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The%20Dynamics%20of%20a%20Family%20Business

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Title: The%20Dynamics%20of%20a%20Family%20Business


1
The Dynamics of a Family Business
2
(No Transcript)
3
Someday, Honey, this will all be your brothers
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
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c.Ivan Lansberg PhD
7
Types of Family Business
Football
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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
Overlapping systems
13
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
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?

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 - 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.

30
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.

31
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.

32
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.

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
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