The Dynamics of a Family Business

1. The Dynamics of a Family Business

3. Someday, Honey, this will all be your brother’s

4. Someday, Son, all this will be yours - assuming I can get my father to give it to me

5. Types of Family Business c.Ivan Lansberg PhD

6. Types of Family Business cs SP OMB c.Ivan Lansberg PhD

7. Types of Family Business Football cs SP Tennis OMB Golf c.Ivan Lansberg PhD

8. Family Business Syndromes • Procrastination • Selective amnesia • Paranoia/ fear • Conflicts of interest

9. Typical Conflicts of Interest • Trustees of settlements v Directors • Minority shareholders v Directors • Mum / Dad v Boss

10. Overlapping systems FAMILY Emotion based Subconscious behavior Inward looking Minimizing change

11. Overlapping systems BUSINESS FAMILY Task based Emotion based Conscious behavior Subconscious Outward looking behaviour Exploiting change Inward looking Minimising change

12. FAMILY BUSINESS Emotion based Task based Subconscious Conscious behavior behavior Outward looking Inward looking Exploiting change Minimizing change Overlapping systems

13. FAMILY BUSINESS Emotion based Task based Subconscious Conscious behavior behavior Outward looking Inward looking Exploiting change Minimizing change Overlapping systems

14. A good scare is worth a pound of advice

15. Succession Issues Planning the process

16. As far as we can tell, the only thing keeping you alive is the realization that your son would inherit the business.

17. 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? Passing Down the Business - The Key Questions

18. 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

19. The Founder's Options

20. 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

21. 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 ?

22. Essentials for Smooth Succession • Training • Mentoring • Teamwork • Honesty

23. 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

24. Inter - generational Teamwork • Avoids conflicts • Facilitates the succession plan • Avoids emotional blackmail • No secrets • Promotes a constructive discussion

25. 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

26. Separation of Finances IF the finances of the generations are not separated, research shows that the business is more likely to fail

27. Someday, Son, this will all be yours - unless I can come up with a better solution

28. Four Exit Styles • Monarchs • Generals • Ambassadors • Governors

29. FOUR EXIT STYLES - 1MONARCHS • 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.

30. FOUR EXIT STYLES - 2GENERALS • 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.

31. FOUR EXIT STYLES - 3AMBASSADORS • 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.

32. FOUR EXIT STYLES - 4GOVERNORS • 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.

33. AVERAGE ANNUAL COMPANY GROWTH DURING REIGN, BY DEPARTURE STYLE % growth

34. COMPANY GROWTH DURING LAST TWO YEARS OF REIGN, BY DEPARTURE STYLE % growth

35. Two Types of Shareholding Models • Custodian • Value out

36. Shareholding Models • Custodian • No Capital sum • Shares held for later generations • Sufficient cash benefits during tenure • Sufficient pensions to maintain living standard

37. Shareholding Models • Value out • Cash on retirement or exit • Company or others purchase shares

38. Custodian Model: Advantages • Cost spread over many years • Very Tax efficient • Reduced demand on cash flow • Balance sheet will be stronger • Clarity and simplicity

39. 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

40. Value Out Model : Advantages • Provides cash • Makes clean break

41. 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

42. Concluding remarks

43. 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

44. 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

45. 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”

46. The Family Business Stoy Hayward Centre for Family Business 8 Baker Street London W1U 3LL, United Kingdom www.scfb.co.uk