in the same industry that is likely to buy his supplies from his current supplier and not your supplier. In this case you might feel it necessary to advise your supplier well in advance of your exit plans.

The introduction of key customers to a new buyer is an integral part of the handover process in the sale of a business. The question is whether the seller should wait until the sale is a done deal, or give some notice to customers of his longer-term plans. The notice (hopefully coupled with a ‘best intentions’ undertaking to continue with the new owners) could be a condition of purchase and, if so, you will need to deal with this. However, confidentiality could also be the major consideration for the owner and this will need to be weighed in the balance with the advantages (mainly to the potential purchaser) of advising customers of what is happening.

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The question of when to advise employees that you plan to exit is an extremely difficult one to answer, probably because the relationship between the owner and employees is different in each business and employees themselves are different from business to business. You have two conflicting issues here, namely:

If you advise employees in advance that you intend to sell out, you are likely to unsettle them and could lose some of your key staff.

If you do not advise employees of your exit until the last minute, you run the risk of fermenting discontent, which could also result in key staff members walking out! Also, there is the overriding question of the necessity of retaining
confidentiality about your plans so as to ensure competitors do not take advantage of you in the delicate period of finalising your exit. A good example of the problem in divulging your exit intentions to employees is the following story told to me by an owner of a small business.

‘I have sold two businesses in my life,’ he said. ‘In the first, I was inexperienced and did not tell my employees that I had received an offer from a competitor until the sale agreement had been finalised. As it happened, I lost my sales manager (who had excellent relationships with my biggest customers) and the sale nearly  fell through as a result.
‘In my second business (which was IT-based) I thought I would not make the same mistake again and when I started to plan to sell I advised my IT manager and other key employees of my decision. When I was close to finalising negotiations for a sale, my IT manager (the most important employee of all) told me he was leaving! It took me 12 months to replace him, during which time the sale was put on hold, turnover dropped and the eventual purchase price was reduced. You can’t win.’

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The question we are looking at here is how much and when you involve minority shareholders (in non-family companies) in your exit plans. In all companies, the first consideration is your shareholders’ agreement. Where you have one, it should deal with the question of whether minorities are compelled to sell their shares when the majority owner wishes to and, if so, it will guide you in deciding how much and how early you need to involve minorities with your exit plans. Of course, what you need to do is not necessarily what you feel you should do and it could be a matter of personal preference when you tell minority shareholders of your exit plans.

Where you do not have a shareholders’ agreement, the position is completely different. If your plans are to sell the whole company, it is now not a question of merely advising the minorities of your intention to sell: you will need to get their agreement that they will sell their shares. In these circumstances, you need to involve minorities as early as possible in your plans and do one of two things, either get their acknowledgement in writing that they will sell their shares when you wish to sell yours (and on the same terms), or enter into a full shareholders’ agreement that compels them to do so.

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We need to distinguish between those businesses in which family members are shareholders and/or employees and those in which they are not directly involved. Taking the latter first, how much and when you tell non-involved family members about your exit plans will always be a matter of personal choice. From an exit planning point of view, it probably has no direct relevance.

Where you have family shareholders and employees in your business, how much and when you involve them in your exit plans could be vital. Broadly speaking, there will be two different exit scenarios here, firstly where the exit is through a family succession and, secondly, where the exit is through some other method.

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You could have two types of family shareholders in your business, namely, the heirs (to whom you plan to leave the business) and the nonheirs. The heirs should know all about your plans as they will (I hope!) have been closely involved in the timing of their takeover, as well as being trained and groomed over the past several years.

The non-heirs are the more difficult group to handle. Firstly, it is probably a good idea to canvass non-heirs for their views of your succession plan in general and your choice of heirs in particular. Depending on the percentage of shares held by non-heirs and the details of your shareholders’ agreement, it might be necessary not only to have their opinion and support, but also to have their formal agreement to any succession plans you have and, in this case, the sooner you advise them of your plans the better. Also, non-heirs might be key employees in the business and crucial to the continued success of the business after transfer.

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Business is solvent

Usually the least preferred exit option for business owners is to cease trading. If your company is solvent you could choose a managed close down with an orderly sale of assets as an exit option. For example, where the business is of the type that loses all value when the current owner leaves or dies (because all the business ‘know how’ is in the owner’s head) a close down might be the only practical way to exit for value.

Business is insolvent

Where a company is insolvent, the directors will probably have three choices, namely:
1 A Company Voluntary Arrangement Here an insolvency practitione will attempt to enter into an arrangement with company creditors to accept debt payment over time, or a reduced payment in total, in an attempt to save the company.

2 Appoint an Administrator An Administrator’s task is to try to dispose of the company as a going concern to realise value for creditors. If there is a surplus after creditors are paid in full, the company’s shareholders (or members) will receive a distribution. In most cases of an Administrator being appointed there is no surplus after creditors (and his fees) are paid and, therefore, no distribution to members (i.e. the owners). The usual next step after appointing an Administrator is a winding up.

3 Appoint a liquidator The appointment of a liquidator in an insolvent winding up puts the liquidator in charge of the company’s affairs and he will act to recover as much as he can for creditors. There is seldom any distribution to shareholders (owners) after creditors have been paid in an insolvent liquidation.