ATLANTA
BARCELONA
CHICAGO
FONTAINEBLEAU
LAUSANNE
LOS ANGELES
MILAN
"Someday This Will All Be
Yours" Requires a Plan
Dr. Otis Baskin, Consultant
FBCG
NETHERLANDS
PARIS
PITTSBURGH
SAO PAULO
SINGAPORE
TEL AVIV
TORONTO
ATLANTA
BARCELONA
CHICAGO
FONTAINEBLEAU
LAUSANNE
LOS ANGELES
MILAN
“Someday This Will All Be
Yours” Requires a Plan
Presented by:
Otis Baskin, PhD
Family Business Consulting Group
Professor, Pepperdine University
NETHERLANDS
PARIS
PITTSBURGH
SAO PAULO
SINGAPORE
TEL AVIV
TORONTO
Today’s Agenda
• Family Business – the secrets to Success
• Success in Family Business requires Parallel Planning
– Family and Business Continuity are too important to leave to
chance.
• Succession: How to prevent the crises that plague too
many.
– Succession as a Process – Not an Event
• The Critical Role of Non-family Key Executives
The Family Business
Advantage
Performance
Competitive Advantage
The Role of Trust
Family Business Performance
 BusinessWeek – 2003
“Family, Inc.” – “Surprise! One third of S&P
500 have founding families involved…and
they are usually the better performers”
• Industry studies show Family Business
– Perform Better
– Pursue Different Strategies
Benefits of family ownership
hold around the world
• Long-term view on behalf of an aligned group
of shareholders with shared values and goals
• Life long preparation of the next generation
• Opportunity to pursue long-term strategies
• Strength to weather long economic cycles
The Challenges of Family Business
Also Hold World-wide
(Wealth doesn’t go beyond the third generation)
ความมั่งคั่งร่่ารวยจะไม่อยู่ไปถึงลูกหลานรุ่นที่สาม
“富不过三代“
“富不過三代”
“La richesse ne va pas au-delà de la 3ème génération”
The Family Business Paradox
Business
Dominance
Explosive
Conflict
Sustainable Competitive Advantage
or
Destructive Constraining Behavior
The Challenge of Generational
Transitions
• From Entrepreneur to Group Ownership
– Less than 35% Survive to 2nd Generation
• From Sibling Group to Family Branches
– Less than 15% Survive to 3rd Generation
Generational Challenges in
Transition Planning
1st Generation
Owner/Managed
•Entrepreneurship
•Unity of decisionmaking
2nd Generation
Sibling Owned
•Small group of
owners
•Leadership conflict
3rd Generation
Cousin Owned
•Family branches
•Multiple owners
•Return on
investment?
Lessons from Multi-Generation European
Family Businesses
Sample: 7th to 14th Generation Family Businesses
• Common Factors:
– Well Defined Processes
– Transparency in Planning
– Consistency in Application
• Perceptions of “Fair Processes”
• Mindset of “Ours” vs. “Mine”
• Concept of Stewardship for Future Generations
The Global Foundation of
Competitive Advantage for
Family Business
TRUST
The Relationship Capital
Model
Ownership
Management
TRUST
Family
Achieving Family & Business
Continuity
A Parallel Planning Process
Parallel Planning
Processes
Core
values
Family
Family
commitment
Family
vision
Values
Strategic thinking
Shared future vision
Family Formulating plans
Enterprise
plan
Management
philosophy
Strategic
commitment
Business
vision
Business
strategy
plan
Business
Three Systems in Harmony
Shareholder’s Agreement
Family Statement
Values, Mission, Vision
(Values)
(Laws)
Ownership
Family
Business
F.B. Protocol/Policies (Rules)
Voluntary Inherited
Ownership
vs.
• Voluntary owners
Create or purchase ownership
• Inherited owners
Given/provided with ownership
• Heirs can become “voluntary” owners through their
actions
How?
Aronoff and Ward, Family Business Ownership:
How to be an Effective Shareholder, 2002
Four Generations of Ownership
Owner-Managed
Family Partnership
Sibling Partnership
Cousins’ Collaboration
Family Syndicate
Adapted from John Ward
Different Types Of Owners
• Operating Owner
– Owner/manager involved in day–to-day operations of the business.
• Governing Owner
– Full-time overseer but not involved in operations – like a Chairman of the
Board.
• Active Owner
– Not employed in the business but takes a genuine interest, attentive to all
its issues.
• Passive Owner
– Collects dividends. Makes no conscious decision to stay an owner.
• Investor Owner
– Like a passive owner, but if satisfied with returns, makes a conscious
decision to retain ownership.
Aronoff and Ward, Family Business Ownership: How to be an Effective Shareholder,
2002
Functions of Active Ownership
Strategy
Governance
• Understand Risks
• Maximize Advantages of
• Offer Meaningful Support to
Private Control
Management
• Provide Checks and
• Monitor Vision and Goals
Balances of Power
• Assure Continuity of
Culture
Leadership
• Serve as Ambassadors
• Monitor Values
• Provide Clarity of
• Help Teach
Expectations
Ideally, all owners. . .
• Understand and respect the challenges of
management including the competition for
funds in a family business.
• Make themselves financially independent of
the business (except those employed there)
• Find ways to get involved and be an asset to
the business
• Are trustworthy
Ownership Requisites
• Ability to read a financial statement
• Basic knowledge of the family’s business and
industry
• Understand the family’s goals and how to
evaluate the company’s progress toward them
• Be aware of company culture and how to
contribute
Ownership Requisites
•
•
•
•
•
Know your legal rights and responsibilities
Understand compensation in your industry
Awareness of appropriate policies
Knowledge on choosing and using advisors
Understand and appreciate the difference in
wielding voting power vs. building economic
value
What Family Business
Owners Deserve
•
•
•
•
•
•
•
A financial return
Appropriate corporate leadership
Information
Psychic income
Accountability
Appropriate corporate governance
Business protection
Steps to fulfill owner
responsibilities
• Address issues that define their relationship
with the business and develop policies around
them.
• Assure excellent governance and respect the
chain of command
• Serve as a partner in strategy
• Let managers do their job – express
appreciation
Steps to Next Generation
Preparation
• Develop good values, morals and ethics in
children and point out connection to the
business.
• Instill the value of stewardship
• It’s not about power or control
• Understand the power of the dinner table
• Family meetings
Family Assessment
• Why does this family own this business?
– Vision for family in business?
– Vision for business in the family?
• What is the level of family commitment to the
business?
• What does the family expect as owners of the
business?
– ROI
– Legacy
Family Business Governance:
Management, Directors, Family Shareholder Roles
Directors
Owners
•
Define Vision & Values for Ownership
•
Assure Objective Decisions and Fair Process
•
Clarify Stakeholder Priorities
•
Monitor Results to Meet Shareholder Goals
•
Set Shareholder Goals
•
Guide Officer Succession, Evaluation and Compensation
•
Establish Family Business Policies
•
Select Directors
•
Provide Business Counsel
•
Affirm CEO Choices
Management
•
Define Mission
•
Lead and Establish Culture
•
Develop and Implement Strategy
•
Perform to Expectations
Dimensions of
Family Governance
Business of the
Business
Business of the
Family
Family
Shareholders
Family
Council
Family
Employment
Policy Committee
Family Foundation
Committee
Strength
from
balance
of three
Family education
Committee
Next Generation
Committee
Family Gathering
Planning
Committee
Board of
Directors
Management
Succession
Crisis Prevention for Business
Owning Families
“The final test of greatness in a CEO
is how well he chooses a successor
and whether he can step aside and let
his successor run the company”
Peter Drucker
FIRST STEPS IN
TRANSITION PLANNING
• Business Strategic Plan
• Founder’s Personal Financial Plan
• Family’s Mission Statement
• Owner’s Estate Plan
PRINCIPLES OF EFFECTIVE
GENERATIONAL TRANSITIONS
• Traditions that automatically handed the business to the
eldest son have faded.
• An early designation reduces the risk that unexpected
death or disability will leave the business drifting.
• Openly consider all potential candidates with a set of
known criteria.
The Goal of Successful
Transition:
a Non-Event
Consensus of Family, Board &
Executives
Expected, Anticipated and
Understood
THE KEYS TO LETTING GO
•
•
•
•
•
•
•
A deep commitment to family succession.
A secure retirement for myself and my spouse.
A chosen successor and a target date.
A belief that there is “life after retirement”.
An ability to delegate decisions and authority.
A willingness to let others take new business risks.
An ability to trust key people with financials.
Clear Goals and Expectations
Risk
Growth
Vision
Values
Profitability
Liquidity
How to turn Family Values into Family
Agreement:
"a set
of written principles and/or rules
that regulate
the relationship of a family with its business"
Family Agreements = Basic
Understanding
• Parties Involved (Who is covered?)
• Statement of Family Values and Beliefs (Why?)
• Outline of Family Business Principles (What?)
• Policies that Govern Family and Business Relations
(How?)
• Methods to Amend (When?)
Family Agreements Define Boundaries
Family
Constitution
or Protcol
Family
strength
Company
development
Ownership
unity and
commitment
Shareholders Agreement
Family
Enterprise
Plan
Three Systems in Harmony
Success depends upon
more than family
Ownership
Family
Business
Key Non-Family Executives
• Provide abilities and knowledge that may not exist
in the family
• Often are the stable “bridge” between generations
• Can be effective mentors for the next generation
• Provide credibility to family management
Key Non-Family Executives
Play an Important Role When:
•They understand the goals and interests of all owners
•They can be objective and non-judgmental of family
•They are respected for their knowledge and contributions
•They have clear guidelines to follow from a functioning board
•They are held accountable for reasonable performance goals
•They are compensated at industry standards for performance
•They are not brought into family disputes
Family
Operating
Plans
Competence
Caring
Management
Strategic
Plan
Consistency
Family
Constitution
or Protocol
Ownership
Communication
Board
Enterprise
Plan