©2008 craig aronoff [email protected] tel. 678-277-9865 l’dor v’dor: business...

©2008 Craig Aronoff [email protected] tel. 678-277-9865

L’Dor V’Dor: Business Transitions

Arison School of BusinessIDC

Hertzliya, Israel

September 16, 2008

Craig E. Aronoff, Ph.D.Founder and Principal

Family Business Consulting Group, Inc.

[email protected]


TRANSITIONS FOCUS ON FIVE KEY DOMAINS:

• The strategic challenge requiring that family firms adapt to market, competitive, and technological changes occurring with ever greater speed in our dynamic global economy;

• The succession challenge requiring that capable and willing leaders be developed among family members and leadership be transferred in a timely and constructive fashion;

• The governance challenge requiring that mechanisms be developed to assure accountability, communication, planning and conflict resolution in and between the business and the family;

• The family challenge requiring constructive and reasonably harmonious relations among members of the business-owning family;

• The financial challenge requiring ownership transfer responsive to business, family and individual needs.


CORRELATES TO FAMILY BUSINESS LONGEVITY*

• Significant correlations with number of generations business has been in the family:

– Strategic Planning

– Boards of Directors

– Frequent family meetings

• No Correlation:

– Succession Plans

* MassMutual Survey Of American Family Business


“There is but one archetypal mythic hero. The founder of something... A new age... A new city... A new way of life... To found something new, one has to leave the old and go in quest of the...idea that will have the potentiality of bringing forth that new thing."

Joseph Campbell

The Power of Myth


KEY CONCERNS OF ELDER GENERATION

CHIEF EXECUTIVE OFFICERS

• Financial Security - Business, spouse, family

• Identity; Activity; Reason to be; What does it all mean?

• Control of Family - Fear of conflict among family members– Fear Works Against Letting Go

CHIEF EMOTIONAL OFFICERS

• Financial Security - Independence, burden, knowledge

• Spouse - Concern for and impact on her

• Family Conflict - Building unity, managing conflict

• Advocate for spouse (appreciation), for family, for legacy, for progeny


SUCCESSION PLANS’ ACHILLES HEEL

Failure To Plan For Older Generations Financial Security

Parents Require Clear Financial Future

Gracefully Give Up Control

If Not: Parents Continuously Tempted To Step In

Children Grow Risk-Averse So As Not To Jeopardize Parent’s Well-Being

Financial Plans:


EXHIBIT 1

The Flow of Funds in a Family Business

ROLE CONFUSION

Gifts

Bequests

Salary/Wages

Benefits

Perks

Dividends

Stock-Price Appreciation

A RATIONAL SYSTEM

FamilyMembers

FamilyMembers

Employees Owners


“I’M RETIRED MORE

OR LESS. . .”

Retirement Can Be A Dirty Word

Survey of 3,860 Family Businesses Revealed CEO Retirement Plans:

Never Retire 10.8% Over 1/3 WillSemi-Retire 23.3% Stay Involved1-5 Years 24.2% In Their6-10 Years 18.5% Businesses11 or More 23.2%Years

American Family Business Survey 1995Arthur Andersen, Loyola University

Chicago,Kennesaw State University


THE INCUMBENT LEADER'S ROLE

• Organize and focus development process

• Assure adequate resources

• Get out of the way

• Listen, give advice when asked, guide ingoal-setting

• Resist overly controlling, giving too much advice, overly criticizing, solvingproblems for youngster

• Use mentors, consultants, non-familyexecutives, trusted and knowledgeableoutsiders


WHAT FATHERS WOULD SAY TO SUCCESSORS

“Try to have some compassion and understanding forthe guy who’s foot is on your neck.”

* * *

“I’m trying to change my way of doing things. Olddogs may be able to learn some new tricks, but it isvery difficult.”

* * *

“I’ve always been the solution. Now I feel like I’mthe problem.”

* * *

“What I thought were answers are now all questions.”

* * *

“Who am I? What is the meaning of life? What is worthwhile? How can I be recognized and appreciated? I thought those questions were for teenagers. I now find that they are for me.”


PARENT OFFSPRING

Conservative Aggressive

risk -adverse/security

risk-taking

controlling & fearinglosing control

wanting control

doing in familiarcomfortable ways

growth-orientedchange-orienteduncomfortable withbusiness as usual

managing past managing future


TRANSITION OF LEADERSHIP

• Passing the baton - a non-event

• Five to 15 years

• Step-by-step with finish line

• Exchange at nearly full speed


It is hard to find your place in the

sun when you sit in the shade of the

family tree.


COACHING TECHNIQUES FOR

PARENTS

• When you see a problem, don't take steps to fix it. Wait for a private time and talk to the successor about it.

• Set regular meetings with your successor to discuss progress and problems.

• When the successor asks a question or shares a thought, respond only to the subject that has been raised. Don't dredge up other issues.

• Keep in mind that teachers--and great leaders-- are known more by the success of their followers than by what they do themselves.


The successor must

prepare for a job

that doesn't yet exist,

in an era no one can

fully foresee.


PREPARATION IS A LIFELONG PROCESS

• Work habits, attitudes toward the family business, values and relationships all take root in childhood’s fields

• Learning business at the dinner table

• Work habits through household responsibility

• Enthusiasm for business from parent’s expressions

• Leadership from child’s activities (sports, scouts, etc.)


STRONG SUCCESSOR DEVELOPMENT

PROGRAM

• Maximizes potential of new generation

• Improves retention of talented family members

• Provides management depth

• Helps to develop and retain key non-family managers


SUCCESSOR AS REVITALIZER

Transforming entrepreneurial vision

into shared mission to inspire and

empower the next generation team

Preserve as much tradition as you can

Make change your tradition

Strategic reinvention

Strategic experimentationStrategic evolutionFamily support for change


ANOTHER KIND OF HERO -

THE REVITALIZER OFTRADITION

"This hero reinterprets the tradition and makes it valid as a living experience . . . instead of a lot of outdated cliches. This has to be done with all traditions."

Joseph Campbell


NEXT GENERATION’S

SENSITIVE AND

THOUGHTFUL

INITIATIVE

Joint efforts between generations

Dr. Livingston


WHEN FAMILY BUSINESSESDO IT RIGHT

Carefully cultivated family values include stewardship, discipline, responsibility, accountability.

While business is recognized ultimately as serving family goals,

Family is committed to maintaining healthy enterprise

Recognition of need for continuous change

Reinvest and Reinvent

Creates structures to govern business and family promoting values and sound judgment

Invests in building stronger family and maximizing individual potential


WHEN FAMILY BUSINESSESDO IT WRONG

Nepotism

Conflict

Distraction from business

Milking the cow

Slaying the golden goose

Preoccupation with status and lifestyle

Unwillingness to reinvest and reinvent

Demise of enterprise


Businesses can provide the

resources to make greatfamilies

Families can provide theresources to make greatbusinesses

The goal is:

Create families and businesses

worthy of each other

©2008 craig aronoff [email protected] tel. 678-277-9865 l’dor v’dor: business...

Documents

family challenge

family business longevity

family members

family firms

craig aronoff

number of generations

succession challenge

strategic challenge