Ensuring the success of your family business

Tony Haffenden Family business and succession coach

Helping senior business leaders exit or transfer their business and young business leaders create a new vision and a

profitable way forward

Ensuring the success of your family business

The economic importance of family businesses

The real differences in running family businesses

Family business leadership and transition

Where will we (and our businesses) be in 2017

Using conflict to take the business forward

Pass on, sell on, carry on or……………

Some real examples of family business transfer

Communication and organisation solutions

Family businesses as a % of registered companies

Portugal

United Kingdom

Spain

Switzerland

Sweden

Italy

Middle East

70%

75%

80%

85%

>90%

>95%

>95%

© Family Business Solutions

What every family business adviser should remember

No family business is at exactly the same stage

No family firm is static for very long

Professionals must respect these differences

No one professional has all the tools

Working with a family business is a multi disciplinary undertaking

© Dr Barbara Nunn

It’s a privilege to work with each one

Today’s challenges for the Family Business

Modern economy driven by:

Globally expanding marketsTechnical innovationThe environmentKnowledge and InformationChange (stress)

What does this mean?

Greater opportunities

More effective decisions/higher levels of risk

Successful transition of the family through its life course and the family’s business through its organisational life course

Consequences of mismatch are more critical to the well being of the family and the viability of the family business

Clarity, consistency and passion

Excellent people

Talk to staff and find out what’s going on in the business

Purpose, price, costs and volume

Brainstorming skills

Strategy 5 years and 1 year in detail

Guts, nous, vision

Above all the ability to get on with people

Qualities of a family business leader

Sir Gerry Robinson

The next leader of your family business

Inside outsider?

The family business system

Family needsEmotionalInwardLittle changeBorn into

Business needsFacts/profitsOutwardFast changeContracted into

This is where it gets interesting!

Family Business

© Family Business Solutions

Non family business- two circle model

1

Business

2

Ownership3

Family business - three circle modelDeveloped by Tagiuri & Davis, Harvard

4

Family

7

5 6

1

Business

2

Ownership3

© Family Business Institute

The model in practice

Move forward together with confidence

What are your personal and business aspirations?

Shared vision for the business and family in 2017?

Where will you be in your biological life cycle?

At what stage is your business life cycle?

Where are you with your product life cycle/s?

What innovations do we have in the pipeline?

No need to wait for happiness and success?

Working in a family business can be unique and rewarding in many ways

Focus on the positive

Recognising and fostering these positives at times of conflict can result in easier resolution of issues

Create enmeshed goals and implied trust among the various functional positions

Have built-in teams, they often have a common philosophy of management, culture and ethics

And no amount of time can replace the sense of familiarity that family members bring to the workplace

Unique benefits and some tricky challenges

Key people are related to one another

Unless family members understand and are committed to preserving these relationships, the business can destroy them. Yet the business also has to function profitably

Women often use their experience in juggling activities, negotiating peaceful settlements among siblings, and acknowledging different needs to resolve conflict

Family Business Models (i)Family first Business first

Business decisions favour equality and unity as fair

Differences in contribution aren’t recognised (golf course scenario)

A happy, united family is good for the business

Business decisions based on what’s best for the company

Professional principles for compensation, promotion and recruitment are seen as fair

Principles are followed even if it leads to unequal treatment of family members

Family Business Models (ii)Active Passive

Only family members working in the business can own shares (who is “family”?) and ownership control is in the hands of those who run the business

Non active family members lose their right to their family’s heritage

Family wealth may be consolidated in a small group of shareholders

Ownership is open to working and non-working shareholders

Non active family members may continue to participate in their family’s heritage

Family wealth may be diluted amongst a large group of shareholders

Roles and responsibilitiesConflict can arise from lack of clarity around responsibilities

Casual, informal management, can cause problems as the business needs to change. Especially as the family business grows

SolutionsUsing the disciplines that any well run company uses –managing workflow, job duties and responsibilities across functions – can help

Each person understands their role and how he or she contributes to the organisation’s overall success. Problem solving is then focused on resolving the business issue rather than pointing fingers .

Using conflict to make business progress

Set out the ground rules

Establish everyone’s initial positions

Confirm common interests and goals

Proceed to brainstorming – everything is listed

Present objective data/facts

Explore benchmarks, best practice examples

Reach agreement

Write up and circulate the agreed action plan

Clarify responsibilities and time table

Conflict resolution

BusinessGrowth

Conflict

Leads to more professionallymanaged businesses

Productive

Team

Good fighting

Non judgemental

Attack the problems

Participation by all

The Developmental Model

Maturity

Start-up

Expansion/ formalisation

Business Development

Young business

development

Family Development

Passing the baton

Working together

Entering the business

Cousin consortiums

Sibling partnership

Controlling owner

Ownership Development

Developed by Gersick,Lansberg, Desjardins,Dunn

Developed by Gersick,Lansberg, Desjardins,Dunn

Marc Isambard Brunel – April 1769

Son of a prosperous farmer in northern France

Showed a talent for maths and drawing at an early age

As an 11 year old, he earned his father’s displeasure by declaring a wish to become an engineer

Developing young family members

Formal training (technical & financial)

Special assignments – strategic/decisions

Superior/subordinate interaction

Job rotations (across functions/divisions)

Goal setting and performance reviews

Employee exchange

Job redesign project

Real challenges – stretched goals

Seek help in traditional ways

Women who become leaders in their businesses generally know that they do not need to face these

obstacles alone. Consultants who understand family businesses can help immeasurably in moving

businesses to more structured, traditional management methods. Setting goals and planning implementation

can bring family businesses greater benefits. And mentors and peer-to-peer networking can help family

members learn of other models that work.

© May 2000, Women's Business, all rights reserved. Reprinted with the permission of Women's Business.

Business FamilyCommunication Solution - Family Council

A separate time and place for discussing family matters that affect the business and business matters that affect the family. A forum for discussion of difficult issues, eg:

Continuity and successionHiring and firing relativesPreservation and communication of the family’s core values

Without a supportive and nurturing family there can be no family business

What is a family business constitution?

“A statement – gained by consensus – of the family’s shared values and policies in relation to

the family and the ownership and management of the business. It serves to balance the best

interests of the business and the well being of the family”

Why a family business constitution?

Avoids emotionally agonising predicaments

Creates “fitter” families, not just problem averters

De-personalises and anticipates issues

Minimises damaging behaviour patterns: “leaving issues in the air”

The Content

Shared values and vision

Family Assembly? or Sunday lunch

Family employment and compensation

Ownership policies

Board best practice

Family philanthropy

Regular review intervals for the constitution

Other matters that the family feel are important

Key considerations with example answers

Q Should all family members get a job in the business?

A Probably not – unless low numberQ Should the business only employ the best for the job,

whether or not they are family?

A Yes, if the skills are not in the familyQ Should family members have any relevant outside

experience and/or a relevant academic qualification?

A Yes, unless they are an inside/outsider or when low skills are required

Continued…

Q Who recruits and appraises family members?

A CEO or line managerQ Should the board / partners be comprised only of

family members

A Non Execs can be valuable. Also think of an Advisory Board

Q How do you discipline family employees?

A CEO or line manager

What do family business boards do (and senior management teams)

Everything a non-family business board does and then…

Help to create family business policies

- ownership transfer- liquidity (capital and dividends) - employment of family members- management training- remuneration

© gwe

What is a family assembly?

“A separate time and place for discussing

family matters that affect the business, and

business matters that affect the family”

Family assemblies

Forum for family discussion relating to business / social function

Communication link with board and owners

Initiating policies / family position papers

Approving major decisions

Appoint family director / observer

Business transfer failure in the UK

© gwe

82% of SMEs facing transfer decisions do not transfer for lack of a suitable successor

6,000 avoidable business failures each year in the Business Link target market

Due to lack of planning, family tensions, unsuitable successor, didn’t seek support

Business Link and the 10 to 30s

© gwe

Around 2,000 avoidable business transfer failures each year with turnover of $4bn and 35,000 employees

1,300 family businesses

Helping businesses through transfer is complex

Addition of family element gives rise to different and additional and often complex support needs to non family businesses

Assisting a family business through transfer must consider the family element

Where transition can go wrong

1st

3rd

2nd

100%

10%

30%

Transitional Periods

Controlling Owner

Sibling Partnership

Cousin Consortium

1st

2nd

3rd

Recognise the triggers for need to transfer

Retirement or new challenges

Ill health

Desire to turn parts of the business into cash

Extreme downturn in business

Stress/role change

Disputes/divorce

Biological process

EstateEstatePlanPlan

Capitalisationof Business

Tax PlanTax Plan Business Plan

RetirementRetirementLeadershipDevelopment

Career Development

WillsWills

OwnershipSuccession

Business

FamilyQuality of LifeQuality of Life

© Family Business Solutions

Succession chaos or proven benchmarks?

EXPLORE

1. DISENGAGE – we’re on the moveAll “Key players” realise that the “old way”will no longer work – things have got to change

CommunicationInvolve everyone who is affected by the outcomeIdentifying key issues Exploring and testing the options (as many as possible)Coping

2. EXPLORE – where to next?

3. CHOICEConsensus about the

“best possible outcome”

Letting go of the old way

ResistanceDoubtsFearsDenial

TIMESCALESize of businessSize of familyPersonalitiesGood process helps

Jumping to commitment is tempting4. COMMITMENT- we’re off!

© Family Business Solutions

Family business transition planning

Some succession paradigmsTraditional

Not on my shift

Only at end of career

Come in as managers

Only directly involved

Family matters are secondary

Haste to join

ConventionalLiquidate

Mission goals focus

Come in as employee

Extended family

Encompasses extended family

External employment

Cornell University

Putting these concepts to use

Recognising you are in or approaching transition

Recognising the ownership, family and business leadership requirements to get through the transition

Managing the inevitable anxiety and uncertainty

Knowing when the transition needs to end

Dr Barbara Nunn

Options – Business Link review –broker service?

Pass on to family member/s - Valuation

Trade sale – begin early, get flirting

Management buy-out – accountant will help

Form a cooperative – Plunkett Foundation?

Close down – Insolvency Company

Retain property/land sell business

Sell land etc for building

Other real life example

What do you really want?

MD of engineering software company aged51,with health problems

Wife and son in the businessOne non family Director and shareholderProfitable business worth around £1million

What happens next?

Recent real life exampleWhat do you really, really want?

MD of Direct Marketing, family business wants to retire and move to the coast.

Successful business employing 40 people, well established

Wife in business

One other non family director in business

Daughter living in Hong Kong not interested

What happens next?

Another real life exampleWhat do you really want?

MD/Head Teacher of specialist private schools wants to retire in 4 years time

Wife in business – children very young

MD is highly talented in specialist field and still middle age.

Very successful, four properties with large mortgages

What happens next?

Owners 1st stage in grooming process

Understand current situation & future prospects

Identify, priorities, goals & timescales

Evaluate all possible exit routes and tax issues

Select preferred exit route, process & timing

Agree optimal shape of business to achieve exit

Identify obstacles, conflicts that may delay exit

Agree big picture action plan

My very best wishes for the success of your family businesses and those you work with. Thanks for

coming tonight. I hope it has been useful to you all