The Dynamics of a Family Business. Someday, Honey, this will all be your brother’s.
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Transcript of The Dynamics of a Family Business. Someday, Honey, this will all be your brother’s.
The Dynamics of a Family Business
Someday, Honey, this will all be your brother’s
Someday, Son, all this will be yours - assuming I can get my father to give it to me
Types of Family Business
ownermanaged
sibling partnership
cousin syndicate
c.Ivan Lansberg PhD
Types of Family Business
OMB
SP
cs
c.Ivan Lansberg PhD
Types of Family Business
OMB
SP
cs
Golf
Tennis
Football
c.Ivan Lansberg PhD
Family Business Syndromes
Procrastination Selective amnesia Paranoia/ fear Conflicts of interest
Typical Conflicts of Interest
Trustees of settlements v Directors Minority shareholders v Directors Mum / Dad v Boss
Overlapping systems
FAMILY
Emotion basedSubconscious behaviorInward lookingMinimizing change
Overlapping systems
FAMILY
Emotion basedSubconscious behaviourInward lookingMinimising change
BUSINESS
Task basedConscious behaviorOutward lookingExploiting change
Overlapping systems
FAMILY
Emotion basedSubconscious behaviorInward lookingMinimizing change
BUSINESS
Task basedConscious behaviorOutward lookingExploiting change
Overlapping systems
FRICTION ANDCONFLICT
FAMILY
Emotion basedSubconscious behaviorInward lookingMinimizing change
BUSINESS
Task basedConscious behaviorOutward lookingExploiting change
A good scare is worth a pound of advice
Succession Issues
Planning the process
As far as we can tell, the only thing keeping you alive is the realization that your son would inherit the business.
Passing Down the Business - The Key Questions
Who is to own shares in the next generation? Who should have control of the company? Can equity ownership and voting control be separated? How can I guarantee financial security for my spouse? How can I be fair and be seen to be fair to my heirs ? Does treating children fairly mean giving them equal
shares? What is the best way to ensure my heirs are not
burdened with estate taxes?
Obstacles to Planned Succession by Founders
Fear of death Reluctance to release control & power Threat to personal identity Bias against planning Inability to chose among children Fear of retirement Jealousy and rivalry
The Founder's Options
Succession options
Appoint a family member
Appoint a caretaker manager
Liquidate the business
Sell, in whole or part the business
Do nothing
Appoint a professional manager
A Succession Checklist
Start planning early Develop a written succession plan Involve family and colleagues in your thinking Take advantage of outside help Establish a training process Plan for retirement Make retirement timely and unequivocal
The Main Worries
Will I live up to the founder's expectations ? Will I be able to establish my independence ? How will I get along with the founder at work ? Will I be able to establish good working
relationships with siblings ? Will the non - family employees respect me ?
Essentials for Smooth Succession
Training Mentoring Teamwork Honesty
Succession
Identify the real issues Decide what is fair Be honest Create environment to plan the process Be Sensitive to others (especially elders) Create intergenerational teamwork
Inter - generational Teamwork
Avoids conflicts Facilitates the succession plan Avoids emotional blackmail No secrets Promotes a constructive discussion
Key Retirement Considerations
Two sided
– Bigger issue for retiree than successor Often feelings of elders not fully taken into
account Issues not resolved in one generation will be
played out by the next Difficulty in choosing between the kids
Separation of Finances
IF the finances of the generations are not
separated, research shows that the business
is more likely to fail
Someday, Son, this will all be yours - unless I can come up with a better solution
Four Exit Styles
Monarchs Generals Ambassadors Governors
FOUR EXIT STYLES - 1
MONARCHS
Do not leave office until they are decisively forced out through the death of the chief executive or internal palace revolt.
This palace revolt may be in the form of ultimatums, the resignations of top officers, or the action of the board of directors.
FOUR EXIT STYLES - 2 GENERALS
Departs in a style also marked by forcible exit. (Here the chief executive leaves the office reluctantly, but plots his return and quickly comes back to the office out of retirement to rescue the company from the real or imagined inadequacy of his or her successor).
The General enjoys being the returning savior and often hopes to remain around long enough to take the firm and himself to even greater glory.
FOUR EXIT STYLES - 3
AMBASSADORS
Leave office quite gracefully and frequently serve as post retirement mentors.
May remain on the board, but they do not try to sabotage their successor.
FOUR EXIT STYLES - 4
GOVERNORS
Rule for a limited term of office, then shift to other vocational outlets entirely after retirement.
Despite their fairly graceful exits, governors maintain very little on-going contact with their firm once they have left.
AVERAGE ANNUAL COMPANY GROWTH DURING REIGN, BY
DEPARTURE STYLE
05
101520253035404550
Assets Sales Income Employ
Monarchs
Generals
Ambassadors
Governors
% growth
COMPANY GROWTH DURING LAST TWO YEARS OF REIGN, BY
DEPARTURE STYLE
0102030405060708090
100
Assets Sales Income EPS
Monarchs
Generals
Ambassa]dors
Governors
% growth
Two Types of Shareholding Models
Custodian Value out
Shareholding Models
Custodian
– No Capital sum
– Shares held for later generations
– Sufficient cash benefits during tenure
– Sufficient pensions to maintain living standard
Shareholding Models
Value out
– Cash on retirement or exit
– Company or others purchase shares
Custodian Model: Advantages
Cost spread over many years Very Tax efficient Reduced demand on cash flow Balance sheet will be stronger Clarity and simplicity
Custodian Model: Disadvantages
May not be enough profits / cash to fund benefit packages
No lump sums available for shareholders Needs clear governance May not be liked by succeeding generations
Value Out Model : Advantages
Provides cash Makes clean break
Value Out Model : Disadvantages
Pressure to buy out shareholders may inhibit company investment strategy
Valuation issues May accelerate tax payable Causes emotional stress Balance sheet weaker
Concluding remarks
Key Skills
Learning how to delegate Establishing goals and accountability Clarifying your expectations Encouraging individual growth and
development Facing up to difficult emotional issues Getting support and being supportive Managing your time to give to others
Work to Be Done
Maintain positive attitude Avoid procrastination Generate sound leadership Give time to family relationships Innovate and change Attract and keep high quality management team Trust the family Plan long term, & maintain energy commitment
and vision
Family Business Resources
www.familybusinessinstitute.comwww.familybizz.net www.london.edu/familybusiness.html www.business.uc.edu/goeringwww.ifb.org.uk (Grant Thornton)www.bdo.co.uk (Stoy Hayward)+ key word search “family business institute/centre”
The Family Business
Stoy Hayward Centre for Family Business
8 Baker Street
London W1U 3LL, United Kingdom
www.scfb.co.uk