Tuesday, April 30, 2019
Family businesses have many competitive advantages: strength of relationships, cultural fit of family members, shared faith and values, long term commitment of those involved, strong work ethic of family members, patient capital, shared visions, and flexibility in hard times. Those strengths, however, can lead to unique challenges in transitioning the business.
There are some common themes in family business transitions that go awry: a senior generation that can’t let go (either business is going well and it is too much fun to let go or the business is struggling and the senior generation feels like they have to get it back on track); lack of confidence in the rising generation; indecision in selecting the next leader; avoiding difficult or awkward conversations; emotional identity in the business; and a rising generation that can’t work together.
For a successful transition, one of the critical pieces is giving voice to the concerns of those involved. There are many options in transitioning a business, ranging from a sale of the business to non-family, to gifting some or all of the business to family. To successfully navigate the transition, family leaders must work hard to preserve family relations, family culture, and viewing this as a journey and not a single event.
The decision process for the transition, requires consideration of several key areas:
1. Interest of the next generation: What is the true desire of the next generation? Do they want to lead the family business?
2. Skill set of the next generation: If the next generation has an interest and desire to keep the business in the family, what do they need to learn? How will they develop as leaders, and who will hold them accountable?
3. Future Vision: What systems, processes, or procedures will be put in place to maintain the long-term success of the business and family? What communication guidelines will be agreed to by all family members to ensure all understand the objectives?
4. Ownership Structure: What is the best structure for the estate planning of the senior generation? How will the next generation navigate the ownership responsibilities?
After building the business, transitioning the family business is the next most significant work. The complexities of decision making to sell, to hold, to transition could be fraught with strife. If done well, through proper planning and open honest communication, the transition has the potential to unite the family and create a collaborative relationship between the generations.
Tuesday, March 19, 2019
Succession planning: the elephant in the room. A Boston Consulting Group study found a 14-percentage point difference in revenue growth and a 28-percentage point difference in market capitalization growth between family enterprises that had a succession plan and those that did not. Poorly planned and poorly executed succession plans are among the biggest value destroying events for family enterprises.
Why is it so difficult to talk about succession planning in the family enterprise when studies show an enormous amount of value is destroyed by unplanned transitions?
In many families, the intersection of emotions, family politics, and the needs of the enterprise can feel like ground ripe for conflict. The enterprise’s needs related to leadership based on merit and economic capability may be viewed as being on opposite ends of the spectrum as family desires or abilities. While lawyers and accountants make sure the ‘i’s’ are dotted and the ‘t’s’ are crossed for an ownership agreement and tax filings, the family must be willing to have the critical discussions and participate in the hard work of dialogue for who will lead the family enterprise and how the process will occur.
Five important questions can help families as they begin the transition planning process:
1. How will the family values be maintained moving forward?
2. Will the family select a successor to lead the business from within the family or outside the family?
3. What development process needs to be implemented?
4. Who will assist the family and keep the family focused on this journey?
5. What will be the departing leader’s role?
These questions are not all inclusive, but they will help the family begin to have the important conversations.
Honestly discussing the critical issues facing families and family enterprises 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 value and family business legacy.
For more thoughts on how to involve your family in these conversations, give us a call. We would be happy to support you on this journey.
Tuesday, March 12, 2019
A “value” is a principle, standard, or quality considered intrinsically worthwhile or desirable. The root of value is valoir, which means ‘to be of worth’. Values are also a source of strength because they give business families the power to take action. Values are deep and emotional, difficult to change and often unconscious.
Sometimes, people mistakenly think of values as a list of “shoulds” and “shouldn’ts” guiding what they can or cannot do. To the contrary, values are energizing, motivating, and inspiring. When people care passionately about something—in other words, value it—they can spur themselves to great achievements. The core values really are conscious motivators!
Tuesday, February 19, 2019
Management guru Peter Drucker was referred to as “the man who invented management” by Business Week magazine. He has been influencing leaders with his theories on modern business as one of the greatest thinkers on management in modern times. Your family enterprise can still benefit from his ideas.
Drucker’s HBR article, What Makes an Effective Executive? explained his study of many CEOs and found they had eight practices in common. Applying these practices to family enterprise leaders and family members can help establish a solid foundation for success.
Drucker’s 8 Practices of The Effective Executive
Ask what needs to be done: Get the knowledge you need by asking what needs to be done, and take the answers seriously. Failing to ask this question will render the leader ineffective. Once you know the to-do list, set priorities and stick to them.
Ask what’s right for the enterprise: Don’t focus on what’s right for individuals (i.e. owners, family members, employees or customers.) What is right for the enterprise may not be right for individual stakeholders or family members.
Develop action plans: Set a plan that specifies results and constraints compatible with family and organizational goals. Create check-in milestones and revise your plan as necessary to reflect new opportunities or insight.
Take responsibility for actions: Ensure each decision specifies the person accountable and the appropriate deadline. Define whom it affects and whom to keep updated and informed.
Take responsibility for communicating: Make sure to clearly explain your action plan and information needs. Share the plan with your family council, family members, staff, and employees and let them know what you expect of each person.
Embrace change: Don’t treat change as a threat. Instead, exploit opportunities and explore changes inside and outside that will benefit your family enterprise.
Run productive meetings: Clearly articulate the purpose of each meeting and end it once you have accomplished the meeting goals. Follow up with a meeting summary and include new assignments, deadlines, follow-ups, and expectations.
Say “we” not “I”: To get the best results, always put your family enterprise needs ahead of your own. This means thinking and seeking the needs and opportunities of the family, the family enterprise, and others before one’s self.
The need for effective family enterprise leaders is too great to be left to chance. Effectiveness is a discipline. And, like every discipline, it can be learned, but it must be earned.
Tuesday, February 12, 2019
Whether it is first or fifth generation, all boils down to governance:
Involving the rising generation and preparing them to take charge is one of the big issues that family businesses must address. They are many challenges – transitioning to professional management, governance in the business, governance for family members, maintaining the vision and family values, innovating to meet changing needs; just to name a few. Building for longevity is a key challenge as well. As Sonny Iqbal, Gurgaon-based co-leader of Egon Zehnder says, when they surveyed family businesses to find out their concerns, profit is often low down on the list. “Survival, sustainability, doing good, are often bigger concerns,” he says.
Tuesday, January 29, 2019
SKM Associates is happy to announce that as we move into 2019, we are accepting new family business clients.
As a Family Business Advising Family Businesses, we supportSuccession Planning withFamily Business Solutions. We understand successful multi-generational family businesses have a long-view and time horizon for their family. Defining who is responsible for family leadership and who is responsible for what, who is responsible for sustaining the family business including developing the next generation, is a critical process requiring time and intentionality.
To learn how SKM Associates will walk with your family on this journey, give us a call, 215.256.5997
Tuesday, January 8, 2019
Leading a successful family business requires a clear understanding of conflict management (known as positive family relationships) and a clear understanding of business structures (known as governance).
First, positive family relationships do not occur by accident or by just thinking positive thoughts. Some debate whether positive relationships are the result of focusing on ‘quality’ vs. ‘quantity’ time spent. However, positive relationships require a T.I.P.; time, intentionality, and proximity. How do you do that?
1. Commit the time to have family meals together.
2. Commit to enjoy activities together as a family where business is not the main event.
3. Commit to a family council that meets on a regular basis, giving all voices the opportunity to be heard.
4. Commit to learning as a family how to have difficult conversations and still love each other.
5. Commit to educating the next generation about the business, the governance, and what it takes to lead a family business.
6. Commit to providing family grace and love.
Second, sound business structures are critical to profitably grow the business in an ever-changing competitive environment. 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. What could that look like?
1. Begin with agreement on how the family will communicate, debate, resolve conflict, and hold each other accountable.
2. Create a family charter describing how the family will relate to each other and the business.
3. Create (or update) a shareholder’s agreement that includes, among other things, clearly defined governance structures.
4. Process additional issues such as management of the business, compensation, training and development of family, and qualifications for leadership roles.
5. Build meaningful experiential learning opportunities for family and non-family employees.
6. Establish an Advisory Board to provide nonbiased counsel, advice, contacts, and strategy to help the family business achieve its’ goals.
Good governance and positive relationships require discipline to execute and hold each other accountable. It is not too late to get started.
Wednesday, January 2, 2019
With 2019 comes new opportunities. New opportunities for each individual, family, and family business.
May your family business have courage, hope, and faith to successfully navigate the challenges. And may your family business have success in your actions taken.
Tuesday, December 18, 2018
As we approach this Christmas season it is our wish that you and your family have a very Blessed Christmas and Holiday Season.
We approach this Christmas with a sense of awe and amazement. As we watch our grandchildren’s curiosity and amazement at the lights and glitter and excitement, we am reminded to remember to approach this season with that same sense of childlike wonderment and awe.
Recognizing that this season can bring peace to families where there had been strife, joy to families where there had been trials and hope to families where there had been hopelessness.
May your family realize the love of this season and continue through next year.
God Bless and have a wonderful New Year.
Tuesday, October 30, 2018
Across generations and across cultures, the sentiment is the same: family enterprises and family wealth often does not make it into the third and fourth generations. It doesn’t need to be that way.
Every family faces challenges to successful, long-term sustainable legacies. For the countless strengths and opportunities giving family enterprises a competitive advantage, business families face unique challenges in setting up the enterprise and the family to be successful for generations to come. There is no magic checklist or fill-in-the blank formula, but there are things enterprising families can do:
· 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
· Create an environment of open, clear, and direct communication
· Define what wealth means to your family legacy
· 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
· Develop clear policies and business norms for family members
· Clearly define the roles and responsibilities in the enterprise
· Have a plan, in writing, for the transition of the enterprise and assets to the next generation
· Establish a fair and equitable exit strategy for those not interested
· Help each family member internalize the vision for the family and the enterprise
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. A true family legacy is more than just the legal documents distributing your assets. In order to nurture the legacy, you must understand what your family legacy is. 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.
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.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.
Your family’s legacy is too important to expect it to ‘just happen’. It is important to understand what questions to ask, appreciate the sensitivity of the issues and conversations, develop the ability to communicate with those impacted, and support more satisfied lives. To lose family harmony due to a lack of understanding does not help build a family legacy. A legacy of love, harmony, security, and enterprise success is the ultimate goal. As your business family focuses on the development of the family and the business, you need not travel this journey alone.
What makes legacy planning for success so difficult for so many business enterprises? 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 enterprise 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 professional family business advisor can help the family and the enterprise function with discipline and forethought to ensure sustainability for future generations. A qualified advisor can bring clarity to issues, perspective based on experience, and unbiased relationships with family members. In addition, an advisor can provide: unbiased input, strategic insight, give voice to family members, succession planning, and ask the difficult yet critical questions. A family business advisor is the constant thread throughout the process to help navigate the pitfalls, keep focused on the goals of the family, and help the family address the concerns of the various stakeholders. Don’t do this alone. Invite a family business advisor to help you navigate the journey.
It is not too late to get started. Doing nothing is not really an option.
The legacy you leave is the life you lead.
Tuesday, October 9, 2018
Most family businesses are just one step away from extinction. Sound harsh? According to PWC, only 23% of family businesses have a robust, documented succession plan.
If family business leaders don’t intentionally infuse the family values, vision, and culture into successors, will the family business be sustainable? The importance of leadership for succession is required! If a key leadership role in your business was unexpectedly vacated by death, disability, or disqualification, who is ready to step up? Understanding the value of succession planning requires everyone to be more engaged.
Five factors play a significant role in working towards smooth succession:
1. Build your bench:You can’t run a relay by yourself. Running a relay, like succession planning, requires the development of runners. Succession planning requires a family business to always have an eye on high potential leaders so they can develop them for future needs. Like training for a race, systematically developing successors also means systematically providing the right experiences to build the correct skill sets for the future.
2. Make the transition seamless: When a succession plan is well-executed, and a smooth leadership transition occurs, the family and the business do not miss a step moving forward. The baton is passed with ease. Making the transition seamless requires planning, preparation, and effective communication. Part of building a bench of talent is instilling in future leaders the cultural DNA of the organization, which will help provide continuity from exiting leader to successor during transitions.
3. Cast the vision: The vision is the shared image of the family’s definition of success and what the family wants the business to be. The vision provides a future orientation It points the direction for where you are going.
4. Nurture the values: Every family has values. They may be spoken or unspoken. Some families live out their values more closely than others, but each family and business has a set of values. Though the world is ever changing, a family’s core values should be constant. It is who you are as a business family. Values are energizing, motivating, and inspiring. When people care passionately about something, they spur themselves to great achievements. The core values really are conscious motivators!
5. Provide mentoring: A mentor to rising leaders will help the family business function with discipline and forethought to ensure sustainability for future generations. A mentor can help the family establish frameworks for succession, provide training, help with skill development, and foster reflective planning for the future.
As a family business, avoid extinction by focusing on these five factors for successful succession.
Wednesday, September 12, 2018
We are told that conflict is inevitable. It will occur. It is part of life to have conflict – and certainly part of family life. Yet, very seldom are family members skilled at handling conflict. Most would prefer to avoid it at all costs. Conflict in families arises in situations in which there are incompatible goals, emotional walls, or misaligned expectations. Avoiding it does not make it go away. The emotional baggage follows whether the conflict is addressed or not. Managing conflict is a difficult skill that does not come naturally, but it is a necessary skill that can be learned.
The effect of conflict can be either positive or negative. The outcome depends on how the conflict is managed. Negative conflict is dysfunctional and hinders the ability of the individual, the family, and the business to attain unity, to make forward progress, and to meet objectives. Positive conflict resolution leads to better decisions, to increased creativity, to enhanced interpersonal relationships, to value clarification, and to personal growth and change.
Knowing what causes conflict is only half the battle. Knowing what to do when conflict arises is the bigger challenge. While there are many styles and strategies for navigating conflict, there are several basic principles to keep in play.
1. Normalize it. Remember conflict is inevitable and can be healthy. Normalize healthy conflict and positive ways to manage it.
2. Walk towards the conflict. Avoidance can be detrimental if the issues are not dealt with.
3. Begin with humility. Be reflective, not projective: “What part of the problem, is mine?”
4. Check your aggression, reaction, personalization or any other antagonizing behavior at the door.
5. Listen! Passionately seek understanding. Validate the feelings of the other by listening more and speaking less.
6. Process out loud. Acknowledge the pain of the other.
7. Search for common ground. Explore agreement and similar ideas.
8. Outline areas of core disagreement. Help both parties clarify what is actually in dispute and consider ways to work through it together.
9. Seek help. If stuck, bring in more participants with differing perspectives and objective views.
10. Attitude, attitude, attitude is the key!
Conflict is inevitable. Each family member is unique and may have different interests, goals, perspectives, values, and needs. Not all conflict needs to be dysfunctional. As a family and as individuals, practice positive conflict management techniques to diffuse conflict before it is destructive. Learn the skills necessary to walk through the journey together.