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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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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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The Family Business: preserving and transferring wealth
Thursday, 23 June 2016 13:43
I trust this article finds you well. It gives a case study on the common issues that Family Businesses face. 
 
 
‘Paddy’s Italia’ is a 3rd generation family run chain of restaurants. Originally set up as a pub today ‘Paddy Italia ’ has 5 restaurants and a franchise branch and employs 65 people.
 

Members involved in the Family Business: 

 

Paddy Founder, long retired

Stephen Current CEO,

Paddy’s Son Dominic Group Manager

Emilo Part Time Coordinator

Rachel Looking to join the business

Philip Doesn’t work in the business

Sofia Doesn’t work in the business

 
 
Issue: Trust & reluctance to 'let go'


Situation
 
Mr. Stephen O'Hare is the current CEO and sole shareholder of Paddy's Italia, a successful family run chain of restaurants. He is in his early 60s
and he and his wife have five children, two of whom are involved in the business.
Stephen's son, Dominic, is eager to take over management responsibilities from his father; however, Stephen is finding it difficult to step back.
Stephen's perception is that his son is not yet capable or experienced enough to manage the business—an outlook that is causing frustration
for his sons, especially Dominic, the eldest. This is impacting negatively on both the family and the business
 
 
 
 
Audience participation:

• This scenario demonstrates a need for communication and clarity of roles and responsibilities.

• It calls for a greater handling of power issues and struggles.

• The issue arises from the cultural difference between generations. The older generation is the
entrepreneur while the next generation represents the more professionalised approach.

• Respect needs to be shown for both incoming and outgoing generations.

• Stephen should work on trusting his judgment in appointing his successor and he should develop
his trust in others to lead the business.

• Stephen should still be kept in the loop. This may be in the form of a debriefing following the
meeting.

• Unemotionally discuss issues. By separating business issues and family issues you can survey the
business in a more objective manner.
 
 
 
 
 
Other points to consider:

Family businesses are typically not good at planning the succession process, simply because they do not do it very often. The typical tenure of a leader of a family owned business is 20 years, whereas, in public companies, CEOs are in their position for usually less than 7 years.
 

In order to successfully transfer the business to his successor, Stephen needs to not only prepare his son, but he also needs to prepare himself to 'let the firm go'.

Preparing to let go is more than putting a succession plan in place and identifying a successor. For the transfer to be
successful, and to enhance the probability of success, successors need to be developed and nurtured over time.
 
 
 
 
 
Other points to consider (continued):

A critical element in being able to 'let go' is investing in the process of knowledge transfer for the nominated
successor.
 
Firms with formal succession plans require successors to:
(1) 'learn business' through formal education
and working outside the business;
(2) 'learn the family business' in particular the family network and network
management skills;
(3) 'learn to lead the family business' by codifying knowledge and learning the tacit knowledge,
training in operational and financial management, and thinking strategically in the business.
 
The most successful multi-generational firms are those who are more adept at managing these factors.
 

Below are three useful and practical steps that can be used to ensure a smooth transition:

1.Define a timeline.

Develop a defined timeline for retirement. The timetable works better if the founder has developed it and done so early.

2.Create management development systems.

Valuing and creating management development systems is part of all three earlier learning phases (4Ls), and is important to support 'a clear line of succession'.

3.Stick to the plan.


 
 
 
 
 
 
 
Issue: Dividing assets 
 
 
 
Situation

Stephen and his wife have five children, two of whom are currently involved in the family business. His other three children work elsewhere,
and hold little connection to the business.
 

Stephen is unclear about ownership succession planning, specifically in terms of allocating the assets amongst his children. Should he only divide
the assets between the two children that are working in the business or should he also include his other three children?
This issue is causing tension between Stephen and his eldest son Dominic, who believes he should inherit the entire business.
 
 
 
Audience participation:

• This issue developed from a lack of communication.

• This problem can manifest when family members feel a sense of entitlement to the business.

• It may be necessary to separate business assets from heritance assets.
 
 
 
 
Other points to consider:

U.S. evidence suggests that 70% of wealth transitions fail (Williams and Preisser, 2003). Typically, the failure in transition is attributed to a breakdown in communication and trust in the family unit, and a lack of preparation of the next generation.
Successful transition requires soft skills such as communication, knowledge transfer and learning, in addition to building industry, network, and entrepreneurial skills.
 

The biggest hurdle family business owners must jump is the mindset of treating children equally. In dividing family business assets there is rarely fairness in the equal division of assets. Instead, owners must consider being fair and equitable. These goals can be mutually achievable.
One option would be to use a 'buy-sell agreement' that equally divides shares of the business among all of the siblings. The agreement, however, could give the eldest son (Dominic) the first right to buy the shares owned by his siblings. The younger siblings would benefit from the sale of those shares, while Dominic would retain ownership of the family business.
 
 
 
 
 
 
Issue:Experience vs. education


 
 
Situation

With a strong entrepreneurial spirit, but no formal education, Stephen took over his father's pub/restaurant business at the age of 21. He
worked hard for the next forty years and grew the business into a verysuccessful company, experiencing firsthand the ups and downs, successes
and failures of the business.
 
 
The sacrifices he made and fear of scarcity along the way help him manage the reality of having significant wealth.
Stephen's children, on the other hand, have all received a formal education, two of them with Masters degrees. The issue of experience vs.
education is now posing a problem between Stephen and his son Dominic, who both view their 'past' as providing them with the authority to make
the best decisions for business.
 
 
 
 
Audience participation:

• This issue requires acceptance and compromise from both generations, with the new generation accepting traditional elements of the business and the outgoing generation embracing new techniques.

• The ideal is to marry together tacit knowledge with education.

• Respect should be shown to both parties as both have worked for their place in the business.

• This situation calls for more open discussion among family members.
 
 
 
 
 
 
Other points to consider:

Both men need to understand that the experience and tacit knowledge held by Stephen, and the formal education of Dominic, are both equally important going forward and to make decisions for the business.
 

A key element in preparing to let go of the business, and thus the implementation of a successful transfer of wealth, is the process of knowledge transfer. One of the most valuable assets in a business is the 'know-how'; this is a core intangible asset of the business.
Moores and Barret (2010) suggest the 'inside-outside' paradox for acquiring and transferring business knowledge.
'Going outside' the family business to obtain formal education and work in other companies provides vital learning opportunities to develop new skills and broader perspectives not readily available within the family business. It also allows the family member to prove themselves worthy of career progression and promotion into senior management roles, an important pathway in order to 'return inside' the family firm where they will learn the
unique aspects of the family business.
 
 
Family business leaders hold specific knowledge, often based on tradition, and part of 'the way we do things around here'. It is important to capture theses traditions in order to explain why 'we do things the way we do' and what is unique to the firm.
The successor needs to spend time with the incumbent when he/she 'returns inside' in order to ensure this transfer of this 'tacit' knowledge takes place.
 
 
 
 
 
 
 
Other potential issues to consider Compensation & equality
 
 
 
 
Situation

Throughout his time in the business, Stephen has always held a modest salary. Often, in order to attract experienced professionals in areas where
he lacked expertise, Stephen would offer a higher rate of compensation than his own.
 
 
 
However, the 3rd generation have earned significant salaries and have owned luxury company cars since they first joined the company. This is causing tension amongst the non-family employees. As Stephen is now approaching his mid-60s he is becoming increasingly conscious that he has failed to adequately plan for his retirement.
 
 
After all his years of hard work in the business he would now like to provide financial security for his wife and himself. He suggests a "pay-out" upon
retirement, but his son Dominic is not too keen on the idea...
 
 
 
 
Points to consider:

Any family firm has three choices of orientation: family-first, ownership-first or management-first. In family-first businesses, employment in the family business is a birthright.
 
 
Family members are encouraged to work in the business, and remuneration and dividends depend on family needs. In ownership-first family businesses, time horizons for investments and perceived risk are the most important issues. Management-first family businesses require work experience outside the family firm as a prerequisite for employment of family members.
 
 
Family firms need to be aware of their main orientation, as this will guide their strategic decisions. In the case of Paddy's Italia, it looks as though the business has moved from an ownership-first or management first family business, to a family-first business. It needs to be decided which orientation the family firm will take into the future. 
 
 
 
 
 
 
Other potential issues to consider In law involvement
 
 
 
 
Situation

Stephen's son, Dominic, is married with children. His wife comes from a different family background to the O'Hare's, with different values and
ways of communicating.
 
 
She is very straight to the point, whereas in the O'Hare family they tend to hint and beat about the bush a little bit. She doesn't get on with Stephen and is always pushing for Dominic to take his Father's position as MD of the business.
 
 
 
 
 
Points to consider:

Approaches to this issue vary, and there are interesting cultural differences around the world.
 
 
At one extreme(common in some Mediterranean countries and in Latin America), in-laws are fully accepted and enjoy family member status in relation to the business. At the other extreme (expecially in the U.S.), in-laws are often excluded, not just from share ownership, but also from any involvement in the business or its family governance architecture.
 
 
One of our 'case companies' has take a middle course. They have adopted a formal entry process to the family business covering both young family members and their prospective spouses. They are invited to annual meetings (before which they sign confidentiality agreements) at which they receive a detailed briefing from family leaders on financial and trust arrangements in place, along with the opportunities and roles available for new family members.
 
 
The main aim of the briefings is to ensure that each new family member finds out what their new family can expect and what is expected of them. With benefits balanced by obligations, the positive message is clear – that new members are welcomed into the family, but they are required to respect rules and traditions that have developed
across generations.
 
 
 
 
 
 
Other potential issues to consider Brothers vs. sisters – women in business
 
 
 
 
Situation

Emilio and Dominic are brothers, both work within the family business.
Dominic is older than Emilio and has been in the Business since he graduated...Emilio has gone onto college but has always worked summers and Holidays in the Family Business and now works part time.
 
 
Emilio has discovered that their Father has decided to make their sister Rachel who is recent masters graduate an HR Director...Dominic thinks
this is a great idea, whereas Emilio is freaking and saying that it just cannot happen....
 
 
 
 
 
Points to consider:

In May 2014, the Irish Independent published an impressive list of businesswomen entitled, "The 50 most
influential and powerful women in business." Such a list would have been unimaginable even 30 years ago, and it
stands as a testament to the tenacity, ability and ambition of women in business. Among those 50 were Margaret
Heffernan and Sharon McMahon of Dunnes Stores, Caroline Keeling of Keelings Fruit and Marion O'Gorman of the
Kilkenny Group
 
 
 
 
 
 
 
 
10 Questions to Ask Before Family and Friends Become Business Partners
Wednesday, 22 June 2016 15:27

Bringing a family member or friend on board as a business partner may seem like a fine idea, but the relationship can prove tricky to navigate--or to end, if things don't go well. "It's easy to get into business, but it's hard to get out," says Wayne Rivers, president of the Family Business Institute, a consulting firm based in Raleigh, N.C.

 

 

That means you need to take a step back and think carefully before partnering with a friend or relative. Here are 10 key questions to consider:

 

 

Are we in it for the same reasons?


Be clear about your goals. Do you want to expand your business and eventually sell it, or build something your family can pass down? "The mistake is not being clear about what your intentions are," says David Ransburg, a consultant with The Family Business Consulting Group, Inc., based in Chicago. If you don't have the same goals for the business, you'll have a hard time making plans or coming to a consensus on big decisions.

 

 

What is this person bringing to the job?


Don't let your relationship color how qualified and well suited for the job your potential partner might be. Think about the credentials and level of commitment you would expect from anyone you were giving such a key role in the company. You may want to write a job description with qualification requirements and see how the experiences of a friend or family member measure up, Rivers says.

 

 

Should you offer an equity stake in the business?


You need to decide whether you want to offer your new partner an equity interest in the company, and if so, how much and how soon. Not only do you want to be sure a potential partner can add value to the business before sharing ownership, but you also should consider giving the person an interest in the business over a period of time, say five years, rather than all at once, says John Davis, faculty chair of the Families in Business Program at Harvard Business School. It can be easy to deal informally with family and friends, but you want to make the terms clear in a signed shareholder agreement.

 

 

What will happen when we can't agree?


Resolving conflicts with family and close friends can be particularly challenging because personal feelings can easily get mixed up with business decisions. "With friends and family... you might make more knee jerk reactions," says Ira Bryck, Director of the UMass Family Business Center in Amherst, Mass. "You can be your worst self where you need to be your best self." You will need to figure out a way to remain professional by taking personal feelings out of decision-making and focusing instead on objective measurements and standards.

 

 

How in sync is our risk tolerance?


Despite your personal connections, you and a family member or friend may feel very differently about taking risks. For example, an older sibling who saw his parents take many risks when starting the family business might be more willing to take risks himself than a younger sibling who got involved later when the company was more established, Bryck says. Determine how in sync you are on such vital decisions as launching new products or trying out new forms of advertising. While you can certainly disagree from time to time, you don't want to constantly butt heads.

 

 

What will each of our roles be?


In a 2010 study of 518 family-owned businesses, the most successful ones had made each person's role in the company clear upfront, says Tracy Shaw, assistant vice president of business market development at MassMutual Financial Group, which oversaw the "FamilyPreneurship" study. For Lidia and Uli Fluhme, married founders of Gran Fondo NY, which began running an annual 110-mile cycling event in New York in 2011, the division of labor has been clear from the get-go. While Lidia Fluhme takes care of logistical aspects of the event, her husband is responsible for interacting with cyclists and handling marketing and legal matters. "He's the visionary, and I'm the implementer of what happens," she says.

 

 

How will we keep our personal and professional lives separate?


When working with family or close friends, the boundaries between your personal and professional lives are bound to blur. But you can maintain some work-life balance if you establish a few rules. For example, you might agree not to discuss work during family meals or to talk about personal matters at work only in an emergency.

 

 

How will this person be evaluated?


Family and friends tend to sweep a lot of things under the rug in business rather than addressing them, Rivers says. But you need to hold one another accountable and figure out how you will evaluate each other's performance on a regular basis. If providing feedback, especially criticism, seems too difficult given your personal relationship, you can seek out a third party for the assessments, Rivers says.

 

 

If it doesn't work out, what do we do?


It isn't unusual to want to change your career, but when you're in business with a close friend or family member, you might feel you can't leave because it will hurt your personal relationship. Before asking a family member or friend to become your partner, consider what might happen if one or both of you wants out. How will you handle the exiting partner's shares? Who will take over the responsibilities of the departing partner? What will this do to your personal relationship?

 

 

What will our succession plan look like?


Even if you both plan to stick it out for the long haul, you're still going to have to think about your successors. Unfortunately, succession planning often goes unaddressed because it suggests mortality, illness or other unpleasant life events you'd rather not discuss. But failing to address succession planning "is like getting on a plane with a pilot who hasn't learned how to land the plane," Bryck says. "You really need to sit down and have this difficult discussion."

 

 

 

 

 

 

 

 

Source: https://www.entrepreneur.com/article/225613

 
Keeping It Professional When You Work in a Family Business
Monday, 20 June 2016 15:16

Working in the family business can be fraught. When your manager is also your parent, sibling, or another relative, how do you keep things professional? Do you ask to be treated the same way as others, or accept that you will have a different sort of relationship at the office? Do you publicly call your mother "mom," or your father "dad"? And what about getting candid feedback for your own growth and development?

 

 

 

What the Experts Say


People who successfully work with family often say there is nothing more fulfilling or enriching, says Claudio Fernández-Aráoz, a senior adviser at the global executive search firm Egon Zehnder and an expert on family businesses. These people "consistently speak of a much greater sense of purpose and meaning in their lives," he says. But if something goes wrong, the damage can be devastating. Fallouts with family over work can cause a tremendous amount of anger, sadness, and shame, says Rob Lachenauer, CEO and cofounder of Banyan Family Business Advisors. "When ordinary people get fired, they get another job," he says. "When a family member gets fired, they feel they've been fired from what they were born to be." Here's how to effectively work alongside relatives.

 

 

 

Work somewhere else first


Experience in an outside firm should be a requirement before embarking on your career in the family business, says Lachenauer. You'll get invaluable training, improve your business judgment, and build your confidence. You'll also gain much-needed perspective on what you hope the arc of your career might look like. Starting off elsewhere is critical "not just because of what you will learn in terms of capabilities," says Fernández-Aráoz, "but fundamentally, in getting to know yourself" and understanding "what you want to do as you get older."

 

 

 

Create separate spheres immediately


On day one when you return to the family business, set a boundary between family time and work time. Letting the two bleed into one another is a recipe for conflict, says Lachenauer. You don't want to talk about clients at Sunday dinner, or about family drama at the office. "Thinking physically is very useful," he says. "When you are in the office, you are business people. When you are on the ranch, you are family." Create house rules about which family matters are permissible to talk about at the office and vice versa. It can be helpful to note which hat you're wearing before embarking on a conversation. For example, you can preface a discussion by saying, "I'm talking to you as your son right now, not your employee." If you feel your family member isn't respecting these boundaries, "bring it up privately and immediately," says Lachenauer.

 

 

 

Define your role and career path


Make sure you have a crystal-clear understanding of your job description and that others know what role you fill. That way you'll avoid needlessly stepping on colleagues' toes or giving anyone the impression that you're resting on your laurels. Be transparent and proactive about your expectations and goals for the future, especially if you would like to hold the top job in the future. "Succession between generations is a very risky project," says Fernández-Aráoz, which is why it's critical to talk early and openly about rules for advancement and what handing off power might look like. "Recognize you may get more opportunities than others," Lachenauer says. "Acknowledge that, and then work your butt off."

 

 

 

 

Adopt an office voice


Pay attention to the details of your interactions with family. "Language matters tremendously," says Lachenauer. Actively listen and use a professional tone with one another — that way you don't make others feel excluded by your closeness or cause unnecessary squabbles when boundaries are breached. Lachenauer recommends you not call each other by nicknames at work, as it "can signal to other employees that the family relationship takes precedence." But strike the balance that feels right for you. "You don't want to behave artificially," says Fernández-Aráoz. If calling your mom by her first name feels too awkward, for example, don't strain to do it, but consider using her given name when discussing her decisions with colleagues.

 

 

 

Seek independent feedback


Getting candid input when you're the boss's son or daughter can be difficult, if not impossible. "Assume you won't get good feedback," Lachenauer advises. He suggests participating in the standard review process but always supplementing it with outside evaluations to ensure that you learn and grow on the job. "Ask for 360 reviews or employ a coach," he says. The key is to be proactive, adds Fernández-Aráoz. "You cannot wait for top-down guidance." One smart strategy is to tap an independent board member to evaluate your progress and performance so you can get smart career advice and reviews.

 

 

 

Have a backup plan


When your professional and personal lives are intertwined, your own identity can be overtaken by the daily demands of family and work. For your sanity and future success, it's critical to maintain outside interests and contacts of your own. That might mean dedicating time to professional networking and enrichment groups so that you keep up with business contacts and develop new skills. It might also mean carving out time for personal hobbies or taking vacations without the extended family, so you have some breathing room away from the business. And as much as it might pain you to consider, think regularly about a Plan B, in the event the family business — or your place in it — hits tough times. "Have an exit plan," says Lachenauer. "Then it won't be the end of the world if it happens."

 

 

 

 

Principles to Remember

Do:

Get experience at an outside company first to improve your judgment and boost your confidence.
Be proactive about asking for candid feedback from someone outside your family.
Have a Plan B.

 

 


Don't:

Bring family nicknames into the office. Maintain a professional tone whenever possible.
Completely meld work and family. Keep the two worlds separate.
Let yourself be coddled. It always ends badly.

 

 

 


Case Study #1: Work elsewhere before climbing the family ladder


Toby Bozzutto's father, Tom, never asked him if he wanted to work in the family real estate management company. But after a few disillusioning years in the music business, Toby wanted to do just that. Tom was surprised at the request but agreed on three conditions: "I had to go work for someone else first," says Toby. "I had to get a master's degree in real estate development. And I had to start at the bottom."

 

Toby did everything his father asked, joining The Bozzuto Group in 2001 as a development associate. He eventually headed up the company's development business before becoming the company's president in 2013. "I was tremendously concerned that people would think I was entitled or only there because of nepotism, and subconsciously it made me work twice as hard," he says.

 

Tom and Toby made sure to stay focused on business while at the office. "I didn't have a direct line to him, and he didn't seek me out," says Toby. "It was exceedingly rare that we talked about our family life at work, and if we did, we did it away from everyone else."

 

Early on, they also attended a weeklong seminar at Harvard University that focused on leadership transitions. "One of the things we learned was that I should never report to my father," says Toby, "and that I should be treated the same as anyone else."

 

"When you begin to work with your family, the trajectory of your relationship changes," he adds. "For us, it has been so rewarding and enriching. But it's hard because business is so deeply intertwined with the personal."

 

Toby says he'd be thrilled if any of his three children express an interest in joining the business. But until then, "I'm going to mimic my dad and never bring it up."

 

 

 

 

Case Study #2: Set clear expectations from day one


When it was clear that Teddy Winthrop was growing dissatisfied with his career at an executive search firm, his brother Bayard offered him some advice. "He told me to figure out what I was passionate about, to start learning about business, and to become interesting to people who might want to hire me," Teddy recalls.

 

This prompted something of an epiphany. Bayard had recently launched American Giant, a U.S. manufacturer of high-quality hooded sweatshirts sold directly to consumers. Teddy admired the organization's mission and reinvention of the retail supply chain, so he went back to his brother and told him, "I want to work for you." After mulling it over for a week, Bayard agreed to hire Teddy as an operations coordinator in the rapidly growing startup.

 

"From the beginning, I was concerned about favoritism," Teddy says. But Bayard made it clear that Teddy would be receiving no special treatment. Teddy explains that on his first day of work, the two sat down together to set clear expectations: "Bayard said, 'As your brother, I want you to learn from this experience. As your boss, I expect you to run through walls for me.' The separation of the worlds was there from the beginning."

 

Bayard also told Teddy's supervisor to give him very direct feedback. "That honesty allowed me to excel," says Teddy. "I knew when I was doing a good and bad job." He also benefited from monthly evaluations where he would rate his own performance and colleagues would offer anonymous feedback.

 

The experience Teddy gained at American Giant proved invaluable when he decided to strike out on his own with a new idea. In 2015 Teddy launched his own company, Edward Field, which also sells American-made products: innovative wallets that hold smartphones. He credits Bayard's no-nonsense leadership and advice with helping to inspire him.

 

"Setting expectations early is one of the most important things when working with family," he says. "Separating work from home is key so you can have a healthy perspective."

 

 

 

 

 

 

Source: https://hbr.org/2016/06/keeping-it-professional-when-you-work-in-a-family-business?utm_source=dlvr.it&utm_medium=twitter

 

 

 
3 Business Benefits of Corporate Philanthropy
Wednesday, 15 June 2016 09:49

3 Ways Philanthropy Can Benefit Your Business

 

 

1. Builds respect and reputation within the community

- When you do good, people notice. Community members are more likely to support businesses that have shown a vested interest in helping the community.

An article on entrepreneur.com used Facebook as an example. When Facebook decided to move to Menlo Park in the San Francisco Bay area years ago, community members worried about the impact the new employees could have on the city's infrastructure.

In response, Facebook spent millions of dollars on infrastructural improvements, such as improving bike trails to reduce traffic congestion created by the throngs of new employees. The company also donated $120 million to nearby schools, which, unsurprisingly, helped boost their public image.

 

 

2. Boosts company morale

- Owners often get so caught up in the daily grind, causing them to forget about the little things that contribute to their employees' joy and fulfillment.

When it comes down to it, employees like working with people and companies that understand the importance of giving back. It improves their respect for the owner and company in general, which can increase employee satisfaction and morale. Happy employees are crucial for a thriving and sustainable business.

 

 

3. Presents networking opportunities

- Philanthropic organizations are chock-full of business owners who make giving back a priority. Getting your foot into these organizations surrounds you with powerful, like-minded people.

Plus, owners who give back tend to have a deeper trust for one another, meaning they're more likely to solicit your business if they need help with something that pertains to your area of expertise.

 

 

If your company hasn't engaged in philanthropic work, it's missing a key opportunity to boost unity, trust and morale. But more importantly, communities and the people within them - like Isabella - need our help. I hope you can find the time and resources to dedicate to these important causes.

 

 

 

 

Source: http://www.rocklamanna.com/blog-rock-lamanna/help-wanted-3-business-benefits-of-corporate-philanthropy

 
4 Myths About Family Business Fraud
Tuesday, 14 June 2016 09:12

You may think that the trusting, tight-knit nature of family-owned businesses means they have a lower risk of fraud. But some experts believe the risk and occurrence of misappropriation are actually greater in family businesses due in part to that very environment of trust. Furthering the problem, the perpetrator may not realize his or her behavior is inappropriate.

 

Research consistently shows that fraud risks are everywhere, and family businesses are far from immune. Certain actions, such as a family member using the company credit card to fuel a personal vehicle or a trusted employee taking unrecorded time off, can start out as "innocent," but if left unobstructed can quickly escalate into bigger, bolder deceptions. While each situation is unique, common factors contributing to inappropriate behavior include a sense of entitlement to maintain lifestyle, trying to live up to performance expectations and inadequate internal controls.

 

Here are four fraud myths you need to confront when assessing your family business's risks:

 

Myth #1 — Our people wouldn't commit fraud.

You cannot vouch for all of your employees, regardless of relationship or employment history. The opportunity to commit more extensive and financially devastating fraud correlates with a person’s authority, position and power along with the degree of oversight.

 

 

 

Myth #2 — Fraud couldn't happen to us — we're a stable organization.

Fraud risks can affect any business. As organizations become more decentralized and complex, management must remain vigilant in their endeavors to detect and prevent all types of fraud. These include, but are not limited to, corruption, intellectual property theft, bribery and money laundering.

 

 

 

 

Myth #3 — If fraud occurred, it would be discovered quickly.

Individual fraud detection mechanisms have limitations. Typically, employees with the responsibility for monitoring the company's internal controls do not have the training or experience needed to properly review these controls. Because of that, though internal and external audits play useful roles, these functions have limited reach when it comes to fraud deterrence and detection.

 

 

 

 

Myth #4 — Damage wouldn't be significant.

Both the rate of occurrence and amount of loss are greater for private companies than public companies. Rate of recovery tends to decrease based on the size of the damage incurred. Reputational damage to the business and family can be even harder to measure, as the impact is so far-reaching. Remember, insurance coverage is limited to actual tangible losses proven by the company and does not generally account for secondary losses, such as reputational damage or legal and investigation costs.

 

 

 

Take action to prevent fraud now, not later.

Awareness and enforced controls that can prevent and detect wrongdoing are the best ways to reduce your family business's chances of falling victim to fraud. Make the rules about the use of company resources clear to both family and non-family employees, and allow no exceptions.

If you suspect fraud, it's critical that you take immediate action. As fraud is most often detected by other employees, instruct them to raise suspected issues to management, HR or legal rather than taking matters into their own hands. If termination is required, you'll need to protect the whistle-blower, the business and the family.

Remember: the potential of fraud occurring in your organization is a possibility that you must confront. You may never need to execute on a fraud action plan, but like every other aspect of running your business, it's a scenario that should be addressed before it's too late

 

 

 

 

 

Source: http://www.forbes.com/sites/ey/2014/06/27/4-myths-about-family-business-fraud/#6d9c61d425d8

 
How to lead your Family Business out of the crisis.
Monday, 13 June 2016 14:06

In recent months many firms have laid off employees, shelved growth plans and cut budgets as the recession and general pessimism continues to afflict the business world. Amid the deepest and most widespread economic downturn for more than 50 years, international trade is forecast to fall by more than 13% and world economic activity to shrink by 2.7%, according to Paris-based body the Organisation for Economic Co-operation and Development (OECD).

 

Family-owned companies have suffered along with everyone else, but they have an inherent competitive advantage that can be leveraged to ensure they survive and prosper despite the poor business and financial climate. This advantage encompasses the well-documented benefits of committed owners, a long-term strategy, industry knowledge accumulated over generations and values such as trust, stewardship and longevity. However, such characteristics on their own do not ensure survival or success. More than at any other time, this crisis demands confident leadership and a focus on the competitive advantages created by family ownership and control. The following ideas should help you identify opportunities for improving your family and business leadership.

 

 

 

1. Take the tough decisions

Management's decisiveness is a critical success factor in any organisation's ability to deal with threats and give the employees a sense of purpose and safety. Nowhere is management more second-guessed than in making the tough decisions about closing businesses or divisions, delaying new initiatives, cost cutting or layoffs. Unfortunately management teams often fail to make the tough decisions and instead opt for a process that could best be described as a "death of a thousand cuts." The best recent example is General Motors who, for years, had too many brands and models compared to competitors such as Volkswagen and Toyota. Everyone knew that the right strategy was to close the smaller divisions such as Buick and Pontiac and concentrate resources on the Chevrolet and Cadillac brands, but it never happened. GM, which was the largest corporation in the world, is now bankrupt and has been delisted from the New York Stock Exchange.

 

During a crisis, management needs to monitor results so that they are ready to take decisions on critical priorities such as controlling assets (cash, inventories and receivables). Sam Walton, founder of Wal-Mart, had a hands-on approach to monitoring his stores competitiveness that allowed him to take immediate corrective action. Sam would ride with the Wal-Mart delivery trucks taking goods to his stores but before arriving at his store he would first stop to check the local competitor's prices. After checking the competitor's prices he knew if his store manager was beating the competition. When pricing deficiencies were found Wal-Mart prices were changed that morning to ensure their price leadership position was maintained.

 

 

 

2. Manage risk and contingencies

Managing risk requires increased attention to financial planning so your firm can continue to exploit its opportunities and strengthen its competitive position. Effective financial management in a crisis demands an aggressive business strategy combined with a shift in focus from growth and the bottom line (P & L) to the balance sheet and cash, debt, inventories and receivables. This financial focus demands considering the impact of different performance scenarios on long-term liquidity and debt.

 

Pernod Ricard, the French spirits and wine group, is a good example of a market leading family business that is working to balance an aggressive growth strategy with a solid financial structure. Last year the group had the opportunity to acquire Absolut vodka, a world-leading brand, for €9 billion. After the purchase was completed the next action was to complete a €1 billion rights offering to cover the group's financing needs until July 2013. Business risk can never be eliminated but Pernod Ricard is protected if business and credit conditions remained severely impaired. Most important their strengthened financial position ensures that they can weather the recession and still exploit the opportunities created by their acquisition.

 

 

 

3. Share information and communicate

Communication during a crisis serves two valuable purposes, first to inform and second to motivate. Engaged and well-informed employees and shareholders are more willing to make sacrifices that contribute to the business' future success. Listening to people's concerns and fears and allowing them to contribute ideas to creating a new vision for the family business is an important tool for strengthening long-term relationships and building commitment.

 

Communication in business families can be a logistics nightmare because of growing numbers of shareholders, multiple generations and increased mobility. Maintaining the family's connection is one of the goals of Younited, a web-based multimedia platform that enables business families to use technology to share information and collaborate more effectively. The real benefit is creating cost-effective ways for family members to connect person-to-person to learn more about each other, the business and their family. Edouard Janssen, one of the founders of Younited and a member of the 3000 plus Solvay family, jokingly calls it: "The secured family-centric Wikipedia/Facebook for business families." If he is right this tool is ideal for reaching the younger generation of a business family who may have limited business interest but are strongly motivated by the chance to be a part of a social network.

 

 

 

4. Practice effective family and business governance

If there is one thing the last ten years should have taught all of us it is that businesses need stronger governance processes that focus on leadership, accountability and performance. Effective governance is critical because family ownership shields non-performing management from the market pressures facing publicly-traded companies. If family governance is not effective then there are no forces to counterbalance management and the business can suffer from the owners' complacency. The consequences of limited accountability are missed opportunities and a loss of shareholder value.

 

The Dow Jones, owned by the Bancroft, family is a good example of ineffective family ownership and governance. While their entrepreneurial ancestors created financial journalism over a hundred years ago, the family's commitment to sound governance and active ownership has faded. For the last 30 years they have taken a very hands-off approach, basically delegating control of the company to management. Unfortunately the management was comprised of journalists and their focus was not on strategy or expanding the business. After the Dow Jones was sold to Rupert Murdoch a Bancroft family member observed: "That had things been run differently [Dow Jones], we might own a $50 billion business today not a $5 billion business."

 

Family business governance requires two basic elements. First, a capable family ownership group who is willing to constructively demand sound business strategies and long-term value creation and second, a board with a diverse membership that represents all the stakeholders' interests. Cargill, the world's largest agribusiness company, has used a strong board comprised of family members working alongside independent and employee directors as a foundation for their successful governance model. Kenneth Dayton, a member of the Dayton family and the founder of the Target Stores, described effective governance as a partnership between the board and the CEO with great boards supporting great CEOs. I would expand on this to say that effective governance also requires great owners.

 

 

 

5. Demonstrate values and stewardship

Family businesses are driven by values and relationships that reflect long-term commitments to their stakeholders and communities. During times of stress family members and employees need enacted demonstrations of the family's values to create a sense of stability. Continued support of philanthropy is a tangible example of a values driven organisation. It is easy to justify cutting charitable activities in the current environment but unfortunately this is when the needs of the communities we serve are at their greatest.

 

The Tsao family from Singapore and the Chen family from Hong Kong are engaging heavily in philanthropy by moving forward with important projects despite the current economic conditions. The Tsao family is leading the development of a new Family Business Network chapter for Asia Pacific and the Chen Yet-Sen Family Foundation is rolling out its Adaptive Eyewear programme to correct the vision of the entire nation of Rwanda. As James Chen says: "Beyond the personal benefits of correcting someone's vision is an economic development action because you create new opportunities based on improved productivity. Now is the time for action."

 

 

 

6. Encourage entrepreneurial behaviours in the next generation

Entrepreneurial founders launch the firm, their children professionalise it and their grandchildren expand to new markets or create new enterprises such as a family office or foundation. All of these entrepreneurial acts help the family become enterprising, grow its core business and expand into new activities. A capable and committed next generation is the most important legacy a business family can have. The next generation sustains the family legacy but also act as change agents with new perspectives on business and family. In Asia, entrepreneurship by the second and third generation is often the blending of Western management practices with Asian entrepreneurship to create a powerful hybrid model of business strategy.

 

BW Group, a world leader in shipping, represents this type of family development. The two succeeding generations – Dr Helmut Sohmen, chairman, and his son, Andreas Sohmen-Pao, managing director – have continued the entrepreneurial legacy of YK Pao to create one of the world's most important transportation groups. Dr Sohmen describes the difference between himself and the founder: "YK liked to receive information through personal discussions and networking, and sometimes acted on spot advice. I, on the other hand, prefer to get systematic input on the broad economic outlook before making any decisions."

 

Family leadership development is not an optional activity so family businesses need to develop their next generation leadership talent during both good and bad times. The Wates Group, a five-generation UK construction company, started this process five years ago. First they identified a team from the next generation who had the interest and talent to replace the five senior family members leading the firm at that time. Then they hired an outside consultant and proceeded with an accelerated programme of talent development. This included psychological assessments, custom designed executive workshops and participation by the next generation at board level. Of the seven family members who began the process, four have leadership roles, two are serving as executives in the firm and two are on the group board.

 

This development has given the Wates family a next generation that has the ability to make a positive contribution to the leadership of the business during these difficult times. During a recent lunch the remaining two senior-generation family leaders expressed a quiet confidence and even optimism about the prospects for their business because their next generation is in place working with a skilled non-family chairman/CEO and the board. The crisis may mean a drop in sales but their long-term vision of another century of Wates family ownership is safe. Andrew Wates, former executive chairman of the group, says: "We are at the beginning of our family journey today, not the end of it."

 

 

 

7. Exploit family business culture

Families are driven by values that reflect their shared beliefs, experiences and psychologies. The family's unique values and behaviours as owners and leaders shape how their family business culture develops. In Family Business on the Couch: A Psychological Perspective five family behaviours that contribute to the cultures that give business families an advantage over their non-family competition were identified: networking; goal alignment; control; time frame; and organising structures.

 

Family business culture is a powerful tool for motivating individual and organisation performance and creating behavioural norms that support the firm's strategy. These long-lasting, shared beliefs about how and why the organisation operates provide stability, shared learning and a unity of purpose. Long-lasting business cultures are reinforced and supported by the organisation's rewards and recognition processes as well as the myths and stories about past successes and employee heroes. The business' goals, values, vision, and strategy also reinforce the culture. The advantage of a strong culture is that it empowers employees and replaces management's dependence on administrative controls or sanctions such as policies, procedures, budgets and employee performance reviews.

 

A good example of the effectiveness of cultural versus administrative controls is the financial services industry. It is generally accepted that the large banks and their employees, who maximised short-term gains for their own advantage despite administrative controls, caused much of the current economic malaise. A comparison of the large, publicly traded banks and their family business peers demonstrates the impact of family cultures on performance.

 

Family-controlled banks such as Banco Santander, Julius Baer, C Hoare & Co, Pictet & Cie and Lombard Odier Darier Hentsch & Cie, have experienced fewer asset write-offs from the crisis and are strengthening their market positions. Their cultures, based on long-term performance and accountability, explain the stronger performance. They did not chase the quick profits as they prefer to plan and invest for the long-term. Their strong, family business cultures supported organisations where employees, management, directors and owners were all focused on building their business not their bonuses.

 

 

 

8. Be authentic leaders

Many business executives are facing their first deep recession and leading their firms in new ways is the most daunting career task they have faced. Critical to a leader's success is their ability to use themselves as a tool to influence and motivate others to learn new behaviours and perform at higher levels.

 

Authentic leadership is a concept that has many advantages to family business executives because it helps them appreciate the importance of both the technical dimensions of their work, such as planning a marketing campaign, and the human dimensions, such as developing more effective interpersonal relationships.

 

There are no formulas for authentic leadership because leadership is situational, based on the interaction of the leader's style, experiences and personality with the challenges his or her organisation faces. It is a personal activity that requires the leader to recognise how their values and behaviours can influence their followers to move beyond achieving business goals to building a more effective organisation.

 

The Agnelli family and Fiat are leveraging executive and family leadership to build long-term value. Fiat's non-family CEO Sergio Marchionne has done an excellent job of demonstrating authentic leadership behaviour through the company's acquisition of the bankrupt car manufacturer Chrysler. His empowering personal style is supporting the new Chrysler team in implementing a turnaround and new global business strategy.

 

John Elkann, vice-chairman of Fiat and a sixth generation of Fiat's founding Agnelli family, is leading on the family side to ensure that the owners are fully committed to a new global strategy for Fiat. The Agnelli family has always publicly supported the idea of consolidation, showing employees that Fiat has the ability to grow despite the tough economic climate. This helps lessen anxiety over the stability of the company and shows their ability to incorporate new business ideas in order to move forward.

 

Elkann's behind-the-scenes leadership demonstrates an important trait of authentic owner-leaders; they know their talents and roles. Elkann recognises that Marchionne has the industry knowledge and expertise to best implement the new strategy. Authentic owner-leaders resist the temptation to get involved in everything; instead they trust their managers to manage the firm. Authentic leaders support their managers, as Elkann did in June, and recognise their team's successes.

 

Authentic leaders also recognise the emotional impact of their leadership style on the firm and its stakeholders. Most families and their employees are experiencing anxiety about the economic crisis and it is the leader's responsibility to help contain and redirect these often-destructive emotions.

 

One tool family leaders can use is a new vision of how the business will succeed in the future. Leaders also need to be alert to their own fears and uncertainties to avoid slipping into a default command and control leadership mode rather than a more effective coach and control pattern that combines listening and learning with goals and accountability.

 

According to Napoleon Bonaparte: "A leader is a dealer in hope." If family business leaders can practise this simple idea in their interactions with employees, family members and stakeholders they will not only emerge from these challenging times with stronger organisations and more committed families, but the family business community around the world will once again assume its larger leadership role based on long-term performance, value driven leadership and stewardship.

 

 

 

 

 

 

 

Source: http://www.campdenfb.com/article/how-lead-your-family-business-out-crisis

 
Family values drive growth of Sixt Ireland car rental business
Thursday, 09 June 2016 09:44

Below you will find a great success story on how Bernard Loughran joined his Family Business after years of working with General Electirc. It is good practice to work away from a family business to get a broader perspective on business and one brings more knowledge & experience back with them.

 

While size is vastly different between multinational conglomerates and Irish SMEs, the fundamentals of running them is the same, according to Bernard Loughran, managing director of Sixt Ireland.


He should know. He was among the most senior members of staff at General Electric in the United States, before he left to join his family business, County Car Rentals in Dublin.

 


"At General Electric, I learned there is very little difference between running a large corporation and a small business, except for size. The fundamentals are all the same, so you shouldn't fear expansion."


Loughran got a scholarship to study engineering at UCD, before being hired by General Electric in the US. There he worked his way up to the position of management consultant in strategic planning at GE.

 


GE encouraged him to do an MBA at Harvard but he talked them into letting him do it at Trinity, so he could spend some time at home.
"I was promoted within the company to corporate staff. Everyone else in corporate staff had an MBA.

They registered me to do an MBA in Harvard. I had applied to do one in Trinity and got accepted there, so I did it there. I was 26."

 


Loughran spent 11 years with GE in the US before returning home in the late 1980s to join the family business.
"I'd never taken my eye off the family business as it was there. I saw the potential of developing it."

 

His parents had set up County Car Rentals in 1952, bringing "strong family values of hard work and integrity into the business," he says. His mother Kay, who is in her 90s, is still a working director in the business.


"My mum has always been very good at figures, and over the years she always looked after the books. There is a wealth of knowledge in older people. It could and should be tapped."
"She works in administration now. She has two certified accountants and four account assistants on her team. They run all accounts and operations."
He says the County Car Rentals franchise operation initially targeted traffic coming off the ferry, but later set up a branch at Dublin Airport, and began marketing itself in the long-haul flight markets, winning inbound car rentals from Australia, New Zealand, the Far East, South Africa, the UK and the US.

 


"We were based in Dún Laoghaire and took advantage of traffic coming off the ferry. Then Ryanair changed everything and we had to move operations to Dublin Airport. We kept our headquarters in Dún Laoghaire but opened up a branch at Dublin Airport."
In 2012, County Car Rentals won the Sixt franchise for Ireland, something Loughran says gave the company an international brand.
"Our fleet at the time of signing was overwhelmingly out of Sixt's specification, with many vehicles approaching four years of age. We needed a much larger and newer fleet."

 


"We had to bite the bullet and dispose of our out-of-spec fleet and acquire vehicles that met Sixt's specifications. This required large financing, a difficult task in Ireland's difficult economic climate.

 


"We had to convince the bank we are not in the car industry, like car dealerships are: we are in the tourism industry."
As part of the partnership, all rental offices and operations have been rebranded with a fresh new Sixt Rent a Car corporate imagery.
Marketing Ireland in other countries, Loughran showed photos of Ireland's motorway system as well as sites such as the Aviva Stadium, Grand Canal Theatre and Croke Park. He says there was a perceived image abroad that Ireland was full of tiny, winding roads – people didn't realise the country had motorways.

 


"We targeted Germany, Austria, Switzerland and Hungary. They brought us most of our business. We promoted Ireland as well as our car hire company."


The car rental business has taught Loughran a lot about collisions and road safety.
"Renters have different types of accidents that non-renters. A lot of accidents that renters have relate to the fact they are not used to driving on the opposite side of the road.

 


"We put an arrow on the windscreen, with a reminder to keep left," he says, adding that it has greatly helped to reduce collisions among car renters.
He said the idea came from a project he had previously worked on which was classified at the time. In that project, a "head- up" display was developed for aircraft, to help pilots. It was a transparent display that reminded the pilots without requiring them to look away from their usual viewpoint.

 


"The patent on that head-up display ran out. I used a simple version of that to tell people what side of the road to drive on. It was an immediate success. We took away the patent we had on ours, and allowed anyone to use it."
He says other companies copied every aspect of his head-up display.

 


"I made a spelling mistake in the Italian translation of 'drive on the left'. Some competitors did the same, funnily."
Comparing the second half of 2014 with the second half of 2015, he says the rate of serious accidents among car renters was reduced by 66 per cent.
"We work very closely with Sixt headquarters in Munich on everything.

 

They're a family business too. It's run by Mr and Mrs Sixt. I learned from them that if I wanted to be successful I had to have a very good team around me, so I did that."

 

 

 

 

 

 

Source: http://www.irishtimes.com/business/work/family-values-drive-growth-of-sixt-ireland-car-rental-business-1.2670034

 
The Difficulty of Succession for Family Businesses
Tuesday, 07 June 2016 09:55

One sensitive issue for midsize companies, particularly family-owned businesses, is succession. How does one generation pass on control to the next?

 

MR. KEYT: Family business, when leveraged correctly, can actually be a great opportunity for millennials. Millennials love to have meaning and purpose in what they do, and when a family is behind the business's values and its vision for the future, it can be really empowering to a millennial.

 

 

MR. BERMAN: It doesn't make much sense for a family business to be passed on to family. It should be, at least in theory, passed on to the person with the best economic outcome for that enterprise.

 

 

MR. KEYT: The best family businesses have that approach. Family businesses, when working well, understand that we have to do what's right for the business, and to balance that with what's right for the family and the family's economic interest.

 

 

MR. BERMAN: What percentage of businesses have that enlightened view on the world?

 

 

 

 

 

To read the full article, go to: http://www.wsj.com/articles/the-difficulty-of-succession-for-family-businesses-1464832923

 
Avoid the Traps That Can Destroy Family Businesses
Thursday, 02 June 2016 15:11

Nearly 75 years ago a charismatic Brazilian entrepreneur named Enrique Rosset started an eponymous textile and apparel manufacturing company in São Paulo. Some 40 years later he and his oldest son decided to diversify by acquiring Valisere, an upscale but failing lingerie business.

Over the decades, Enrique and his four sons transformed their operation into one of South America's leading textile and apparel manufacturers. During the 1990s Grupo Rosset expanded into swimwear, with great success. But the family knew the business faced critical strategic challenges.

The rise of shopping malls was weakening the small Brazilian retailers who'd made up Rosset's primary distribution channel. Chinese imports were beginning to pose serious competition.

The advent of digital fabric printing would undercut Rosset's core manufacturing strength unless the company adopted the technology itself. Enrique's sons, who'd led the firm for 20 years, had to make a crucial decision about which of the five members of the third generation should assume the leadership role.

 

In the United States, a familiar aphorism—"Shirtsleeves to shirtsleeves in three generations"—describes the propensity of family-owned enterprises to fail by the time the founder's grandchildren have taken charge. Variations on that phrase appear in other languages, too.

The data support the saying. Some 70% of family-owned businesses fail or are sold before the second generation gets a chance to take over. Just 10% remain active, privately held companies for the third generation to lead. In contrast to publicly owned firms, in which the average CEO tenure is six years, many family businesses have the same leaders for 20 or 25 years, and these extended tenures can increase the difficulties of coping with shifts in technology, business models, and consumer behavior.

Today family firms in developing markets face new threats from globalization. In many ways, leading a family-owned business has never been harder.

 

The high failure rates of family businesses may seem unavoidable. They're not. In our work advising these types of companies, we see them repeatedly caught in the same traps. Recognizing and learning to avoid those traps can boost the odds of long-term survival.

 

 

 

Trap #1: "There's Always a Place For You Here"


Some proprietors of family-owned firms make their children feel obligated to join the company, which can backfire by creating a crop of managers who aren't interested in being there. More often, though, we see parents emphasize that their offspring are free to join the business if they so choose. If the company is successful, those children are likely to have been raised amid wealth, which broadens their choices as adults. Generally this situation translates into an unspoken promise that "there's always a place for you here," which can lead children to treat the business as a fallback option. We've encountered many companies that are populated by next-generation members who failed in other businesses or spent their 20s (and sometimes their 30s) as aspiring athletes, artists, or musicians before signing on to the firm as unprepared 40-somethings. Despite their lack of experience, these offspring may ascend to leadership positions because of the family connection, increasing the chances that the business will fail.

 

To escape the trap: Insist on proper training and screening.


It's natural for a family business to welcome members of the next generation, and it's healthy to expose them to the company at an early age, so that they can make an informed decision about whether to pursue a career there. But a job with the company shouldn't be an entitlement. Those who want to join deserve no special accommodation. We now see an emerging best practice in which families formally require any child who wants a job to (a) earn a university degree—and in some cases a graduate degree, (b) gain several years of relevant professional experience outside the family business, and (c) apply for open positions in competition with nonfamily applicants. At one European firm we know of, family members applying for a job must be at least 26 years old, have earned a master's degree in business or engineering, speak three languages, and have won two promotions within five years at a nonfamily firm. And they are given only one opportunity to apply: If they're turned down, they must go elsewhere.

Even firms that already employ many family members can benefit from rigorous performance and potential assessments. At Gerdau S.A., the four brothers in the fourth generation of the Johannpeter family had run the business very profitably for more than 20 years when they began thinking about succession, in the mid-1990s—long before they planned to step aside. They hired a search firm to evaluate Gerdau's top 60 executives, including five next-­generation family members, for appointment to a newly created executive committee. They used this objective assessment to encourage some family members to pursue careers outside the business. Those people left gracefully and did well in other endeavors.

Four years later the family worked with another set of outside advisers to identify five candidates for CEO. Among those recommended were two fifth-generation cousins with extensive experience in the business. The company sent the two for advanced executive training at leading U.S. business schools and subsequently put them in charge of key business units for several years. In late 2006 the top-­performing family member was appointed CEO, and his cousin became COO. Today four of the five CEO candidates remain with Gerdau, and the company's revenues have grown from $13 billion in 2006 to $20 billion in 2010.

 

 

 

 


Trap #2: The Business Can't Grow Fast Enough to Support Everyone


An underappreciated problem is that families often grow more quickly than their businesses do. If a company founder has three children, each of whom marries and produces three more children, each of whom marries, within three generations there could be 25 people or more (including all the spouses) working or looking to work at the company. Many businesses simply don't have enough work to employ every family member.

 

To escape the trap: Manage family entry and scale for growth.


Families that have avoided Trap #1 by ensuring that only committed, qualified relatives are allowed to join the firm have already reduced the magnitude of Trap #2. Another solution is to develop strategies to grow the business and create responsibilities for additional family employees.

Mitchells, a high-end clothing retailer in Westport, Connecticut, took this approach. Jack Mitchell and his brother, Bill, inherited the store from their father, Ed, who'd founded it in 1958. A decade ago, as Jack and Bill anticipated handing leadership to their seven children (each of whom had graduated from college and obtained relevant experience before joining the store), they realized that the business would have to grow to provide enough high-level roles to go around. Mitchells' key strength is a customer relationship management system that helps salespeople bond with clients and suggest suitable products for them. In 1995 Mitchells bought a failing men's clothier in nearby Greenwich and utilized its own CRM system to turn the store around. Since then it's acquired retailers on Long Island and in northern California and has dispatched members of the next generation to run the stores in those locations. This strategy not only provided sufficient revenue to support the various family employees but also gave all of them their own operations to lead.

 

 

 

 

Trap #3: Family Members Remain in Silos According to Bloodline


One of the most striking things we've noticed about family businesses is the tendency of fathers and sons (and increasingly daughters) to specialize in the same aspect of the business, whether it's finance, operations, or marketing. This can be problematic for several reasons. First, by staying in specialized silos, next-generation managers fail to gain the cross-functional expertise needed for executive leadership. Second, when close family members supervise one another, the personal dynamic can prevent candid feedback and interfere with coaching. Together these factors can create a leadership vacuum in the up-and-coming generation. This may prompt the current generation to stay in the top positions too long, limiting the company's adaptability to change.

 

To escape the trap: Appoint non­family mentors.
In a small enterprise, it may be impractical to prohibit family members from supervising one another. But even in these cases, companies should minimize the time that employees spend working for immediate relatives. Some companies assign an experienced non­family mentor to each younger family member, to provide the objective performance evaluation and critical advice an employee in a nonfamily business typically gets. For this to work, the coach must operate under a protective umbrella, immune from retribution by the family.

 

It's unrealistic to think you can create a nepotism-free family-owned business, and it's important to recognize that family enterprises will always operate by different rules. For instance, even the largest family-controlled, publicly traded firms manage dividends differently from the way non-family companies do. It's also worth recognizing that family ownership can provide a welcome counterbalance to the short-term incentives offered to most managers. To survive over the long haul, however, family firms need to adopt formal policies about whom to employ, whom to promote, and how to balance family and business interests. If more companies take these steps and survive the treacherous transitions from one generation to another, everyone will benefit.

 

 

 

 


Source: https://hbr.org/2012/01/avoid-the-traps-that-can-destroy-family-businesses&cm_sp=Article-_-Links-_-End%20of%20Page%20Recirculation

 
Advisors help small-biz owners keep it in the family
Wednesday, 01 June 2016 15:28

The statistics on the unhappy fates of family businesses are well known in the wealth-management world.

 

Only 30 percent of family businesses make a successful transition from the founders to the second generation, 13 percent make it to the third generation, and just 3 percent make it to the fourth.

 

Those statistics don't reflect the fact that many families choose to sell their businesses and/or successfully enter new businesses and new markets, but they do highlight the very difficult path that families have in maintaining ownership of a business.

 

"Family businesses account for a big percentage of [gross domestic product], but they are inherently fragile and subject to fragmentation," said Douglas Box, founder of Box Family Advisors. "That's borne out by the data on the lack of successful successions. Even those lucky enough to make a transition will still have major challenges," he added.

 

 

The thousands of family businesses run by baby boomers approaching retirement age have some big decisions to make. And with thin and increasingly volatile markets this summer suggesting that the time to sell is running out, those decisions are all the more crucial to a family's well-being.

 

"A lot of people regret not selling [their businesses] before the great recession of 2008," said certified financial planner Bob Klosterman, founder of White Oaks Wealth Advisors.

 

All families are unique, with their own dynamics and dysfunctions, and there is no ideal fix to optimize the management of a family business and protect the family's wealth. Business owners typically need the full array of professional services, from lawyers and certified public accountants to financial advisors, estate planners and family psychologists.

 

 

However, it's not the tax strategies or the trust vehicles, the investment programs or the estate-planning tricks that matter most for owners and members of a family business; rather, it's the "soft" stuff, like communication, emotional honesty and a willingness to consider the perspectives of all family members.

 

"There can be multiple good choices for families owning businesses," said Judy Green, president of the Family Firm Institute, which conducts education for owners of family businesses. "It's about how families will agree to come to decisions. It's a process, and being willing to engage in the process is the biggest thing," she explained.

 

 

While wealthy families aren't likely to get a lot of sympathy for their troubles, the truth is, businesses can often become a major source of conflict, uncertainty and general fear and loathing among family members. Rivalries and resentments, and unresolved issues between parents, children and siblings can and do destroy wealthy families.

 

The key to avoiding that, say advisors, is to give a full airing of the family's dirty laundry and to consider basic questions about the importance of the business to family members.

 

"The odds are against high-net-worth business owners from the get-go," said Jim Brennan, a senior family wealth advisor for GenSpring Family Offices. "Families often address complex planning issues first instead of determining the wishes of the second and third generations. They need to do the family stuff first."

 

Here are three basic questions family business owners need to address before getting into details about how best to manage a transition in the business and preserve their wealth.

 

The statistics on the unhappy fates of family businesses are well known in the wealth-management world.

 

Only 30 percent of family businesses make a successful transition from the founders to the second generation, 13 percent make it to the third generation, and just 3 percent make it to the fourth.

 

Those statistics don't reflect the fact that many families choose to sell their businesses and/or successfully enter new businesses and new markets, but they do highlight the very difficult path that families have in maintaining ownership of a business.

 

"Family businesses account for a big percentage of [gross domestic product], but they are inherently fragile and subject to fragmentation," said Douglas Box, founder of Box Family Advisors. "That's borne out by the data on the lack of successful successions. Even those lucky enough to make a transition will still have major challenges," he added.

 

 

The thousands of family businesses run by baby boomers approaching retirement age have some big decisions to make. And with thin and increasingly volatile markets this summer suggesting that the time to sell is running out, those decisions are all the more crucial to a family's well-being.

 

"A lot of people regret not selling [their businesses] before the great recession of 2008," said certified financial planner Bob Klosterman, founder of White Oaks Wealth Advisors.
All families are unique, with their own dynamics and dysfunctions, and there is no ideal fix to optimize the management of a family business and protect the family's wealth. Business owners typically need the full array of professional services, from lawyers and certified public accountants to financial advisors, estate planners and family psychologists.

 

 

However, it's not the tax strategies or the trust vehicles, the investment programs or the estate-planning tricks that matter most for owners and members of a family business; rather, it's the "soft" stuff, like communication, emotional honesty and a willingness to consider the perspectives of all family members.

 

"There can be multiple good choices for families owning businesses," said Judy Green, president of the Family Firm Institute, which conducts education for owners of family businesses. "It's about how families will agree to come to decisions. It's a process, and being willing to engage in the process is the biggest thing," she explained.

 

 


While wealthy families aren't likely to get a lot of sympathy for their troubles, the truth is, businesses can often become a major source of conflict, uncertainty and general fear and loathing among family members. Rivalries and resentments, and unresolved issues between parents, children and siblings can and do destroy wealthy families.

 

The key to avoiding that, say advisors, is to give a full airing of the family's dirty laundry and to consider basic questions about the importance of the business to family members.

 

"The odds are against high-net-worth business owners from the get-go," said Jim Brennan, a senior family wealth advisor for GenSpring Family Offices. "Families often address complex planning issues first instead of determining the wishes of the second and third generations. They need to do the family stuff first."

 

Here are three basic questions family business owners need to address before getting into details about how best to manage a transition in the business and preserve their wealth.

 

 

 

 

1. What's the purpose of the business?

 

It may be self-evident that a family business is intended to support and sustain its family members, but business owners need to address the basic issue of what the business means to the family.

 

"One of the biggest questions owners need to answer is why ... they [are] in business," said Joan Ridley, a certified financial planner and president of Business Wealth Solutions. "Is the purpose of the business to keep family members employed, or is to grow family wealth?"

 

The answer to that question can and likely will differ depending on which family members are asked. It's crucial that the desires and expectations of all members of the family are understood, and in most cases it will require the help of an outside counselor or psychologist to get there.

 

 

"It can get ugly," said certified financial planner Grant Rawdin, founder and CEO of Wescott Financial Advisory Group, which has an organizational psychologist on staff. "There can be a lot of hard feelings, and it's important for them to come out," he explained, adding, "Sometimes they can be petty grievances or childhood issues, and sometimes they can be smart and important to the business."

 

 

 

 

2. Do you have a 'family constitution'?

 

Once a full airing of family issues is undertaken, the next step is to draft a "family constitution," or mission statement, that can serve as a blueprint for making important decisions.

 

"Everyone has opinions about how things should work," said Klosterman of White Oaks Wealth Advisors. "With a lot of people involved, it's very difficult without a process. It's crucial that families develop a unifying message about running the business and about their interaction with their community and each other," he added.

 

GenSpring's Brennan starts the process with anonymous surveys of all family members to determine the values that are important to each of them. From there, he looks to build a structure for a business plan to fit those family values. "We try to make a compilation of shared family values and not focus on disparate values of family members," he said. "Consensus is the goal."

 

 

 

3. Succession or sale?

 

Once the answers to the first two questions are determined, business owners will be in a much better position to decide whether a business should remain in the family or be sold to outsiders.

 

Business founders may want their children to succeed them, but their children may not have the qualifications or desire to take over the business. In some cases, family conflicts may be so bitter that an internal transition may be impossible.

 

Box at Box Family Advisors suggests families go slow and make sure they consult all members about their views of the business and their aspirations. "The worst decisions are usually made when Dad and a lawyer cook something up without consulting anyone else," he said. "This is where families blow up."

 

 

"Families often don't realize they're held together by a business, and when they sell it, they fall apart."

 

 

Box also said that selling a business is usually his last suggestion to clients. "Families often don't realize they're held together by a business, and when they sell it, they fall apart."

 

 

When Box's father, former professional football player Cloyce Box, died, he and his three brothers went through a bitter conflict that ended up in a forced sale of the oil business their father founded.

 

 

 

"The family enterprise had kept us together; now we don't have as much to talk about," he said. "There's a bond that will never be there again because of what we went through."

 

 

 

 

 

 

 

Source: http://www.cnbc.com/2014/08/25/advisors-help-small-biz-owners-keep-it-in-the-family.html

 
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