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
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c.Ivan Lansberg PhD
Types of Family Business
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c.Ivan Lansberg PhD
Types of Family Business
Football
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Golf
c.Ivan Lansberg PhD
Family Business Syndromes
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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 based
Subconscious
behavior
Inward looking
Minimizing
change
Overlapping systems
FAMILY
Emotion based
Subconscious
behaviour
Inward looking
Minimising
change
BUSINESS
Task based
Conscious behavior
Outward looking
Exploiting change
Overlapping systems
FAMILY
Emotion based
Subconscious
behavior
Inward looking
Minimizing
change
BUSINESS
Task based
Conscious behavior
Outward looking
Exploiting change
Overlapping systems
FAMILY
Emotion based
Subconscious
behavior
Inward looking
Minimizing
change
BUSINESS
Task based
F
R
I
C
T
I
O
N
Conscious behavior
A
N
D
C
O
N
F
L
I
C
T
Outward looking
Exploiting 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
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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
Do nothing
Appoint a family member
Succession options
Appoint a caretaker manager
Appoint a professional manager
Liquidate the business
Sell, in whole or part the
business
A Succession Checklist
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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
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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
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Training
Mentoring
Teamwork
Honesty
Succession
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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
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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
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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
% growth
50
45
40
35
30
25
20
15
10
5
0
Monarchs
Generals
Ambassadors
Governors
Assets
Sales
Income
Employ
COMPANY GROWTH DURING
LAST TWO YEARS OF REIGN, BY
DEPARTURE STYLE
% growth
100
90
80
70
60
50
40
30
20
10
0
Monarchs
Generals
Ambassa]dors
Governors
Assets
Sales
Income
EPS
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
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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
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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
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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.com
www.familybizz.net
www.london.edu/familybusiness.html
www.business.uc.edu/goering
www.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