GOVERNANCE AS LEADERSHIP
IN FAMILY ENTERPRISES
Sam Davis III
Principal, The Davis Group
VCU Family Business Forum
October 15, 2014
PRESENTATION OUTLINE
• Intersecting Family, Business & Ownership
Systems
• Family and Business Life Stages
• Governance structures and their
applications
• Outside board members? Advisory Boards?
• Roles of outside advisors
• Best practices of business-owning families
2
FAMILY, BUSINESS & OWNERSHIP
SYSTEMS
TRAITS:
TRAITS:
Emotional Focus
Inward Orientation
Little Change
Unconditional
Acceptance
Data focused
Outward Orientation
Much Change
Conditional Acceptance
FAMILY
SYSTEMS
BUSINESS
SYSTEMS
TASKS:
TASKS:
Nurture
Develop Self-Esteem
Grow Adults
OWNERSHIP
SYSTEMS
Generate Profits
Develop Skills
Train Leaders
TRAITS:
TASKS:
Balance emotional and data
Increase shareholder value
focus
Sustain the business
Onward/ Outward Orientation
Transfer control and wealth
Little Change
Conditional Acceptance
3
THE NUCLEAR FAMILY
4
MULTI-GENERATIONAL FAMILY
5
STAGES OF
THE FAMILY BUSINESS
The Founder Generation
FOUNDER
The Sibling Generation
FOUNDER
SIBLINGS
6
STAGES (cont.)
Intergenerational Stage
SENIORS
SIBLINGS &
SPOUSES
DESCENDENTS
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STAGES (cont.)
Cousin Consortium Stage
SENIORS
Family A
Family B
FAMILY
LEGACY
Family C
Family D
8
NOW, TURN TO YOUR NEIGHBOR...
1. What generation is your family
enterprise?
2. What governance issues are you
facing now or in the next generation?
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GOVERNANCE IN THE FOUR STAGES OF
FAMILY OWNERSHIP
Hands On
Management
Governance
COUSIN
CONSORTIUM
INTERGENERATIONAL
SIBLING
FOUNDER
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GOVERNANCE STRUCTURES
AND THEIR APPLICATIONS
Role:
FAMILY
MANAGEMENT
Focus:
Relationships
Operations
Structure:
Family
Sr. Mgt Team/
Meeting Strategic Planning
OWNER
Assets
Shareholder
Meetings
DIRECTOR
Fiduciary/
Legal
Trustees/
Board
11
GUIDELINES FOR
GOVERNANCE STRUCTURES
Family Meetings or Councils are regular assemblies
of family members to (1) educate, (2)
communicate, (3) reach consensus on the
purposes and responsibilities of the family, (4)
celebrate the family legacy; and (5) plan activities
reflecting those purposes and responsibilities.
13
GOVERNANCE STRUCTURES
(CONT.)
Senior Management/Leadership Team meetings
are attended by key executives in the
company for the purpose of planning and
reviewing operating performance.
Strategic Planning processes are conducted by
senior management to clarify shareholder
vision, set strategic business priorities, and
provide for accountability in the
implementation of plans.
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GOVERNANCE STRUCTURES
(CONT.)
Shareholder Meetings should be separate from
Senior Management Meetings or Family
Councils; to affirm the Vision, Values and
strategic direction of the family enterprise; to
vote ownership shares on major issues; to
ratify Buy-Sell Agreements; and to select
directors of the company.
15
GOVERNANCE STRUCTURES
(CONT.)
Board of Directors meetings comply with
legal and fiduciary requirements and assure
the integrity of management’s strategic
direction, financial accountability, and
succession planning. Advisory Boards or
the inclusion of non-voting volunteers may
be used to supplement family members
with voting rights who serve on the board.
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GOVERNANCE STRUCTURES
AND MEASURABLE RESULTS
FAMILY
Communications
MANAGEMENT OWNERS DIRECTOR
Strategic direction Estate &
Succession
tax plans
planning
Vision
Income Statements Shareholder CEO oversight
& Balance Sheets Agreements
Togetherness Performance
Profitability Balance Sheet
Love
Dividends
Board Fees;
Asset Growth
Other
Compensation
Promotions
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CASE STUDY
Hand-out
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SIX PRINCIPLES OF
EFFECTIVE GOVERNANCE
Principle 1: First responsibility is to the Business
Principle 2: Heed the voice of the family
Principle 3: Create and maintain an open system
Principle 4: Continually clarify roles and boundaries
Principle 5: Plan for succession in family leadership
Principle 6: Respect non-family leadership
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PRIMARY DUTIES OF
BOARDS OF DIRECTORS
1.
2.
3.
4.
5.
6.
7.
Protect shareholder interests
Establish strategic direction
Provide supportive oversight of the CEO
Plan for leadership succession
Perform legal and fiduciary duties
Promote the company name
Act in a crisis
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OUTSIDE BOARD MEMBERS
OR ADVISORY BOARDS
• Advisory vs Governance
• The value of an outside perspective
• Taking advantage of skills and experience
of business leaders
• Family – Outsider balance favors family
• Voting procedures; conduct of meetings
• Don’t confuse the role of professional
advisors with board responsibilities
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TRAITS OF EFFECTIVE FAMILY BUSINESS
BOARD MEMBERS
•
•
•
•
•
Understanding and care for family and its legacy
High ethical standards and reputation
Willingness to say “no” to the CEO
Open-mindedness; objectivity
Interest in the company and enthusiasm for its
mission
• Strategic thinking; analytical; problem solving
• Keen sensitivity to conflicts of interest
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WHAT ABOUT YOU?
1. What governance structures are being used
by your family enterprise?
2. What new structures or changes to existing
governance structures might you consider?
3. What issues would the governance changes
address?
4. What steps would you need to take to change
your existing governance structure(s)?
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PROFESSIONAL ADVISORS
TO FAMILY BUSINESSES
• Business Attorneys – corporate documents; bylaws; annual filings
• Tax & Estate Attorneys – estate plans; buy-sell
agreements; trust documents
• Tax Accountants – tax planning and annual filings
for corporate entities, individuals and trusts
• Investment Advisors; Financial Planners – financial
planning; wealth management
• Philanthropy Advisors – strategic philanthropy
• Family Business Consultants – family education;
family dynamics; succession planning; coaching
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COLLABORATION & THE 3 CIRCLE MODEL
Industry
Expert &
Others
Executive Coach
Business Attorney
Business Accountant
Financial
Planner
Estate
Planning
Attorney
Banker
OWNER
Financial
Advisor
Family
Business
Consultant
Tax
Accountant
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BEST PRACTICES
•
•
•
•
•
Honor the Family Legacy
Values can be a Critical Success Factor
Strategic planning w/Accountability Measures
Family meetings and Family Governance
Advisory Boards or Independent Directors on
Governing Boards
• Succession planning
• Family Philanthropy
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THANK YOU!
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