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