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Success and succession: Five characteristics of a good family business

Wednesday, 20 September 2017

Chances are high that seven out of 10 of the businesses you know are family owned. As defined by audit firm PricewaterhouseCoopers (PwC), a

 

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How CEOs Can Work with an Active Board

Wednesday, 20 September 2017

At companies of almost all sizes, across all sectors, boards are undergoing a profound transformation. Largely as a result of

 

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Solving the Puzzle of Ownership Alignment in a Family Enterprise

Wednesday, 20 September 2017

alignment  noun | ə-ˈlīn-mənt State of agreement or cooperation among persons, groups, nations and the like with a common cause or view

 

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Case Study 

When unplanned events met an unplanned future

This is a case study of six families today from what was one family sixty years ago.  The business was started by one very entrepreneurial man in the late 1950’s. He quickly created a profitable business and was joined in the enterprise by his brother. The founder married an equally entrepreneurial woman in the mid-1960’s and the two brothers and one brother’s spouse built a very strong business over the years. The brother that joined the business never married and was the ‘face’ of the business. The company had good operational systems but little or no external influences.

 

The founder had six children. They all worked in the business as young people. The eldest lead the way and went on to college and achieved very high academic business qualifications. The siblings however all stayed working in the business and never worked ‘outside’ or went to college. The culture was one of family owned and family run and whilst the founder, his sibling and wife were present and active no issues emerged.

 

It was the Father’s wish that the eldest son take over the business and he actively encouraged his son to come back and takeover. At that time his son was in his early thirties and carving out a very successful career. When the son agreed to take over the business progressed well for a few years. New investment and higher standards followed. All through this time whilst as siblings the family were equal it was obvious that the eldest son was making his mark.

 

The founder began to have some health issues and his wife very much wanted him to take a big step back. This was facilitated and his brother and son progressed the business. The founder’s brother could see issues emerging amongst his nephews and nieces and discussed this with the eldest son. Issues such as share ownership, pensions, wills and estate planning had long been ignored. There was no pension provision and it was expected the company would continue to give salaries indefinitely.  They agreed a course of action. Unfortunately just ten days after engaging external facilitators the brother passed away suddenly. Not too long afterwards the founder became increasingly unwell and his wife needed to provide near full time care. The eldest son recognised the issues emerging but circumstances did not allow corrective action to be taken. Then his mother became unwell and after a short illness she passed away. The founder required full time care. There was no provision for such care. The eldest son was left in most difficult position and the company paid all the bills. The family were happy with this but the substantial unplanned outflow was not good for the business. Now there was no board as such and of the three founding generation two had died and the prime founder was in care. In parallel with this was the un-stated expectation of the eldest son’s siblings. The son set about constituting a new board, sorting the legal ownership and a variety of other issues. The situation is now largely under control but ongoing.

 

The learning from this case study is that the founding generation had NO plan and did nothing. Events overtook circumstances and thankfully no one wished to exploit the circumstances that emerged. It was not the eldest son’s responsibility to look after his parents and siblings. This was the founders responsibility, they simply didn’t do anything. There is an issue here for the founders professional advisors – what were they doing over the years? The learning here is to plan and to encourage advisors to be proactive with clients - particularly entrepreneurial clients.