How Can Legal Expertise Smooth Succession Transitions?

Succession planning is critical to ensuring the long-term success, even survival, of a community bank. But the succession planning process can feel overwhelming, especially for a bank that hasn’t been through it before.

A legal team can play an important role in helping community banks devise a watertight succession plan that adheres to its corporate guidelines. The role of the legal team in succession planning includes the review and preparation of critical documents as well as consulting with banks about the strategic aspects of their succession plan.

“It’s always important to get legal counsel involved in the succession planning process and keep them involved and informed,” says Phillip Buffington Jr., a partner with legal firm Balch & Bingham LLC, who has helped many community banks draft succession plans. “There are a lot of different things that can happen throughout the process that can change the way you look at things.”

Walking through the process

Legacy Bank, a family-owned, $800 million-asset community bank in Wichita, Kan., went through the succession planning process to prepare for the retirement of fourth-generation owner Frank A. Suellentrop in 2018. 

“At that point, we knew we needed to start making some plans and decisions,” says Steven F. Suellentrop, who, like his father, is now president and CEO of the bank. 

The management team engaged attorney Greyson Tuck, president of legal and consulting firm Gerrish Smith Tuck, to assist in drafting a succession plan that would meet their goals. 

“[Tuck] served as an advisor and consultant to help us figure out how our succession plan would fit into the overall strategic plan of the bank,” says Suellentrop.

According to Tuck, the first step in creating a succession plan is taking a “talent inventory” to see if there are currently employees in the bank who are capable of filling leadership roles. 

“This isn’t just the CEO, but other leadership roles as well,” he says. “If the answer is yes, that’s great. But if the answer is no, how are you going to get the leadership talent needed for succession?”

At Legacy Bank, executive vice president Brad E. Yaeger, who’d been with the bank for 30 years, was tapped to serve as president from 2019 to March 2022, before Steven Suellentrop assumed the president’s role. 

“[Tuck’s] knowledge and experience working with other family-owned community banks was invaluable,” says Suellentrop, noting that the attorney continues to provide input and advice to Legacy Bank’s senior leadership team. “It’s an open line of communication—we’re able to bounce ideas off Greyson as we navigate operational and organizational changes.”

Lining up legal documents

A legal representative can also help ensure the community bank’s succession plan documents are all in order. Tuck, for example, reviews key legal documents, which vary from bank to bank but typically include corporate bylaws and governance, shareholder and regulatory agreements, employment contracts and compensation agreements. 

“All of these must be drafted in an appropriate manner, and this responsibility falls on the legal team,” explains Tuck. 

Executive compensation documents are especially important. “If you’re going to recruit executives with equity compensation, you need an attorney to draft these compensation plans,” he says. “There are a lot of rules and regulations that need to be followed.”

Buffington stresses the importance of the role the legal team plays in providing counsel about the regulatory and corporate governance issues that arise during succession planning. “Legal advice is critical in these areas,” he says. “The legal team also designs, structures and drafts the legal documents that facilitate the transfer of bank ownership, either through a buy-sell agreement, shareholder agreements or partnership agreements.”

Some community banks have asked Buffington to send them a copy of a boilerplate succession plan they can just mark up. “But succession planning isn’t cookie-cutter like this,” he says. “Every bank has its own characteristics and issues that need to be addressed. If a bank thinks they can just change the names on another bank’s succession plan, I tell them that isn’t going to work.”

Tuck believes that one of the most important roles of the legal team in succession planning is helping banks overcome inertia and get started. 

“Succession planning is a hot topic nowadays, so I doubt there’s a banker who would say they didn’t know they need to think about it,” he says. “The hard part is actually developing and executing the plan and making it happen. This is often where we bring the most value to community banks.”