Tuesday, October 3, 2017

Family Governance: Critical For The Sustainability Of A Family Business

Looking around at the fractured state of families in the world today, it is tempting to think of previous generations as the ideal time of peace and harmony. In setting up a family business for multi-generational success, traditions of yesteryear only go so far.  For a family business to succeed both now and with future generations, appropriate governance is critical.

In general, corporate governance is “the system of rules, practices, and processes by which a company is directed and controlled.”  For family businesses, governance should help formalize issues such as ownership, leadership structures, control, conflict resolution, and communication. For many families, the process of developing family governance can be as valuable and educational as the final product.

Governance discussions should begin with agreement on how a family will communicate, debate, resolve conflict, and hold each other accountable.  These conversations take not only a high level of trust within the family, they also require grace and love.  Then, the family can move to creating a family charter describing how the family will relate to each other and to the business.  Along with the family charter, the family needs a strong shareholders agreement that includes, among other things, clearly defined governance structures.  At that point, the family can begin to process additional issues such as management of the business, compensation, training and development of family, and qualifications for leadership roles.  For families who want to build a sustainable legacy, this is just beginning to scratch the surface.  Good governance also requires the discipline to execute and hold each other accountable to that which was agreed upon.

The review and development of good governance for a business family should be a normal part of the life and rhythms of the business.  It is important to recognize that developing these guidelines can at times pull leaders away from daily business operations and can also surface tension between family members. That is normal, and it is a healthy part of the process of developing good governance.  

As family businesses work to develop their own governance, they need to determine what will work best for their family.  Best practices can provide insight and guidance, but what worked for another family may not work for yours.


Remember, the best practice is the one that works for you and your family as you strive to build your legacy.


https://www.amazon.com/Questions-Practical-Checklists-Business-Families/dp/0692893350/ref=sr_1_1?ie=UTF8&qid=1499684287&sr=8-1&keywords=20+questions+practical+checklists

Tuesday, September 12, 2017

Do Nothing



For too many families in business, the easiest approach to succession planning is avoidance: do nothing.  However, ignoring the inevitable doesn’t make it go away.  Ready or not, the time for succession will come.

What makes planning for succession so difficult for so many business families? Reasons families do nothing run the gamut: the senior generation fears letting go; the business is going well and it is too much fun to let go; the business is struggling and the senior generation feels like they have to get it back on track; the senior generation’s belief that the rising generation is not ready or not interested; the senior generation’s indecision in choosing the next leader; the family wants to avoid difficult or awkward conversations; psychological and emotional connections to an identity connected to leading the family business.

Avoidance, or doing nothing, can seem like the easiest option, but is only going to make things more difficult in the future (and probably frustrate the rising generation in the process).  Preparing for any change in season takes planning, and preparing for succession is no different.  A family business should prepare for the change of the family’s season by taking steps now to prepare:

1. As a family, commit to building the family legacy and the      business legacy.
2. Use the workbook: 20 Questions PracticalChecklists For Business Families as a conversation starter for all family members.
3. Draft a written plan, along with a timeline, for the transitions to the rising generation.
4. Prepare development plans for the rising generation that provide opportunities to learn about the values and vision of the family and that provide opportunities to learn about the rights and responsibilities of being an owner of the business.

Honestly discussing the critical issues facing families and family businesses in transition helps foster the objectivity and focus needed for long-term success.  Successfully navigating the transition of leadership can often be the key piece in solidifying the opportunity to create a multi-generational family business legacy.

A professional family business advisor can help the family and the business function with discipline and forethought to ensure sustainability for future generations. The family business advisor can help the family achieve family goals by helping to establish the framework, boundaries, training, help with talent development, and reflective planning for the future.


It’s not too late to get started.  Doing nothing is not really an option.

Wednesday, August 16, 2017

When The Business Won't Sell



Surveys by the Exit Planning Institute have shown that many owners have little to no exit planning in place, even though many respondents also said that they have 80-90% of their financial assets in the business.  Further, according to the Exit Planning Institute, about 4.5 million firms, which represent over $10 trillion in business value, will transition over the next 10-15 years.  The coming tidal wave of baby boomer entrepreneurs looking to cash out their businesses or move into retirement has been well-documented.  Yet, experts estimate that only about 20-30% of businesses that go to market end up selling.  Not all businesses are saleable. 

This epidemic is not isolated to any particular industry or any size organization.  Anecdotally, we are already seeing this play out.  A solopreneuer who was depending on the sale of his business to fund retirement now can’t find anyone willing to buy it.  A manufacturing company that built a strong regional and growing national presence has some potential interested buyers, but all at a steep discount from expected value.  A regional environmental services company built a rapidly growing business on unique values and customer service that is antithetical to industry practice, but now those same practices that were foundational to the company’s success diminish the company’s value in the eyes of potential buyers.

When there are no members of the next generation who are willing or able to carry on the business, what options do owners have when the business won’t sell?

1)    Family ownership with professional management.  For some families, developing a strong internal management team and comprehensive governance structures can open the potential for the family retaining long term ownership and oversight of the business with non-family, professional managers running the business on a day to day basis.

2)    Strategic merger or partnership.  If an outright sale of the business is not an option, there may be strategic partnerships or opportunities to merge with another organization that would allow the current owner to step back from the daily grind and reap financial rewards of the company’s future success.

3)    Set up an ESOP.  Employee stock ownership plans are not new, but a number of organizations are again considering whether this type of structure might be a good fit. 

4)    Go back to the starting blocks.  Engage outside experts or industry professionals to advise you on the strengths and weaknesses of your organization and how you can set up your business now to be more marketable in the future.  In other words, though it will take time, begin managing the business for future sale.

This list is not exhaustive, and each option has pros and cons.  Certainly each option takes work.  However, based on the statistics and anecdotal evidence, if your family owns a business and is looking to transition ownership in the next 10-15 years, there is a good chance that your family will need to be thinking outside the box to find the right solution.  In the interim, there are a number of ways to begin managing the business to open up more of those opportunities in the future. 


We would love to tell you more.

Tuesday, August 1, 2017

We Are Excited To Announce The Release Of Our Latest Book

20 Questions Practical Checklists For Business Families

This workbook is designed to provide thought provoking and critical questions for families in business as they strive to build their family legacy. It is divided into two parts: Introduction and 20 Questions: Business Family Planning Checklists. The Introduction sets the stage for the primary focus of the book: the 20 Questions. These are 20 major planning topics that guide the process of self-examination for business families.

Each of the 20 major planning questions is followed by a more detailed list of discussion topics to help you determine your answer to the planning question. Prior to the exploration of each topic is an illustrative vignette or discussion related to that topic. Important terms are in bold type and defined on first use to be certain that readers understand the terms just as we, (the father and son authors) intended.

Steve has more than 35 years of leadership, coaching, and management experience. Growing up in a family business and serving as an executive in a family firm, Steve understands the complexities of maintaining family relationships and the necessity of sustaining a profitable enterprise. Steve is the principal of SKM Associates LLC Family Business Advisors and The Network of Family Businesses consulting with and assisting family firms with succession, governance, and transition.

Prior to joining his father, Aaron practiced employment law at Drinker Biddle & Reath LLP in Philadelphia, Pennsylvania. In his practice, Aaron counseled and defended employers on a variety of employment issues. Aaron also worked on teams with corporate lawyers and other specialists providing due diligence and labor and employment advice for mergers and acquisitions.






For more information contact us at info@netfamilybusiness.com or check it out on Amazon

Tuesday, July 11, 2017

Whose Turn Is It

“Play nice and share!”  As a child growing up, this was a frequent refrain in our home.  My parents were instilling in us important values.  However, that egalitarian mantra can, at times, carry forward in an unhealthy way into opportunities for leadership of the family business.  That egalitarianism and sharing –which can be an important value to many families and which can be important to the success of many families and organizations – is not the best way to select a leader.  Sharing the mantle of leadership in the family business may not always be in the best interest of the family, the business, or the ownership. 

The role of CEO brings unique challenges and complexities for which not everyone is suited.  Yet, all too often, family members jockey to each have a turn as CEO.  “You had your turn, now it’s my turn” is not a succession plan.

For a business family that desires to build a legacy and grow profitably well into the future, the following guidelines have proven helpful in ensuring that the most qualified individual is leading the business:

1.     Develop a Family Employment Policy that encourages family members who desire a leadership role to gain work experience outside of the family business and specifically defines the objective criteria necessary for employment and leadership.
2.     Nurture mentoring and coaching between the current CEO and the next generation of leaders.
3.     Clearly define, in writing, the job description for the CEO.  Identify the expectations and metrics to which he/she will be held accountable.  This should also include the knowledge, skills, and abilities expected in the role, as well as a commitment to the family’s values and objectives. Have the senior generation guide the process of selecting their successors before they leave.
4.     Seek the support of non-biased, third party perspectives in evaluating and selecting the next CEO.  This may mean soliciting input from non-family directors or members of the advisory board or from qualified advisors.
5.     Be open to a non-family CEO for a season if a family member is not ready to assume leadership.
6.     Set the CEO up for success.  Develop a communication structure and a governance system that efficiently and effectively outlines the processes for the family, the ownership, and the business to keep focused on the correct goals and objectives.
7.     Revisit these guidelines annually.


As a family, commit to a process that will find the most qualified leader for your family business. 

Tuesday, June 13, 2017

Can The Next Generation In The Family Business Say We Did It?

Many founders of businesses who want to pass the business to their children find it difficult to actually do so.  Developing a plan, crafting a process for the development of the next generation, and transitioning of the business to the next generation can feel like a foreign concept or unchartered territory.

The founder’s heart is generally in the right place in his or her desire for the next generation to take over the business.  However, it is not uncommon to hear statements like the following from the senior generation: why don’t they tell me what they want to do? what do they want? why won’t they just step up and take responsibility? what do they expect of us?”

The next generation, on the other hand, is often wondering: why doesn’t Dad / Mom just tell us what they want? which one of us will be president? when will they retire? what will they do when they retire?

Too often, the next generation is not given opportunities to learn how to make critical long-term strategic decisions and is not given a chance to participate in family leadership meetings to learn how to analyze both family and business issues.  In some situations, the next generation is never truly given the opportunity to learn how to operate the business.

It is critical for the senior generation to consciously help the next generation grow. The next generation needs to gain the expertise, experience, mentoring, tacit knowledge, passion, and internal drive to continue building the family legacy. The next generation needs to hear praise, encouragement, appropriate guidance, and the confidence of the senior generation. When the proper plans, processes, and guidance are in place by the senior leadership, the next generation can continue building the legacy.

A leader is best when people barely know he or she exists, not so good when people obey and acclaim him or her, worst when they despise them.  But of a good leader, who talks little, when their work is done, their aim fulfilled, they will say, 'We did this ourselves.'

— Lao-Tse

 

What are you doing to prepare the next generation?

 What would the next generation say?

Tuesday, May 23, 2017

VISION

“If you don’t know where you are going, you’ll end up someplace else.”
 –Yogi Berra

When you start out on a journey, the goal is to arrive at the destination.  On your family business’s journey, the destination is not always clear.  However, for families in business, that desired destination must be tailored to the vision of the family, the organization, and the individuals.  No two journeys are alike, and the destination is not the same for every family business. 

The vision is the shared image of the family’s definition of success and what the family wants the business to be.  Having a vision is critical for the journey to realize the goals and dreams of the family.  The vision provides a future orientation to answers questions like: How do we want to utilize our resources and care about those who are important to us? 

Understanding and following the vision of the family is critical to the ultimate success of the family, of the individuals, and of the business.  Following the vision requires commitment.  Commitment is best considered in the framework of the family, the business, and the ownership of the business.  This means results are best achieved with not just a single event or item, but by working over time to develop the capability of the family to manage governance and decision-making.  With commitment to a “visioning” process, there is built in accountability to keep everyone focused and on track.

Simple yet complex questions can help begin the visioning process:

1.     What do we desire for our family?
2.     What will be the story of our family?
3.     What do we desire for the next generation?
4.     What is our family’s responsibility to society?
5.     How will our family values influence the vision of what we want to become?
6.     What will our family business not do?
7.     What is our time horizon?
8.     How will the business be part of the family vision?
9.     Who is leading our business? How are they leading?
10.  What kind of abundance is our family and our business enjoying? What does it look like, specifically?

The goal is to create a framework to help the business operate successfully while recognizing and dealing with normal family issues.  The vision will have very little impact on family unity and company performance, however, if the family doesn’t intentionally think about what steps are necessary to get there.

The vision is the what.  It defines where you are going.  Where will your journey take you?

Tuesday, April 25, 2017

Sustaining The Family Business With A Coach

Average life expectancies have been going up for years now – with the Social Security Administration listing average life expectancies as 84 for men and 86 for women – and the numbers continuing to trend higher.  It is not unheard of to have three or even four generations of family members alive and working in a family business at the same time.  This creates both challenges and opportunities for enterprising families.  Successfully navigating the journey of a family business requires a combination of discipline, communication, deliberate planning, and difficult decisions.  A professional coach can provide invaluable support along the way.

There are a number of benefits to utilizing a family business coach to help the family navigate the family, generational, and long term issues.  A coach can bring clarity to issues, perspective based on experience, and unbiased relationships with family members.  In addition, a coach can provide:

       1.    Unbiased Input.  A coach can act as the unbiased mediator between family members as well as offer unbiased reviews of business issues.
2.     Strategic Insight.  A coach can ask tough questions and be a sounding board for family members to test new ideas, particularly with respect to ownership planning, management planning, and family governance.
3.     Giving Voice.  A coach can be a safe outlet for both family and non-family employees in the business to discuss concerns or perceived inequities.  Additionally, the coach can help provide both employees and family members the tools to help foster communication, particularly communication about delicate or difficult to discuss issues.
4.     Succession Planning.  Senior family members do not always want to recognize their ultimate departure from the business and do not always admit they will one day need to transition the leadership. A coach can provide support to foster the dialogue and develop a plan to pass the baton to the next generation.
5.     Asking the Difficult Questions.  A coach can also help family members identify and articulate hidden issues – usually underlying, perhaps unspoken, issues that are emotional in nature yet critical and fundamental for the family to navigate and openly discuss in order to nurture trust within the family.



A professional coach can help the family business function with discipline and forethought to ensure sustainability for future generations. The coach can help the family achieve family goals by helping to establish the framework, training, helping with talent development, and fostering reflective planning for the future.

Tuesday, March 28, 2017

How Does A Family Business Keep New Ideas Flowing?

In order to survive and thrive beyond the first generation entrepreneur, a family business needs an internal force of innovation and creativity among employees and family leaders. 

Innovation in a family business means finding the next competitive advantage over the current way of operating, but must also be compatible with the family’s values, culture, and vision.  Many important innovations consist of incremental improvements to products and processes.  Fostering this internal force requires a management and leadership mold that empowers all in the business to internalize an “owner’s” mindset and to take initiative.

Creativity is a conscious choice to challenge the status quo.  Creative people are value investors in the world of ideas.  Value is generated by evaluating a creative idea, calculating the risk-reward, and driving forward.

How can a family business foster innovation and creativity to keep new ideas flowing?

1.     Set the culture.  Establish a culture that promotes authenticity, commitment to people, commitment to the business, and continuous effort.
2.     Nurture a nudge.  A nudge is an action that attracts peoples attention and urges then to alter their behavior in a positive way, yet it is not done in a heavy handed way. This nudge may be as simple as urging the sharing of an idea or as complex as developing and implementing a change process.
3.     Teach the family and employees the business.  Focus not only on the technical skills each individual needs to perform, but educate people regarding how the business makes money, how the business attracts and retains clients or customers, and other big-picture issues that impact the business.
4.     Keep the momentum going.  Building the internal force of innovative and creative family leaders and employees, and the culture to keep it going, takes hard work.  To keep the momentum going, ensure that the organization focuses on competitive compensation, keeping morale up, and consistent, effective communication.


By tapping into the internal force of innovative and creative family leaders and employees, a family business can outthink and outperform the competition, increase profits, and move successfully into the future.

Tuesday, February 28, 2017

Finding Non-Family Leaders for the Family Business



In a 2016 PwC survey of next generation leaders in family businesses, 69% of respondents said that they wanted to bring in non-family managers to help modernize/professionalize the family business.  The benefits of incorporating non-family leadership into a family business, particularly at the board level, are well-documented, including objectivity, outside expertise, skills where there is not a qualified (or willing) family member, and more.  If next generation leaders are heeding the sage advice to incorporate non-family leadership into the family firm, implementing such advice is a particular challenge in the current labor market. 

Employers of all stripes are facing the same challenge in hiring: there is a dearth of candidates with the soft skills necessary for success, such as critical thinking, the ability to communicate clearly, taking initiative, problem-solving, and getting along with others.  In other words, employers across the board seem to be struggling to find exactly the type of candidates that family businesses who are hiring non-family leaders should be seeking.    What’s a family enterprise to do?  There are a few strategies that can help family businesses find, develop, and retain key, non-family leaders: 

·     Continuous Networking.  The best source of candidates is networking.  Leaders should always be networking and, in that networking, keeping one eye open for high-potential candidates.  Sometimes that might result in stumbling upon an ideal candidate when the organization doesn’t have an opening.  In that case, consider creating a position.  Bringing a qualified, high-potential candidate into the organization when he/she is available and then grooming him/her for leadership within the context and values of the organization can be invaluable and avoid the difficulty of needing to hire someone and not being able to find a qualified candidate at that particular time.

·      Identify and Develop Talent Within.  Developing talent from within (both key internal employees and family members) pays dividends not only now, but in the future as well.  Employees will have the training and resources to perform at a higher level, the organization will have a deeper bench of talent from which to draw future leaders, and continuous learning and opportunities for advancement will create an incentive for valued employees to stick around for the long term.  What’s more, developing leaders from within, leaders who are a known asset and presumably share the same vision and values as the organization, reduces one of the riskiest activities in which organizations engage: external hiring.


·      Effective Compensation Plans.  When an organization has strong individuals and implements effective programs to develop them, it is important to incentivize those key employees to stay.  Create compensation structures that align with your values and incentivize people in alignment with desired outcome.  For key family members, this might mean considering opportunities for increased ownership over time or capitalizing on the non-economic reasons that individuals choose to work for the family firm.  For key non-family employees, it might mean exploring options like nonqualified retirement incentives or other creative, long-term reward programs.

·      Think Outside the Box.  Qualified candidates come in all shapes and sizes.  Don’t limit the search to only candidates who fit a certain mold.  Look at the whole candidate, not just the job description.  The work ethic, critical thinking skills, and leadership necessary to accomplish one thing in life can show the grit and soft skills necessary for success in other areas, as well.

·      Trust Your Gut.  Your instincts may be your most valuable asset in identifying and developing key talent.  Do the due diligence in each searches, ask for reference checks, have candidates interview with multiple employees (and listen to the feedback your employees provide), but, ultimately, trust your gut.  Hiring is one of the most difficult things that organizations do; trust your instincts for hiring key employees.

Finding talent in today’s labor market is not easy.  In fact, hiring trusted family members who already align with the organization’s values and culture is a distinct competitive advantage of family firms.  However, as the next generation survey recognizes, there are also benefits to bringing in non-family leadership.  These strategies will help your organization set the foundation for building a strong bench of talent within your organization over the long haul.


Wednesday, February 8, 2017

To Everything There Is A Season




 “For everything there is a season, and
a time for every matter under heaven:
a time to be born, and a time to die;
a time to plant, and a time to pluck up
what is planted; a time to kill, and a time to heal; a time to break down, and a time to
build up; a time to weep, and a time to laugh; a time to mourn, and a time to dance;
a time to throw away stones, and a time to gather stones together; a time to embrace, and a time to
refrain from embracing; a time to seek, and a time to lose;
     a time to keep, and a time to throw away; a time to tear, and a time to sew; a time to keep silence, and a time to speak;
a time to love, and a time to hate;
a time for war, and a time for peace.”
Ecclesiastes 3:1-8

Ecclesiastes teaches us about seasons in life.  The Byrds reminded us of this truth in their song, Turn! Turn! Turn!  Just as seasons change throughout the year, seasons also change in a family business. Sometimes, the changing season means transitioning from one generation to the next. In nature, as winter moves into spring, there are specific changes that occur. Daylight lengthens.  The sun shines warmer.  Trees bud.  Flowers bloom.

Likewise, as seasons change in family businesses, families need to take actively embrace the change and make it a healthy transition, which includes deliberate dialogue, agreed upon timelines, and a plan. Making the change of season for the next generation a healthy one requires planning, training, educating, specific experiences, collaboration between the generations, and preparation for the senior generation’s next phase of life.

Just as we plan for the spring season by putting the hats and gloves and boots back in the closet and by planting flowers in the flowerbed, a family business should prepare for the change of the family’s season by digging into to the following:

1.     Committing to building the family legacy.
2.     Drafting a written plan, along with a timeline, for the transitions to the next generation.
3.     Implementing a feed-back mechanism for the next generation to understand how they are progressing.
4.     Preparing development plans for the next generation that provide opportunities to learn about the values and vision of the family and that provide opportunities to learn about the rights and responsibilities of being an owner of the business.
5.     Forming a team of professional advisors to support the family in the transition process.

Plan for the successful change of seasons in your family business.

Tuesday, January 3, 2017

For A Business Family, Legacy Is More Than Just What You Have Earned

A true family legacy is more than just the legal documents distributing your assets when you die.  In order to nurture the legacy, you must understand what your family legacy is.  A true family legacy encompasses the values and passions that fuel your family.  It is perpetuated through family stories, your family’s belief about wealth, and how you live out your family values on a daily basis. A legacy is formed by the sequences of actions that resemble one another and are lived out in each generation.  It is the repeated behaviors and actions that shape your family legacy.

Like it or not – everything you do and say contributes to or influences your legacy. Building a legacy is not a one-time event. Rather, it is a lifelong process that is influenced by, and also influences, family. Each family is special and unique. Each generation needs to adopt and add to the family legacy and definition of family wealth. The wealth of a family consists of more than simply the financial capital. Your family has special family intellectual wealth, family social wealth, family spiritual wealth, and a unique familyness.

So what are a few family activities that you can do to begin defining your family legacy?

1.     As a family, write a family mission statement, complete with your family values and beliefs, and discuss what it means to see those values in action.

2.     Record family stories through conversations with parents, grandparents, and other relatives either through audio, video or written word. You may decide to record the younger generation interviewing their senior family members.

3.     Define what wealth means to your family legacy.

Engaging in a legacy dialogue should not create opposition in the family.  Rather, it should be an opportunity to experience the free flow of thoughts between family members to build a congruence of thoughts that will unite the family and strengthen the business.

Articulating legacy goals will influence a business family’s worldviews; competitiveness; beliefs about wealth and philanthropy; and how major decisions are made.


The legacy you leave is the life you lead.
     What legacy are you creating right now?