www.thefbcg.com copyright © all rights reserved. family business 101 barbara dartt october 25 th...

www.thefbcg.comCopyright © All rights reserved.

Family Business 101

Barbara DarttOctober 25th 2015

Agenda

1. Family Businesses are Special

2. Family Business Systems: Overlap & Uncertainty

3. High Priority Activities to Mitigate the Challenges

4. Wrap Up


Family Business “Special-ness”

Today’s Definition

• Generally, the definition of family business is very broad

• Today, a family business means:• A business where two or more

generations work together

Family Business Strengths

• Passion for the Purpose • Flexibility in Decision Making• Patience: Long Term Planning• Community Based: Commitment to Jobs and the Community (Philanthropy)

• Strong Values• Perform Better Financially

PwC Family Business Survey October 2012

Family Business Challenges

The Emotional Context• The consequences are great

• Rewards of success: stronger family & business• Pain of failure: damage to family & business

• Family Business (FB) affects your: • FAMILY • WORK (for some)• LIVELIHOOD and STANDARD of LIVING

• FB is inherently complex. But not impossible.

Family Business is Hard. Thus the expression…

Shirtsleeves to shirtsleeves in three generations.

“Generations pass while some trees stand, and old families last not three oaks.”

- Sir Thomas Browne, Hydriatophia, 1658

Padre Bodeguero Pai RicoHijo Millonario Filho NobreNieto Pordioçero Neto Pobre

- Spanish - Portuguese

La première génération la créeLa deuxième la developpeLa troisième la tue

- French

ErwerbenVererbenVerderben

- German

“Typically, the rapacity and acquisitive focus of the first generation gives way to the cautious, conservative ethos of the second and the spoiled and heedless frivolity of the third.”

Adam BellowIn Praise of Nepotism, 2004

Source: John L. Ward, 2004, Perpetuating the Family Business.


Family Business Systems: Overlap & Confusion

Family Business Systems

Family

Ownership

Three-Circle Model of Family Business

Business

John Davis and Renato Tagiuri

Systems Thinking On your handout, label the circles. Then, thinking of folks in your

family and in the business, put some names within each of the 8 areas represented by the overlapping circles.

In 10 years, how could the distribution of names change?

HANDOUT!


Systems Thinking

At your table

• What decisions or issues have you faced within each circle…so far?

• Where did you find the overlap particularly challenging?

Family & Business Systems

Working with Family Businesses, Bork, Jaffe, Lane, Dashew, Heisler

BUSINESS SYSTEM

TraitsFact Focus

Outward orientationMuch change

Conditional acceptanceTasks

To generate profitsTo develop skills

FAMILY SYSTEM

TraitsEmotional Focus

Inward OrientationLittle Change

Unconditional acceptanceTasks

To nurtureTo develop self-esteem

To grow adults

T E N S I O NFamilyExpectations

BusinessDemands

Family Business System Evolution

Controlling Owner

Sibling Partnershi

p

Cousin Collaboratio

n

Enterprising Family

FAMILYBUSINES

SFAMILY

MANAGEMENT

OWNERSHIP

MANAGEMENT

OWNERSHIP

Manager to manager

Owner to owner

Sibling to sibling

Director to director

Communication is easiest when all wear the same hat

Adapted from: Lundberg, Craig C. Unraveling Communications Among Family Members.© Drew S. Mendoza, The Family Business Consulting Group

= Management


Critical Issue Paradox

•The most critical challenges are generally family based issues rather than business based issues.

•Being a “family-first” or “business-first” family business is not an issue to be solved but rather a source of tension to be managed.

OWNERSHIP (Shareholders)

BUSINESS (Management)

Board ofDirectors

FAMILY

FamilyGovernance

Meetings

Family education committee

Next Generationcommittee

Family vacations / assemblies planning committee

Family foundation committee

Family employment policy committee

Operations Finance HR Marketing

Strength from

balanced governance

of ALL systems

Balanced Systems

Dorey Boats & The Dorey Family

Read through the case

Draw a 3-circle model and place the family and key employees within their sections

• Thought questions…coming soon.

HANDOUT!

When the systems are out of balance…

John Davis and Renato Tagiuri

FAMILY

OWNERSHIP

BUSINESS

FAMILY OWNERSHIP

BUSINESS

FAMILY

OWNERSHIP

BUSINESS

Business largest:• inappropriate

estate plans• information

vacuum• lost family

vision/values• distant next

generation

Family largest:• inappropriate

hiring decisions• family first at all

costs• little attention to

business• meddling

Owner largest:• likely a harvester• sense of entitlement• power struggles on

control• tax driven estate

planning• no exit/buyout

strategy


The Sibling Stage

Sibling Stage is Most Difficult• Relationships are intimate and emotional due

to growing up within the same household• Emotional connections are with business, parents

AND each other

• Each sibling has a high proportion of ownership, allowing the family business to be threatened by anger, disenchantment or lack of productivity of just one sibling

• Tremendous parental influence can still exist• Must learn to communicate effectively and

sensitively as a team with their parents• Change from founder-led to sibling-led is a

big difference

Making Sibling Teams Work: The Next Generation. Aronoff, Astrachan, Mendoza and Ward. 2011.

Pitfalls that derail siblings

• Taking stands based on ego• Being unaware that someone - a non-family employee, perhaps - is playing team members off one another

• Triangulation with parents and spouses

• Spouses who don’t feel part of the team or welcome in the family

Key Tasks for Sibling Stage Members1. Alignment! Clarify WHY in business together

2. Become an autonomous, independent team who can resolve issues on your own.

3. All siblings must be willing to take the time to understand the business and participate in regular meetings to make decisions as needed. (MAKE EFFORT and SHARE RESPONSIBILITY)

4. Put in place policies and codes of conduct to clarify how you will make decisions and relate to one another

5. Take the initiative as successors

Making Sibling Teams Work: The Next Generation. Aronoff, Astrachan, Mendoza and Ward. 2011.


See thought questions handout.

Take 5 minutes and answer #1-3 on your own.

Take 3 minutes and discuss at your table.

We’ll take 5-8 minutes to discuss as a large group.

HANDOUT!


High Priority Activities to Mitigate the Challenges

Three pillars of family business continuity

Research shows:• Strategy informed by values, vision and

mission• Appropriate and active governance• Well run family meetings and shareholder

education


Strategy

Pyramid of Family Ownership Success

WORKTOGETHER

EFFECTIVELY

StructureProcesses & Systems, Roles, Decision Making

Guiding PrinciplesValues, Vision & Purpose


Governance


OWNERSHIP (Shareholders)

BUSINESS (Management)

Board ofDirectors

FAMILY

FamilyGovernance

Meetings

Family education committee

Next Generationcommittee

Family vacations / assemblies planning committee

Family foundation committee

Family employment policy committee

Operations Finance HR Marketing

Strength from

balanced governance

of ALL systems

Balanced Systems

Decide HOW you’re going to decide BEFORE you have to decide

• DECISION RIGHTS• Who has the authority to make what decision?

• INFORMATION FLOW• Do you want to be consulted BEFORE the decision is

made?• INFORMED AFTER the decision is made?

• On decisions that multiple family members/owners/managers:

• What criteria will you use to make the decision?• What more information do you need?• Will the decision be consensus or voting?• When do you need to make the decision by?

Consensus Model1 = I agree

2 = I don’t fully agree, but I can support the decision

3 = To support the decision, I need to see more ______________

4 = I don’t agree, I block the decision and I need to see more ____________


Common Early Family Business Policies• Family employment policy• Code of conduct• Decision making• Board membership criteria• Family meeting policy• Conflict resolution policy


Family Meetings & Shareholder Education

Strategic Planning for the Family Business

Randel Carlock & John Ward: Strategic Planning for the Family Business.

Ownership Stewardship Continuum

Legacy Financial

The reasons for owning a business together could be visualized as a continuum, with the cherished legacy at one end and the financial considerations at the other. (From Siblings to Cousins, Aronoff & Ward)

Passive

Active

Steward Owners

SUGGESTED Family Business Education Topics• Family History & Core Values• Learning Business Fundamentals

• Business literacy• Family Business 101• Financial literacy• Understanding & Appreciating Our Business

• Defining Responsible Ownership• Governance and Oversight• Skill Development• Personal Financial Fundamentals• Philanthropy



See thought questions handout.

Take 7 minutes and answer #4-7 on your own.

Take 3 minutes and discuss at your table.

We’ll take 5-8 minutes to discuss as a large group.

HANDOUT!

Take Homes• Family businesses are special! Good is GREAT. Bad can be a disaster.

• Governance mitigates the complexity.

• First work to do:1. Alignment (strategy)2. Governance (formality & structure)3. Shareholder education (start early)


Thank You

The Family Business Consulting Group

E [email protected]

P 773.604.5005

W www.thefbcg.com

Barbara [email protected] 269.382.0539


Plus or minus 3% will be considered correct.

Source: Family Owned Business Survey from the Family Owned Business Institute at Grand Valley State University, 2014

Quiz! (for prizes)


1. What was the average age of the responding family businesses?

50 years


2. In what percent of the businesses was the third generation employed in the business?

26%


3. What percent indicated that the family business was meant to be handed down within the family?

80%


4. What percent have a formal, written succession plan in place?

19%

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