Ensuring the success of your family business Tony Haffenden Family business and succession coach Helping senior business leaders exit or transfer their business and young business leaders create a new vision and a profitable way forward
May 13, 2015
Ensuring the success of your family business
Tony Haffenden Family business and succession coach
Helping senior business leaders exit or transfer their business and young business leaders create a new vision and a
profitable way forward
Ensuring the success of your family business
The economic importance of family businesses
The real differences in running family businesses
Family business leadership and transition
Where will we (and our businesses) be in 2017
Using conflict to take the business forward
Pass on, sell on, carry on or……………
Some real examples of family business transfer
Communication and organisation solutions
Family businesses as a % of registered companies
Portugal
United Kingdom
Spain
Switzerland
Sweden
Italy
Middle East
70%
75%
80%
85%
>90%
>95%
>95%
© Family Business Solutions
What every family business adviser should remember
No family business is at exactly the same stage
No family firm is static for very long
Professionals must respect these differences
No one professional has all the tools
Working with a family business is a multi disciplinary undertaking
© Dr Barbara Nunn
It’s a privilege to work with each one
Today’s challenges for the Family Business
Modern economy driven by:
Globally expanding marketsTechnical innovationThe environmentKnowledge and InformationChange (stress)
What does this mean?
Greater opportunities
More effective decisions/higher levels of risk
Successful transition of the family through its life course and the family’s business through its organisational life course
Consequences of mismatch are more critical to the well being of the family and the viability of the family business
Clarity, consistency and passion
Excellent people
Talk to staff and find out what’s going on in the business
Purpose, price, costs and volume
Brainstorming skills
Strategy 5 years and 1 year in detail
Guts, nous, vision
Above all the ability to get on with people
Qualities of a family business leader
Sir Gerry Robinson
The next leader of your family business
Inside outsider?
The family business system
Family needsEmotionalInwardLittle changeBorn into
Business needsFacts/profitsOutwardFast changeContracted into
This is where it gets interesting!
Family Business
© Family Business Solutions
Non family business- two circle model
1
Business
2
Ownership3
Family business - three circle modelDeveloped by Tagiuri & Davis, Harvard
4
Family
7
5 6
1
Business
2
Ownership3
© Family Business Institute
The model in practice
Move forward together with confidence
What are your personal and business aspirations?
Shared vision for the business and family in 2017?
Where will you be in your biological life cycle?
At what stage is your business life cycle?
Where are you with your product life cycle/s?
What innovations do we have in the pipeline?
No need to wait for happiness and success?
Working in a family business can be unique and rewarding in many ways
Focus on the positive
Recognising and fostering these positives at times of conflict can result in easier resolution of issues
Create enmeshed goals and implied trust among the various functional positions
Have built-in teams, they often have a common philosophy of management, culture and ethics
And no amount of time can replace the sense of familiarity that family members bring to the workplace
Unique benefits and some tricky challenges
Key people are related to one another
Unless family members understand and are committed to preserving these relationships, the business can destroy them. Yet the business also has to function profitably
Women often use their experience in juggling activities, negotiating peaceful settlements among siblings, and acknowledging different needs to resolve conflict
Family Business Models (i)Family first Business first
Business decisions favour equality and unity as fair
Differences in contribution aren’t recognised (golf course scenario)
A happy, united family is good for the business
Business decisions based on what’s best for the company
Professional principles for compensation, promotion and recruitment are seen as fair
Principles are followed even if it leads to unequal treatment of family members
Family Business Models (ii)Active Passive
Only family members working in the business can own shares (who is “family”?) and ownership control is in the hands of those who run the business
Non active family members lose their right to their family’s heritage
Family wealth may be consolidated in a small group of shareholders
Ownership is open to working and non-working shareholders
Non active family members may continue to participate in their family’s heritage
Family wealth may be diluted amongst a large group of shareholders
Roles and responsibilitiesConflict can arise from lack of clarity around responsibilities
Casual, informal management, can cause problems as the business needs to change. Especially as the family business grows
SolutionsUsing the disciplines that any well run company uses –managing workflow, job duties and responsibilities across functions – can help
Each person understands their role and how he or she contributes to the organisation’s overall success. Problem solving is then focused on resolving the business issue rather than pointing fingers .
Using conflict to make business progress
Set out the ground rules
Establish everyone’s initial positions
Confirm common interests and goals
Proceed to brainstorming – everything is listed
Present objective data/facts
Explore benchmarks, best practice examples
Reach agreement
Write up and circulate the agreed action plan
Clarify responsibilities and time table
Conflict resolution
BusinessGrowth
Conflict
Leads to more professionallymanaged businesses
Productive
Team
Good fighting
Non judgemental
Attack the problems
Participation by all
The Developmental Model
Maturity
Start-up
Expansion/ formalisation
Business Development
Young business
development
Family Development
Passing the baton
Working together
Entering the business
Cousin consortiums
Sibling partnership
Controlling owner
Ownership Development
Developed by Gersick,Lansberg, Desjardins,Dunn
Developed by Gersick,Lansberg, Desjardins,Dunn
Marc Isambard Brunel – April 1769
Son of a prosperous farmer in northern France
Showed a talent for maths and drawing at an early age
As an 11 year old, he earned his father’s displeasure by declaring a wish to become an engineer
Developing young family members
Formal training (technical & financial)
Special assignments – strategic/decisions
Superior/subordinate interaction
Job rotations (across functions/divisions)
Goal setting and performance reviews
Employee exchange
Job redesign project
Real challenges – stretched goals
Seek help in traditional ways
Women who become leaders in their businesses generally know that they do not need to face these
obstacles alone. Consultants who understand family businesses can help immeasurably in moving
businesses to more structured, traditional management methods. Setting goals and planning implementation
can bring family businesses greater benefits. And mentors and peer-to-peer networking can help family
members learn of other models that work.
© May 2000, Women's Business, all rights reserved. Reprinted with the permission of Women's Business.
Business FamilyCommunication Solution - Family Council
A separate time and place for discussing family matters that affect the business and business matters that affect the family. A forum for discussion of difficult issues, eg:
Continuity and successionHiring and firing relativesPreservation and communication of the family’s core values
Without a supportive and nurturing family there can be no family business
What is a family business constitution?
“A statement – gained by consensus – of the family’s shared values and policies in relation to
the family and the ownership and management of the business. It serves to balance the best
interests of the business and the well being of the family”
Why a family business constitution?
Avoids emotionally agonising predicaments
Creates “fitter” families, not just problem averters
De-personalises and anticipates issues
Minimises damaging behaviour patterns: “leaving issues in the air”
The Content
Shared values and vision
Family Assembly? or Sunday lunch
Family employment and compensation
Ownership policies
Board best practice
Family philanthropy
Regular review intervals for the constitution
Other matters that the family feel are important
Key considerations with example answers
Q Should all family members get a job in the business?
A Probably not – unless low numberQ Should the business only employ the best for the job,
whether or not they are family?
A Yes, if the skills are not in the familyQ Should family members have any relevant outside
experience and/or a relevant academic qualification?
A Yes, unless they are an inside/outsider or when low skills are required
Continued…
Q Who recruits and appraises family members?
A CEO or line managerQ Should the board / partners be comprised only of
family members
A Non Execs can be valuable. Also think of an Advisory Board
Q How do you discipline family employees?
A CEO or line manager
What do family business boards do (and senior management teams)
Everything a non-family business board does and then…
Help to create family business policies
- ownership transfer- liquidity (capital and dividends) - employment of family members- management training- remuneration
© gwe
What is a family assembly?
“A separate time and place for discussing
family matters that affect the business, and
business matters that affect the family”
Family assemblies
Forum for family discussion relating to business / social function
Communication link with board and owners
Initiating policies / family position papers
Approving major decisions
Appoint family director / observer
Business transfer failure in the UK
© gwe
82% of SMEs facing transfer decisions do not transfer for lack of a suitable successor
6,000 avoidable business failures each year in the Business Link target market
Due to lack of planning, family tensions, unsuitable successor, didn’t seek support
Business Link and the 10 to 30s
© gwe
Around 2,000 avoidable business transfer failures each year with turnover of $4bn and 35,000 employees
1,300 family businesses
Helping businesses through transfer is complex
Addition of family element gives rise to different and additional and often complex support needs to non family businesses
Assisting a family business through transfer must consider the family element
Where transition can go wrong
1st
3rd
2nd
100%
10%
30%
Transitional Periods
Controlling Owner
Sibling Partnership
Cousin Consortium
1st
2nd
3rd
Recognise the triggers for need to transfer
Retirement or new challenges
Ill health
Desire to turn parts of the business into cash
Extreme downturn in business
Stress/role change
Disputes/divorce
Biological process
EstateEstatePlanPlan
Capitalisationof Business
Tax PlanTax Plan Business Plan
RetirementRetirementLeadershipDevelopment
Career Development
WillsWills
OwnershipSuccession
Business
FamilyQuality of LifeQuality of Life
© Family Business Solutions
Succession chaos or proven benchmarks?
EXPLORE
1. DISENGAGE – we’re on the moveAll “Key players” realise that the “old way”will no longer work – things have got to change
CommunicationInvolve everyone who is affected by the outcomeIdentifying key issues Exploring and testing the options (as many as possible)Coping
2. EXPLORE – where to next?
3. CHOICEConsensus about the
“best possible outcome”
Letting go of the old way
ResistanceDoubtsFearsDenial
TIMESCALESize of businessSize of familyPersonalitiesGood process helps
Jumping to commitment is tempting4. COMMITMENT- we’re off!
© Family Business Solutions
Family business transition planning
Some succession paradigmsTraditional
Not on my shift
Only at end of career
Come in as managers
Only directly involved
Family matters are secondary
Haste to join
ConventionalLiquidate
Mission goals focus
Come in as employee
Extended family
Encompasses extended family
External employment
Cornell University
Putting these concepts to use
Recognising you are in or approaching transition
Recognising the ownership, family and business leadership requirements to get through the transition
Managing the inevitable anxiety and uncertainty
Knowing when the transition needs to end
Dr Barbara Nunn
Options – Business Link review –broker service?
Pass on to family member/s - Valuation
Trade sale – begin early, get flirting
Management buy-out – accountant will help
Form a cooperative – Plunkett Foundation?
Close down – Insolvency Company
Retain property/land sell business
Sell land etc for building
Other real life example
What do you really want?
MD of engineering software company aged51,with health problems
Wife and son in the businessOne non family Director and shareholderProfitable business worth around £1million
What happens next?
Recent real life exampleWhat do you really, really want?
MD of Direct Marketing, family business wants to retire and move to the coast.
Successful business employing 40 people, well established
Wife in business
One other non family director in business
Daughter living in Hong Kong not interested
What happens next?
Another real life exampleWhat do you really want?
MD/Head Teacher of specialist private schools wants to retire in 4 years time
Wife in business – children very young
MD is highly talented in specialist field and still middle age.
Very successful, four properties with large mortgages
What happens next?
Owners 1st stage in grooming process
Understand current situation & future prospects
Identify, priorities, goals & timescales
Evaluate all possible exit routes and tax issues
Select preferred exit route, process & timing
Agree optimal shape of business to achieve exit
Identify obstacles, conflicts that may delay exit
Agree big picture action plan
My very best wishes for the success of your family businesses and those you work with. Thanks for
coming tonight. I hope it has been useful to you all