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EFB-KPMG 2020 Global Tax Monitor

Thursday, 03 December 2020

In this challenging year, KPMG have explored the situation of taxation on family businesses in 54 countries and territories in order to offer an


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Family Business Management Programme 2020

Wednesday, 04 March 2020

The Family Business National Centre of Excellence is inviting business founders, next generation managers and those with an interest in learning how


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Growing a family business - LEO Enterprise Week BOI Workbench Centre Fri 6th March 8am

Wednesday, 04 March 2020

Phil Cone of Acadeny Crests Ltd and Michael Finn NSG Ltd will be interviewed by JJ O'Connell of Family Business Ireland to discuss their growth


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How to check if your business is safe from the digital hacking threat
Tuesday, 08 November 2016 23:33

While bringing many benefits, technology also brings with it many threats. With companies gathering more and more information on their customers, there is the increased risk of damage to those individuals should a company suffer a security breach. This information, if improperly exposed, could cause a lot of embarrassment to the people affected


The European Union's Data Protection Directive is concerned about any information, either by itself or used with other pieces of information, that could identify a living person. This information could be items such as email addresses, passport numbers, driver's licence numbers, financial details, union membership, medical history or information relating to a person's sexual, religious or political beliefs.


On December 15, 2015, the EU agreed to replace the existing EU Data Protection Directive with the EU General Data Protection Regulation (EU GDPR).


The EU GDPR brings in new obligations to companies and will come into effect in May 2018. Under the EU GDPR, there will be a number of new rules for companies. These will include the obligation to appoint a Data Protection Officer; companies who suffer from a security breach will be obliged to notify "the supervisory authority" without delay or within 72 hours; and there will be fines for companies who are proven negligent in the case of a security breach, to name but a few.


These new rules will have implications for how businesses handle and secure the personal data entrusted to it by its customers and staff. While it will take time for the EU GDPR to come into full effect, it will also take time for companies to be properly prepared for that eventuality.


The checklists that we have compiled (see above and below) will help you obtain better assurance regarding how your company is prepared for these new regulations. An incomplete or negative response to any of the following items indicates the relevant area of risk needs to be addressed.


Brian Honan is an independent security consultant with BH Consulting. He will be speaking at Dublin Info Sec 2016 along with industry leaders in the sector. For more information:





Source: Sunday Indo Business

Private Wealth
Tuesday, 08 November 2016 23:22

Helping you and your family grow and protect your wealth

As a successful family business owner, you need a strategy for protecting your personal wealth and structuring it for growth. This is particularly the case within a global ecosystem characterised by increasing complexity and often duplicative tax regimes.


If you travel between, own assets in, or run businesses from a variety of jurisdictions, you require multijurisdictional solutions to your tax, regulatory and commercial issues. You need advisors who not only know all the rules—but also know how they will be applied to your unique situation.




Practical, business-focussed wealth solutions


While our global network of family business professionals includes tax and pension specialists, lawyers, corporate finance and investment consultants, they are all—first and foremost—business advisors to our private clients. Our network covers many major and emerging countries to provide you with a fast and efficient answer to your issues.


That means we provide innovative and robust advice in a practical and commercial way you’ll be able to understand. You don’t need to have a detailed knowledge of international tax law, finance or complex cross-border regulatory risk because we’ll explain these to you.


Here are some of the services we provide our high-net-worth family business clients:


  • Effective tax planning. We can help you structure the way you hold your business interests and investments to ensure you take full advantage of any reliefs, double-tax treaties and EU treaties that are available.
  • Estate and gift planning. We advise families on the sometimes emotional issue of passing on the family wealth in the most tax-advantageous way-carefully factoring in the unique gift and wealth tax and legal regime in each jurisdiction you may be involved with.
  • Family offices. We provide a full array of business services to your family offices, wherever they are located-including valuation, corporate finance, risk assurance, investment structuring and management, and of course, tax and legal services.
  • Risk management. We ensure that our clients manage their investment risks with counterparties, providing assurance over the stewardship of their assets as well as managing the tax and regulatory risks of operating in different jurisdictions. We help you sleep at night.




What makes family businesses different?

Insights from around the world

"It is important to teach each new generation, early on, the difference between ownership and stewardship. Ownership is a right of possession. Stewardship is a fiduciary role. It is holding the institution in 'trust for' the next generation. We feel, as a family, that this institution has been passed on to us for our care and not for us to dissipate or do what we will with it for our personal gain."








Why the 21st Century Will Belong to Family Businesses
Tuesday, 08 November 2016 23:17

An oft-cited statistic is that only 30% of family businesses make it through the second generation, 10-15% through the third, and 3-5% through the fourth. These are disheartening numbers.


But let's put them in perspective. How many companies of any kind are still around after the equivalent of three or four generations? A study of 25,000 publicly traded companies from 1950 to 2009 found that, on average, they lasted around 15 years, or not even through one generation. In this context, family businesses look pretty enduring.


And the numbers are only going to get more flattering. In the context of competition in the 21st century, family businesses have innate strengths over others forms of ownership, especially public companies. For most of the last century, companies confronted oceans of opportunities, which meant that winning strategies revolved primarily around size. Public companies had a clear advantage in the scale economy; they are especially suited to raising capital. But firms today are no longer looking out at endless opportunities. Instead, they have to struggle for their very survival in an intensely competitive world of slower growth, lower returns, and more frequent economic crises. In this brave new world, public companies are losing their dominance: their share of America's GDP, workforce, and assets has fallen by 50% over the last quarter of the 20th century.


For family-owned businesses, the story is rather different. The qualities often associated with family businesses that were a handicap in the previous century are turning out to be powerful sources of advantage, giving them the potential to be more adaptive to the increasingly intense competition that all businesses are facing. Specifically, family businesses have the opportunity to achieve sustainable advantages in five key areas:



Talent: From Mass Employment to a Higher Calling

For much of the 20th century, success depended on a company's ability to hire, train, and retain ever-larger numbers of employees. This was the era of the company man, where employees exchanged long-term loyalty for a livable wage and a pension plan. In today's knowledge economy, success depends instead on finding, empowering, and retaining the most talented people. Businesses need to do more than offer competitive wages and benefits; they have to provide a "higher calling" that makes clear the intrinsic value of working for their companies. As a recent Bain & Company study put it: "Employees want to work hard because they believe in their company's mission and values, not just because they hope for a large salary or a fast promotion."


Much has been written about values-based cultures, but families are the primary carrier of values, and business families can weave their values into the very fiber of the organizational culture. Our experience has shown that because employees work directly with the owners, there is often a pronounced loyalty effect, which augments the important sense of mission.



Investment: From Other People's Money to Captive Capital

In the scale economy, capital was the lifeblood of success. And given the pace of growth, capital was always in demand. In today's economy, however, the priority has shifted from the quantity to the quality of investment. Outside funds bring with them a pressure to achieve short-term results that trade-off with value creation. A study of leading public company CFOs published in the Journal of Accounting and Economics (2005), found that 78% of these CFOs would be willing to make decisions that destroy value in order to achieve their quarterly earnings targets.


Family businesses don't have these problems because they can obtain "captive capital" that will not easily migrate to other firms. Their owners often think in generational terms – in decades rather than quarters or years. Without external markets to please, they can take a long-term perspective and make decisions on the basis of sustainable economic value. As a result, family equity can come at a very low cost of capital, where businesses can meet the annual needs of their shareholders without having to worry about paying back the principal. What's more, since the money at stake is their own, family businesses tend to be cautious in their spending, and the discipline that comes from frugality is a tremendous advantage when topline growth is harder to achieve.



Reputation: From Profit Motive to Sustainable Footprint

In the 20th century, there were relatively few channels (literally, in the case of TV) by which companies could build their reputations, which enabled the largest companies to control them. It was not unreasonable for Milton Friedman in 1970 to say that the "one and only one social responsibility" of businesses is to raise their profits. In the 21st century economy, the standard has risen considerably. As one client told me, "It used to be that unhappy customers would write a letter. Now, they snap a picture of a defective product, upload it to Facebook, and all of a sudden it's gone viral. We have to stay out in front of our image."


Family businesses have a big head start in building a "sustainable footprint." There is often a personal connection between the family and the communities in which it operates; reputations matter to families. Investments in the community are likely to have social rationale in addition to an economic one. One client built a hotel complex in an underdeveloped area. They could have flown in all the supplies that they needed, but instead they decided to invest in local farmers to supply the food for the resort. Over a three to five-year period it cost them money, but over a 20-year period this investment will pay off handsomely. With a longer time horizon, tradeoffs between strengthening the community and making profits can simply disappear.



Organization: From Managing Complexity to Rapid Response

The leading companies of the 2oth century were behemoths. Henry Ford's company covered the entire value chain from end-to-end, including owning the grazing land for the sheep whose wool was used in seat covers. But instead of managing highly complex structures, the greatest organizational challenge of the 21st century is dealing with change. Companies will need to build the capacity for flexibility, adaptability, and quick/decisive action in response to shifting market conditions. The new mantra is to shorten the distance between leaders and the frontlines.


Family businesses are well-suited to dealing with this imperative of "rapid response." They tend to have nimbler and flatter structures, where information flows quickly and easily in to the leaders and decisions come out. There is also often more of a direct connection from the ultimate decision-makers to their employees. While less adept at delegating, they can more quickly and decisively commit the organization to action. The privacy that family ownership allows also helps executives stay focused on strategy rather than meeting market expectations. In Fortune's last survey of leading CEOs, 84% of CEOs said it would be easier to manage their company if it were private.



Governance: From Separation of Powers to Engaged Owners

Decision-making in large public companies is primarily vested in management, which generally is not composed of majority owners. As a result, ownership of the business is split from day-to-day control, creating what economists call a "principal-agent" problem. The traditional priority for good corporate governance has been to align management incentives with the interests of shareholders, often through equity-linked compensation plans. But by the end of the 20th century it had became clear that this endeavor has failed. Efforts to make managers act like owners through stock options have backfired, leading to skyrocketing pay, and opening the door to numbers-rigging scandals such as Enron.


The principal agent problem is far less severe in family businesses because they foster "engaged ownership." The simple fact that there are fewer owners makes the oversight of decisions far easier; even family businesses with hundreds of owners are better positioned to provide effective oversight than public companies, whose owners can number in the hundreds of thousands. And when family members with large ownership stakes are also involved in managing the business, incentives are easily aligned.


The public corporation has been the dominant model for business enterprise for most of the last century, and this reflected the fact it was the best solution to a particular set of economic circumstances. But those circumstances are changing and family businesses that manage the five sources of advantage described above are well placed to make the 21st century a family business century.






These Millennials Are Running Franchises With Their Parents. Here's What They've Learned.
Tuesday, 08 November 2016 23:06

A story of how family member came together from diminished job prospects and used their skills in the best way to make their franchise a success today.

When Jon S. Crowe invited his son, Jon P. Crowe, to take a road trip from their home in Omaha, Neb., to Whitewater, Wis., neither of them had ever, for a second, thought about working together. The elder Crowe was heading east to learn more about the Toppers Pizza franchise business and just wanted his then 25-year-old son, who was working in retail at the time, along for company. “Working with my dad did not cross my mind,” Jon P. says. “I was there looking out for him and our family. I just wanted to put my two cents in.” 


Jon S. had long known just how suited to running a business his son was. Jon P. was levelheaded. He didn’t shy away from having hard conversations when people didn’t meet his expectations. He was a hard worker. Yet he’d never really considered working with him before. But “during those meetings [at Toppers Pizza], I thought that it would be a hell of a lot of fun to work together,” Jon S. says.



On the ride home, he asked his son to join his franchise team. It turned out to be a great idea. That was five years ago. Today the father and son own three pizzerias in the Omaha area, with a fourth on the way. While Jon S. handles strategy and long-term planning, his son is in charge of the day-to-day operations of the stores.



The Crowes are not alone. While it seems like a recipe for disaster (kids listening to their parents? yeah, right), franchise brokers and franchise brands report that increasing numbers of parents and their children are going into business together and enjoying fantastic success. 



Talkin ’bout our generations

Marty Welch, founder of Martin Franchise Consultants, says the landscape for multigenerational franchisees has changed quite a bit in the past decade. Twenty-five years ago, he says, most multigenerational deals involved a parent “buying a job” for an adult child who was having trouble finding their way in life or holding down a corporate position. More often than not, it was a bad investment.


But since the Great Recession, that has changed dramatically. First, Welch says, there are more financial hurdles to overcome for prospective franchisees, and franchisors are much more discerning. “Franchisors want to meet the person who is going to run their franchise unit, not just the person investing the money,” he says. “If they’re not passionate or engaged, they will turn them down.


”In the past, people would have said, ‘No way; i’m not working for my dad.’ but now young adults say, ‘Dad is pretty cool.’”
-- Marty Welch, Martin Franchise Consultants


Now, he says, parent-child franchisees have a different mindset. Going into business together is a way for both generations to exit the rat race. Many older workers have bounced back from the recession but live in fear of losing their jobs as they age and are disappointed in a lack of wage increases. Younger adults also suffered during the recession, which has them looking for alternatives that allow for more flexibility and job security than the corporate world provides. Franchising offers an alternative for both.


And the generational conflicts that defined the baby boomers (don’t trust anyone over 30!) have faded. “In the recent past, people would have said, ‘No way; I’m not working for my dad,’” Welch says. “But now young adults say, ‘Dad is pretty cool. You know, going into business with my parents might be a good opportunity for me.’” 


Sean Fitzgerald, who cofounded the franchise brand Pickups Plus with his father in the 1990s, has dealt with dozens of multigenerational franchisee combos while serving as senior franchise development director at brands like Wireless Zone, Quiznos and BrightStar Care. He says that for many families, going into business together is an obvious path. “No one really wants to go into business alone, and ideally you would have a partner that you can trust, someone like family,” he says. “Trust and honesty are the top reasons why a partnership works or not.”




All in

Not only did Colter Lange’s parents have that type of trust in him, his sister did, too. The Lange family worked in the oil business near Midland, Tex., and wanted to hedge their bets against the area’s boom-and-bust economy. Colter, in particular, was interested in stepping away from oil. He looked at several options, but his mother, Lisa, convinced him to look at franchising. One day when the two were visiting Colter’s grandfather in Denver, they stumbled on the Smiling Moose Deli, an upbeat restaurant serving sandwiches, wraps and soups. 


They knew the brand would fly in their corner of Texas, and they signed on. Colter and his parents each took a 45 percent stake; his sister and her husband, who is a lawyer, agreed to provide legal services for a 10 percent stake. While everyone else kept their day jobs, Colter committed to the brand full-time as caretaker of the family’s investment.


None of the Langes had any restaurant experience. The learning curve in those first months was steep, and Colter was grateful that everyone stepped in to learn the ropes and to make the process work together. “Mom still helps me quite a bit,” the 33-year-old says. “I will say we definitely couldn’t have done it without everyone helping out.”


In the beginning, Colter worked in the store as a manager. But after six months, the family made the decision to buy a second store in San Angelo, Tex., and another in Odessa soon after that. Colter found good general managers and took a more supervisory role. Now the family is moving into a second franchise brand, The Beef Jerky Outlet, which Colter will also spearhead. “I don’t think the learning process will be any different than it was with the deli,” Colter says. “The family will be there to help out where needed until we figure out that concept. Everyone will get their feet wet.” 


Fortunately for the Langes, mixing family and finances hasn’t caused problems, and they are committed to reinvesting their profits and expanding their holdings. “It hasn’t changed our family dynamic,” Colter says. “Luckily, with my brother-in-law being a lawyer, he laid out word for word what everyone does.”


“The family will help out where needed until we figure out the concept. everyone will get their feet wet.”
-- Colter Lange, Franchisee


Welch says that’s the right move. “Working with family can cause strife and anxiety,” he says. “There have to be rules of engagement when it comes to family.”


Fitzgerald says when he would meet with potential parent-child franchisees, he warned them to figure out their roles and expectations before forming a partnership. “At the end of the day, if things don’t work out, it’s not just a business partnership that ends, it affects a family,” he says. “It can be disastrous for everyone. They need to set expectations, make sure everyone is doing this for the right reasons and create the right structures for success.”


The Crowes haven’t endured any major conflicts so far as they’ve been building their pizza empire. Their disciplined separation of their business and personal relationships is a big help. In the beginning, Jon P., who lived in a different town, was spending five nights a week at his dad’s house. “We would work together 12 hours a day, then come home and talk shop three to five hours after that,” he says. Now the father and son try not to talk business with each other after 8 p.m and are trying to move any off-hours chats to a weekly standing lunch appointment. 




Role players

For Lucas Bergeson, the key to maintaining a positive family dynamic was figuring out the right role for himself, his brother and his father while developing their Mooyah Burgers, Fries & Shakes franchises in Fitchburg and Madison, Wis. Lucas, 25, learned that his strength is in training employees and operations. His brother, Josh, 28, enjoys working on the financial side of things. Their father, Randy, handles more strategic matters, though everyone fills in when needed. “We all have different interests, and we couldn’t have planned it any better,” Lucas says.


From left: Lucas, Randy, and Josh Bergeson of Mooyah Burgers.

From left: Lucas, Randy, and Josh Bergeson of Mooyah Burgers.
Photograph © Ryan Bingham


Randy, who also runs several Subway franchises, says he was surprised when Lucas showed an interest in working with him. Soon after high school, his son asked if he could join the family business. Randy told him to go to college, and if he was still interested after he graduated, he would consider it. Lucas only got more excited about the prospect over time, and the father and son began looking at franchise concepts while Lucas was still in school. That’s when they found Mooyah. Josh also expressed an interest in starting a franchise with the family. “At that point, I thought, Oh, shoot, this is getting serious,” Randy says. 


The Bergesons signed on with Mooyah, then spent the two years between 2012 and 2014 searching for the right locations to open their first restaurants while Lucas finished college. Over the course of 2014 and 2015, Josh became general manager at the suburban Fitchburg location, while Lucas took over a location in downtown Madison. 


Randy is happy to be working with his sons, but says he would not have taken the chance if he did not trust them and believe in their work ethic. “What they are doing is good old-fashioned sweat equity,” he says. “We’re essentially equal partners.”


Fred Schaard also found that divvying up responsibilities has helped him create a strong, coherent team among his family members. Schaard, a partner in a financial services firm in Lansing, Mich., was approached by a franchise developer for Two Men and a Truck about expanding the brand to Portland, Ore. Schaard had no interest in relocating, but he realized he had a ready-made franchising team to call on. His son Joe and stepson Bernardo both had business degrees, with Joe focusing on operations and Bernardo on sales. Stepson Adrian worked in accounting.

And Joe’s girlfriend, Christine, had experience in marketing. They all agreed to move to the West Coast to run the franchise unit. “So with a team of four hardworking people I trusted, I felt confident I could go forward,” Schaard says. “I couldn’t do it without someone I trusted, and they couldn’t do it without capital, so it made for a good team.”


The team is developing three units in the Portland area, and will build equity over time. Like in all businesses, the early days were difficult. Demand for their moving service was high when they launched at the beginning of 2016, but the twentysomethings found the labor market in Portland to be a challenge; legal marijuana use in the area made it difficult to find drug-free employees and it was hard to attract people willing to do the hard physical labor required every day. But Bernardo, Joe and their team are finding their footing with guidance from Fred.


For Bernardo, the opportunity was the realization of a lifelong dream. “I always wanted to open a business. As soon as Fred presented the opportunity, I didn’t hesitate,” he says. “My family moved from Mexico to Michigan to pursue their dreams. Why wouldn’t I do the same in Oregon? I just didn’t think it would come along so soon.”

As they build their business, Joe and Bernardo are proving that family money doesn’t mean they can slack off. If anything, Fred sees them working harder than ever. Same goes for Jon S. Crowe when he looks at his son, Jon P. “He’s working his butt off,” Crowe says. “That’s one thing I admire about Jon. He’s never backed away from the hours. I’m just grateful I could provide him the opportunity to show everyone what he could do.”


In the end, that’s what multi­generational franchising takes to succeed -- two parties with an equal commitment to success, even if they don’t start out with equal experience or financial resources.








Joining the family business: Should the children work elsewhere first?
Sunday, 09 October 2016 10:54

For the past decade or so, the prevailing wisdom among family business consultants is that second generation (and beyond) family members should work a minimum of three years outside of the family business before joining. Many are now recommending a five-year minimum.


Of course, similar to all best practices, this guideline must be applied thoughtfully to every situation based on the specifics of that organization, and, in this case, the individual.


Generally speaking however, the following list provides support for this practice of having family members work elsewhere before joining the family business as their primary job. It:


1.Increases credibility of family member among non-family employees. Others can see that this individual has actual experience rather than just a family connection.

2.Provides outside knowledge and processes that can be brought into the family business. Innovation doesn’t come by avoiding new ideas…it is the byproduct of it.

3.Minimizes individual’s insecurity of feeling that they have no skills or value outside of the family business. My book, Trapped in the Family Business, was written, in large part, for those who doubted their ability to get a job elsewhere because never had to write a resume, go on a job interview or have an annual performance review.

4.Allows the child to explore other potential career paths that might be a better fit based on personality, interests, or goals.

5.Potentially increases the individual’s appreciation of the value and opportunities provided to them by being a member of their family’s business. How can they appreciate what they have if they never experience living without it?



Included in the recommendation to work outside of the family business first is often the requirement for individual family members to demonstrate success. This can be through a promotion, increased responsibility, or some other tangible measure of growth. Without this, family members may not truly explore and engage in this outside job and simply be waiting for their time to run out.


Similarly, if a family member fails to demonstrate success in another work environment, this could indicate that they have problems with authority, collaboration, motivation or some other area that could have extremely negative consequences once they are in the family business.


To be fair and balanced, it is critical to note that there are many advantages to joining the family business soon after graduation. It:

1.Expedites development of individual’s specific knowledge and processes of the family owned/operated business. They won’t be spending their time learning potentially irrelevant knowledge at another business.


2.Accelerates the building of working relationships with key customers as well as employees. Relationships take time to build, and this provides the opportunity to start (or continue) building them rather than waiting for years.


3.Provides additional time to get to know the business “from the mailroom to the boardroom” by rotating through various departments before taking on management/leadership responsibility. If the next generation starts young, there may be less hesitance to start them at the bottom than bringing them to do that after they have already “paid their dues” elsewhere.


4.Provides career/management development opportunities (whether by position or project) that would not likely exist in other companies until mid-career or later because of family-member status. They might be trusted more to experiment or apply academic knowledge because they are family rather than having to climb the ladder at another company.


5.Expedites succession planning by developing individuals for specific leadership roles in the family business or, alternatively, determining that they do not possess the necessary personality traits, values, or skills for such positions.



Clearly, a case can be made for either decision. However, being open, honest, and realistic while having ongoing discussions on this topic is always going to be the right decision in a family business.










The 5 Models of Family Business Ownership
Sunday, 09 October 2016 10:30

One of the first questions we ask clients is, “How do you own your family business?” Often the response is legalistic: “We are a limited liability company”  or “Our shares are held in trust.” This information is essential, of course, but it leaves unanswered the more fundamental questions: “In your family business system, who gets to be an owner? And what, precisely, does ownership mean to you?”



The lack of awareness that family business ownership requires a set of choices is perhaps the greatest – and most harmful – misconception in the field of family business. Indeed, a failure to understand your ownership options can ultimately cripple your business, causing it to lose its competitive advantage, even resulting in buy-outs or sales that nobody really wants.


The best way to head off these crises is to understand that there are different ways of owning family businesses. Although there are hybrids, most family businesses adopt one of five models of ownership. One of the most important decisions you’ll ever make is to choose which model to adopt.



We worked with the fourth generation of a construction giant, for example, where the family was deeply divided because owners held different ownership assumptions. Those actively engaged in the business resented what they called the free-loaders – family members entitled to equal distributions of profits, even though they were uninterested or unqualified to work in the business. The free-loaders had their own bone of contention. They saw owners working in the business as robber barons who inveigled cushy salaries and benefits.



Superficially, warring family members were arguing about compensation and dividends. In reality, disagreement ran deep about what it meant to be owners in their family business system. Some family members were adamant that owners should work in the business, while others passionately disagreed: “This is our inheritance! Our great-grandfather wanted us to be equal owners.”


The breakthrough came only after the warring camps became aware of the five basic ownership models: owner/operator, partnership, distributed, nested, and public. Understanding each model’s implications and trade-offs finally allowed the owners to start having calm discussions about what ownership meant for them, making compromise possible.



It’s critical to periodically revisit how you own your family business – particularly during times of transition. Holding on to the model that worked beautifully in the previous generation can threaten, or even kill, the business in the next generation. It can also put an impossible strain on family relationships.



Perhaps the simplest model replicates the role of the founder – it keeps ownership control in one person (or couple). This model, which we call owner-operator, can be successful for many generations. Think of the British monarchy. Or Caterpillar Inc., whose corporate philosophy encourages distributors worldwide to have one person who works in the business with ownership control. For the owner/operator model to work, families need to find a means for deciding who gets to be the owner-successor that is perceived to be fair.


For other owners, the partnershipmodel works well. Partnerships are unique in that only leaders in the business can be owners and benefit financially from it. We worked with a massive shipping company run by five brothers as a partnership. The sons expanded the business they inherited from their father into a billion-dollar company. Their partnership worked because the brothers contributed more or less equally to the business’s success. They drew the same salaries and profit distributions.


Trouble didn’t break out until the third generation. Four of the brothers invited their sons to enter the business, creating a dilemma for the brother with just one daughter. She wasn’t even considered as a potential business partner, an exclusion that cost her millions. Her father gave his brothers an ultimatum: either they admit his daughter, or he’d blackball their other sons from entering the partnership, too.



Questions of entry to the partnership became paramount. The company continued to operate day-to-day, but since the partnership required consensus, all major decisions were postponed. Tragically, when the brothers couldn’t reach unanimity, they sold the company that had given them, and other family members, a deep sense of identify and purpose.



Was this outcome inevitable? Not at all. Even in situations of tremendous conflict, you can save your family business if you consider different ownership models. The owners here might have moved to a distributedmodel, for example, where ownership is passed down to most or all descendants, whether or not they work in the company. Shifting to this model might have allowed the brothers to reconcile their differences. All members of the third generation could have become owners, while changes in the compensation policy would have rewarded those contributing to the success of the business.


The distributed model is the default position in most family-owned businesses. Parents usually want all their children to inherit equally and, besides, most assets are wrapped up in the company. But there are challenges with this model, too. Family members working in the business often disagree with those outside the business, differing, for example, on compensation and distribution policies.



Still another option for family business owners is the nested model: Various family branches agree to own some assets jointly and others separately.  This model – nested in the sense that smaller family ownership groups sit inside larger ones – is particularly attractive when conflict or differences in preferences interfere with decision-making on shared assets. For the nested model to work, the family runs the core business as a profit-making operation and distributes relatively large dividends to the branches, which then use the money to create their own business portfolios.

The nested model can effectively reduce tension among branches while keeping the family together as a whole. There’s a risk, however, of under-funding the core business to finance the outside investments. A final option is the publicmodel, where at least a portion of the shares are publicly traded, or where a family business behaves like a public company even though it remains privately held. Whether shares are publicly traded, or not, the business is run by professional managers, and the owners play a minimal role, usually limited to electing board members.

Otherwise, they either support the direction of management or sell their shares. This model works well when the business requires a significant infusion of outside capital, or when owners are too numerous, dispersed, or disinterested to be engaged actively in decision-making. The key question then becomes how the family owners can maintain control when they play such a limited role in making decisions about the business.



There’s no natural progression from the owner-operator model to the public model. Owners can, and do, move back and forth between models. We’ve seen ownership groups shift even very large companies from the public model to the distributed model.

Of course, moving to a different ownership model involves big changes in governance, legal structures, and family relationships. That’s not easy. But adopting a new ownership model can help owners unlock a family business that’s become very stuck. It may also be the one thing that can keep your family together.



Some of the identifying details in this article have been changed to protect confidentiality








Family business need professional managers, firms told
Sunday, 09 October 2016 10:21

Family owned businesses must integrate professional management in their if they are to experience faster growth and mitigate risks associated with demise of vision bearers.


Addressing Business Daily-KPMG sponsored TOP100 Midsized Companies forum, Sanlam Kenya Group Chief Executive Mugo Kibati said companies planning expansion beyond their vision bearers must institutionalise management where all processes are managed via market research and not individual instincts.


Mr Kibati said trained management teams would also help firms to safeguard themselves against risks associated with businesses saying Small and Medium Enterpises could have lost about Sh50 billion last year based on claims volume filed under the general insurance class.


“For me, the volume of claims paid out is a good indicator of the level of risk exposure given than only 3 SME’s for every 10 tend to hold risk solutions,” he said adding that companies need to put in place comprehensive risk solutions to shield SME’s from emerging risks such as cybersecurity and cyberterrorism.


Need for risk management

He said the tough economic climate and scarce resources, demanded that SMEs embrace modern standards of management that combines risk mitigation and management solutions.


It was observed that many businesses ignored the need for risk management solutions adoption due to poor financial knowledge associated with self-made successful traders who assume they are know-alls.


“It’s a worrisome scenario to note that most SME’s do not have comprehensive risk and asset management solutions which leaves them heavily exposed to manageable risks,” Kibati noted, adding that, “sadly, SME businesses built on blood and sweat rarely recover from threats such as fire and burglary due to lack of risk coverage.”


He added that many entrepreneurs preferred to pay for third party insurance for their motor vehicles and public liability insurance covers for their properties saying this provided negligible relief to entrepreneurs.








Diagnosing Innovation Readiness in Family Firms
Thursday, 07 July 2016 14:11


Innovation is often defined as the multi-phase process of generating and adopting new or improved products, services, processes, or structures to adapt to dynamic environments. Innovation is essential for all firms in order to remain competitive.

But the successful navigation of the innovation process is not easily achieved among family firms. While most stages of the process present difficulties, the initial adoption phase is among the most important. One key means of enhancing the success of innovation within family firms is to assess readiness prior to beginning the innovation process.





Readiness for Innovation in Family Firms

By conducting an examination of the family firm's underlying readiness for innovation, family managers can better understand how the firm is positioned to move through the innovation adoption phase. If executed with care, the likelihood that the process will proceed efficiently can be greatly improved.

The Readiness for Innovation in Family Firms (RIFF) framework allows family managers to assess the extent to which the firm is prepared to adopt and incorporate any new innovation, and takes into account the specific characteristics of family firms


The framework consists of structural and psychological factors.






Structural factors represent the basic building blocks that are necessary for innovation readiness, and include aspects like ownership control, family commitment, and alignment of existing knowledge, skills and abilities with regard to the new innovation.





Psychological factors, on the other hand, reflect the extent to which members of the family and firm are cognitively and emotionally inclined to accept, embrace, and adopt an innovation.








Among these factors are innovation appropriateness (acceptance among the family that a specific innovation is correct for the situation) and innovation benefits (shared belief that the innovation aligns with the family’s overall goals and aspirations).






With an understanding of key structural and psychological factors, assessing the appropriate factors within the framework at the appropriate time can be a critical aspect of innovation readiness, as successful adoption is influenced by accurately diagnosing and addressing the appropriate issues at the appropriate time. The firm's readiness can be evaluated through a sequence of assessments: initiation, decision making, and experimentation.

In the initiation phase, family leaders must first recognize the need and importance of innovation. During the decision-making phase, structural factors related to the family and firm should be considered in addition to the psychological factors related to the family. Foremost, family owners' control and established direction are key structural factors. Other details, like ownership, managerial involvement, and board representation should be decided at this stage. The final stage of innovation adoption, the experimentation phase, is contingent on psychological factors.

Some of the most radical shifts in management style and organizational structure have evolved out of the experimental phase of innovation adoption.

Innovation is not limited to products and services; some of the most radical shifts in management style and organizational structure have evolved out of the experimental phase of innovation adoption. One example is W.L. Gore & Associates (the creators of Gore-Tex) who conceived of a provocative company structure connecting every individual in the organization to every other, in an informal network that allowed free flow of information without layered management.

This was only possible after a shift and alignment of psychological factors among the family and all of the firm's stakeholders.







Innovation is widely accepted as the primary path to sustaining competitive advantage in both family and non-family firms. Family firm leaders may improve their ability to successfully adopt innovations by understanding innovation readiness. That understanding is derived from an understanding of both the structural and psychological factors that influence the family, individuals within the firm, and the firm itself.

The RIFF assessment framework, which describes a sequence of three phases within the innovation adoption stage, can benefit family owners as they attempt to lay the groundwork for innovation within their own products, services, and business models.










Profit is Personal for a Family Business by Christophe Bernard on April 26, 2016 in Wealth Preservation
Thursday, 07 July 2016 14:06
In a family business, the impact of any profits are seen and felt daily by those involved in the business, as well as those affected by the business’ performance.
A good turnover means those extra lessons for an owner’s child, or a new home for a family member.
The business is borne out of the family’s need, and its main responsibility is to look after those involved in it.
So how is profitability measured in a family business?

True profitability in a family business is not just about the figures and bottom line – but is rather measured in the goals and lives of the family behind the business.


Family Stakeholders must see the profit going towards the right expenses.


The firm can get buy in from stakeholders when they can first see that family members within the business are looked after properly in terms of salary and benefits, and how family members affected by, but not directly involved in the business, are treated by the company's Related Party Transaction Policy.


Lastly, the Philanthropic Expenditure Policy is also of high importance to stakeholders – showing that money is being spent on the right causes that are close to the family's values.







A family business is still a business

As much as the context and qualitative element of the profit is important to the business, so is the quantitative results to discern just how well the business is performing.


In order to know if the year's profit is good or not, it must be measured against the following:

Last year's profit yield
Expected profit
Return on owner's equity
Profit margin
Return on assets


These factors gives the profit true context and meaning to determine the health of the business in its own right, and not against the family's needs. As important as it is for the business to serve the family, it can only do that successfully when it is treated as its own free-standing entity, with its own needs, when it is assessed.






Who gets to decide on the profitability goals?

Considering the sometimes differing goals of these two entities – the family and the business – within a family business, it's important for a middle ground to be struck.


While the voice of the family in the different levels of the business are important, at the end of the day decisions regarding the business should be left in the hands of shareholders and shareholders alone. They are the ones with feet in both camps and will have the needs of both the family and the business at heart.


No decision should be made in a vacuum though, as for the family to continue to support the business, they need to understand and buy into the profitability goals of the business at all times.








Playing it straight in family business succession
Wednesday, 06 July 2016 09:41

Handing down the family business can be a delicate affair. We've all heard the stories. Parents who won't let go. Children not ready for the job. Dysfunctional relationships both at home and in the office.

The hardest part about having a family business is the challenge of passing it down to the next generation, says Eric Clinton, director of the Dublin City University Centre for Family Business.

He cites research from the Kellogg School of Management near Chicago that about 30 per cent of family businesses will survive from the first generation to the second. Only 12 per cent will survive from the second to the third.

What can families do avoid becoming a statistic? A large part of the answer, it seems, is regular communication about what will happen when the older generation is no longer in charge.





Have the difficult conversations early

"Family businesses are a lot like life, like relationships," says Clinton. "If you want it to work, you have to work at it.

"My advice is to have the difficult conversations and have them early. Have regular communication. Talking over the kitchen table at 8pm on a Saturday night might not necessarily be the healthy way to do it."

Preparing the next generation early on in the process is crucial in case of unforeseen events like a sudden illness, he says. If children have to take over earlier than expected, things "can become very dysfunctional very quickly".

"How do you mentor the next generation into it?" Clinton asks.

"Do they have an adviser? Do they shadow the incumbent? It's not just about giving the next generation power, it's about giving them ownership and control and mentoring. They can't just be thrown into the role."

Clinton teaches families about the "4Ls", which are phases of the family business life cycle: learning business, learning our family business, learning to lead our business, and learning to let go of our business.


The first two phases are about apprenticeship.

Clinton says families might bring in rules or a "constitution" that require the next generation to reach a certain level of education and/or outside work experience before joining the family company.
According to the 4Ls, business owners should "learn to let go" through planning: developing a timeline for retirement, creating management development systems and sticking to the plan.


Succession can actually be a breath of fresh air for businesses, according to Clinton, as long as there is a balance between tradition and change.
"Succession is often a time for innovation because the next generation often comes in with new ideas. The next generation gives energy and lifeblood to the business."





Principles of succession

"Succession issues are probably the most difficult topic because there are no black and white solutions. A wide array of issues could arise in one family," says Suzanne O'Neill, a partner at Irish accounting and business advisory firm Baker Tilly Ryan Glennon.

Baker Tilly's client base is predominantly family businesses, and O'Neill specialises in succession planning.
Family businesses need a structured approach to succession, she says. The results of a study by Baker Tilly International, which surveyed 1,650 business owners across 55 countries, were condensed in to eight principles of succession.

They are meant to be a practical guide for families.
The eight principles are:

1. Succession is not retirement

2. Start with readiness

3. Set your goals before the journey

4. Price is not first

5. Harmony is a must

6. Plan early, start earlier

7. Equality of, not equal

8. Ask before you get lost.



Family harmony is an important issue on the list, O'Neill says.
"The whole issue of family harmony certainly comes up in dealing with clients. The key requirement in any succession is harmony and open communication. All relevant parties have to be engaged in the process at an early stage."

She says the owner should bring the next generation on board so they are comfortable with the plan from the start. Owners should also be willing to listen to everyone's point of view. These are ways to avoid "disharmony".
Part of the process is identifying the family member or members who should take over the business and to start handing over responsibility so they have the opportunity to demonstrate their abilities early on.

O'Neill calls these "stepping stones" that should be put in place well in advance of retirement. Aoife and Paddy Hayes of CST International 'It wasn't a 'someday this will be yours, my daughter' type thing' CST International is a small, Dublin-based market research agency run by Paddy Hayes (69). His daughter Aoife (33), head of client services, will soon take over, and the pair appear to be getting a lot of things right in their succession planning.
"I started the company about 20 years ago, and it's my third business," Paddy says. "So I'm 42 years signing my own paycheck." But Aoife might sign a few before the end of his 43rd year.
While Aoife began helping out at the office as a teenager, she says her path was not laid out for her. She worked in the arts for a few years and then did a master's in project management.

Taking over the business became an option after she went to work there full-time four years ago and saw how she could drive the company forward.
Paddy says it was her call. "It wasn't a 'someday this will be yours, my daughter' type thing. It was very much: go to school, go to college, do what you want to do. And then, if you feel it's something you want, that's grand."

CST specialises in guest feedback for the hospitality industry, and Aoife is now spearheading a new aspect of the business: employee engagement research. CST puts together surveys to figure out how engaged a company's employees are.
"The more engaged you are, the more willing you are to go the extra mile," says Aoife. "We feel like we're providing companies with really useful data that they can use to make their businesses more successful."

Father and daughter talk about the succession regularly, and the handover is about three quarters of the way done. It has happened in stages. This year, for the first time, Aoife went to an important meeting with their largest client without Paddy.

"That was conscious and deliberate," he says. "But that's what you have to do, and that's not easy because I would have loved to be there.
"When you are the founder of a business and you attend these meetings, just by virtue of [your role], you tend to dominate and people tend to address questions to you because you're the founder of the company.

"If you're going to give other people space, then you have to give them space," Paddy adds. "And a way to do that is by not being there.
"She was coming in and working with people who were used to working with me, and that's tricky. And that's something she has managed extraordinarily well. She's extremely good with people . . .


So I think she has a lot of the skills that will be needed to take this business where it can go." Paddy will be available after he steps down, but he says he's ready to move on. His first book, Daphne Park: Queen of Spies, a biography of a British spy, will be published later this year. He is already working on a follow-up.
"Your early 30s is a super time to take over the running of a business," he says. "Why wait until your 40s, 50s, 60s? Do it now . . .


You have that great combination of energy and drive, tempered with maturity."









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