Little League Rules and Learnings for Family Business

David Ransburg

David Ransburg

As the Little League World Series recently wrapped up, there’s much we can learn from these terrific players and coaches. Important ideas like sportsmanship, respect, effort, accepting defeat with grace, and fun immediately come to mind. Also, if you believe that Little League baseball is simply about winning, treat yourself to this video of the post-game speech by the coach of a Rhode Island team that had just been eliminated from the tournament:

Little League Speech

There’s also a specific lesson from Little League that is directly applicable to family businesses: The 24-Hour Rule.

I recently attended a local Little League game and learned about an interesting policy that this particular league calls “The 24 Hour Rule.” There’s no documentation of the rule for my local Little League, but the Middletown (NJ) Little League has a similar policy that they articulate beautifully on their website:

If an issue should arise that requires communication with the coaches, please wait 24 hours. During this time we ask you think about what you want to say and how you want to say it. The cooling off period prevents matters from getting out of hand when they shouldn’t. Never approach the coaching staff on the field or at practice.

I’ve worked with many different family businesses, and occasionally the issues that they address are significant and emotionally-charged. In these instances, tempers can easily become inflamed, leading the conversation to become destructive instead of constructive. In those cases, the best remedy I’ve found is a simple “timeout” – stop talking for a few minutes and let the group disperse with no interaction at all until everyone has “cooled off.” In my experience, participants regain their bearings within 30 minutes or so – rarely does it take as long as a full 24 hours.

Everyone is different, though, and every situation is different… so, that 30 minute guideline is just a rule of thumb. But, however long it takes you and your family to cool off, once you do return to the conversation, you all will do so with clearer heads. That timeout may seem like a setback or even a “loss” in the moment, but it will actually get you closer to progress long term. Just like that Little League team from Rhode Island, what seems like a loss will actually be a win.

What other tips would you recommend for dealing with “explosions” within a family business?

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A chairman defines the role

Drew Mendoza

Drew Mendoza

Did you ever hear the expression:  Tell them, remind them and remind them again?

For decades, FBCG has been preaching the value of corporate governance in general and the very special role played by the board’s chairman in particular. This short piece, originally published in The Family Business Advisor in print version in 1993, still captures the essentials of what it means to be the chairman of the board in a family enterprise. It’s worth a review.

A Chairman Defines His Role

We know a thoughtful family business leader who is retiring as CEO, but will continue as Chairman of the Board. (The firm has an active board with for outsiders and two family representatives.) In preparation, he attempted to define the chairman’s responsibilities. We wanted to share it with our readers.

  1. Assure that shareholders are kept adequately informed of affairs of the company, and develop and maintain shareholder relations program of the company. This includes giving thoughtful consideration to shareholder concerns and needs and reporting those concerns and needs at least once per year to the board.
  2. Accountable, with other directors, to shareholders for proper execution of duties and responsibilities of the Board in connection with shareholder rights and interests.
  3. Develop responsibilities to be assumed by the company’s Board of Directors.
  4. Through the President and CEO, (a) offer counsel when asked; (b) assure that Board decisions are understood and implemented; and (c) assure that management has an active and effective strategic planning process.
  5. Keep informed on state of the company’s affairs, and through the President and CEO, assure adequate flow of information to the Board.
  6. Develop Board as dynamic, constructive force in company and guide it in discharging its responsibilities. Propose methods to the Board to help it identify opportunities and means to improve Board functioning.
  7. Ensure Board members are knowledgeable in industry matters.
  8. Propose time and place of Board meetings; call meetings; preside at meetings of shareholders and meetings of family shareholders.
  9. Review reports and proposals of management with officers prior to presentation to the Board.
  10. Lead Board in preparing annual slate of directors and selecting candidates to fill vacancies.
  11. Responsible to secure reliable, certified audit to verify management’s conduct of the business.
  12. Make recommendations to committees of the Board. Present to the Board reports and recommendations made by committees of the Board. Serve on the compensation committee.
  13. Maintain top level contacts with members of the community to ensure that company is properly recognized, dealt with and appropriately represented in community affairs.
  14. Identify ethical dilemmas in the company and report on those annually to the Board.
  15. Consider leading special projects as proposed by CEO.

 Excerpted from The Family Business Advisor, Copyright © 1993.

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Sustainable family policies answer “Why?”

Drew Mendoza

Drew Mendoza

Increasingly, owning families rely on an array of policies intended to guide future decisions and actions. They may address who can serve on the family council or the board, set compensation for next generation members, determine whether in-laws can own stock or guide how profits will be deployed (re-invested or paid out to shareholders).

In our experience, an important quality a sustainable policy will have is that the reason or rationale for why the policy was written is explained in the form of a preamble or some sort of introduction. When preambles describe the philosophical basis of the policy, it conveys the intent of the policy. It’s akin to understanding the meaning or intent of a law as compared to the letter of the law. A policy that doesn’t convey the intent may be difficult to interpret or enforce as holes or ambiguous language is put to the test in later years.

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Addiction in the Family Business

Bernie Kliska

Bernie Kliska

Addiction is an unfortunate but common issue that many families have to deal with. Families in business together are not exempt from this issue.

When a family member has an addiction, be it drugs, sex, gambling, alcohol, etc., it is necessary to address the problem in order to have long term family harmony and stability. This is especially critical if the addict is the anticipated successor.

Unaddressed, addiction can wreak havoc on a succession plan. As a consultant and family therapist, I have seen the results and consequences of addiction on families. The addict places a huge burden on the family. Their erratic and irrational behavior takes an emotional toll on everyone.

Unfortunately, for a family in business together, a lack of family harmony not only affects the family, but negatively impacts the business’ success as well.

There are two common ways families deal with an addict in the family. The first is they pretend the problem doesn’t exist, or they end up enabling the addict as a way of coping.

However, in reality the problem does not magically disappear. If your family is facing this tough situation, here are some steps family members can take to effectively deal with an addict.

  1. Encourage (not threaten or force) the addict to seek professional treatment. The best case scenario is for the addict to enter treatment willingly and take responsibility of his or her own healing.
  2. Regardless of whether or not the addict decides to seek treatment, you should attend support groups. Support groups will teach you about setting boundaries, consequences, compassion when it comes to dealing with an addict, not taking on the responsibility for the addict staying in treatment, being supportive versus enabling and what to expect from the addict.
  3. Have all family member’s employees sign a Family Member Employment Policy that includes the requirement for them to be addiction free. You can stipulate in the policy that anyone found to be suffering from an addiction must seek treatment and show proof of successfully completing a treatment program as a condition of continued employment.

The third step is important for any business owner, whether or not you currently have a member of the family suffering from addiction, in recovery, or even if everyone appears to be doing well.

Implementing policies and safeguards to protect what you have worked so hard for is just common sense. No one knows what tomorrow may bring, but planning for all possible contingencies will provide for the best chance of future success for both your business and family.

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Hiring a family business consultant: Key questions and considerations

Bernie Kliska

Bernie Kliska

As a consultant to family businesses, I am frequently asked, “When will I need a family business consultant?” The simple answer is, when you need one, you will know it.

A consultant is usually brought in to help a family resolve particular issues that they do not have the time or expertise to resolve by themselves. There are basically two types of systems consultants often used:

Expert or project consultants will give you solutions to particular problems and help implement those solutions.
Process consultants help you define the problems and then assist you in reaching your own conclusions and solutions.

What should you be looking for when hiring a family business consultant? The first and most important factor is straight forward: can they help solve your particular issues that are hurting the family and business or both?

Before hiring a consultant, here are some questions you should ask yourself:

  • What type of experience do they have working with family businesses?
  • How broad and deep is their training?
  • How long have they done family business consulting?
  • Do they demonstrate expertise on the pertaining issues the family is presenting?
  • Have they helped other businesses with similar issues?

Two other basic criteria are cost and time. Is the consultant affordable for you and is there a time constraint? Do you have confidence that the consultant will complete the project on time?

While these are important factors, the real question is, does the consultant have the experience and ability to manage the specific issues that are involved? A quick and cheap solution that doesn’t solve your problems is not very useful.

Helping to cultivate harmony is an important part of the consultant’s involvement. Family businesses are incredibly complex entities. Family business members inherently need to work through a broad range of complicated challenges, with the consequences of failure being not only the loss of the business, but also potentially the loss of the love found in family relationships.

Succession, ownership, communication, family dynamics, and governance all require different types of management. However, to be successful, all of these things need to be functioning in harmony. Thus, there are many different skill sets that a consultant needs to work with a family business.

Running a business is hard, especially these days. Trying to run a profitable business with your family, while maintaining harmony within the family, can be even more difficult. Fortunately, there is help available.

Family business consulting is basically the art and science of helping a family business find the delicate balance of peace and success among the family and the business.

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FBCG Celebrates 20 Years

Chris Eckrich

Chris Eckrich

In my last post, I wrote about the need for families to celebrate and build memories. This week marks the 20th anniversary of The Family Business Consulting Group’s founding by Drs. Craig Aronoff and John Ward. Since then the group has grown significantly and we have consultants spread throughout North America serving clients here and around the world. We consider it an honor to build upon the foundation our founders laid and are taking time this week to reflect on all the hard work and effort that went into building an enduring organization that serves the needs of enterprising families.

When reflecting on our first 20 years as an organization we are most drawn to the many stories of hard work, creativity, perseverance, courage and even humor that are part of our history. These stories become the bedrock of our culture and continue to provide clarity around our core purpose. Ultimately, however, the impact our organization makes is determined not by our stories, but by the stories of those with whom we’ve had a chance to interact, either through consulting or through our writings and presentations. As we pause to reflect on our own first 20 years we want to thank all of you, our readers, who have made this journey meaningful and worthwhile. We look forward to being part of your stories as we begin our next 20 years of serving enterprising families.

Blog note: As in Chris’s previous post, we believe in the importance of building connection and history within FBCG. As a thank you to the consultants and staff that support families across the world, and in gratitude to their families who support them in this work, we gathered together to celebrate 20 years of service and collaboration. We’ve shared a peek at that event in the photos below.

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What’s a celebration without cake?

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Our youngest attendee, Rebekah, tries out the silly hat photo booth.

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Cheers!

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Releasing lanterns with notes of gratitude and for future success.

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 Closing out the evening with a little music and dancing.

 

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Creating Memories

Chris Eckrich

Chris Eckrich

Summer time for most allows at least a partial chance to break from the hectic pace of everyday life and find time for relaxation often in the form of a vacation away from the busyness of home and work. Far from being a marker of laziness, the ability to take time away from intense thought and activity and allow the body and mind to restore allows us to come back to our work or vocation refreshed, often with new perspectives on how to achieve our goals.

Summer is a good reminder that even working families need time for restoration and reigniting the bonds that connect. Some business families only engage in competitive (and sometimes stressful) work environments with each other, but lose touch with (or never develop) opportunities to just be a family. This missed opportunity to create new bonds can prevent the family from building new memories and new stories in the family’s history. Having time together to explore new things (think vacation spots, cruises and such) and to just relax and have fun (think down time in which business does not need to be discussed but joy is experienced together) becomes the fodder for the stories that will become part of family folklore.

It is easy to drop into a mode of “all work and no play” but that truly does make Jack (and Jill) dull and less connected as family members.

As we reflect on the benefits of summer time and look forward to the coming year, in what ways will new family memories have space to be created and banked in the family’s history?

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Asking and listening…

Dana Telford

Dana Telford

I visited my mother in law last Tuesday. Before I left to drive home, she insisted that I take a sack full of “windfall apples” back to my wife and kids. “Windfall apples?” I thought to myself as we began picking red apples off the lawn. “I’ve never seen Windfall apples in the grocery store. Fuji and Gala and Macintosh and Granny I recognize, but Windfall apples? Are they grown in Chicago or on a windswept tropical island somewhere? She must be confused.”

Had I stopped there, and gone on assuming that I knew more about apples than this mother of 7, grandmother of 18, I would have missed a valuable lesson. She was describing the way the apples had been harvested, not the brand.

I asked her, “What are they called? Windfall apples?” She said, “Yes, they are the ones knocked out of the trees by the wind. My dad used to call them that, so I do as well.”

A light bulb went off in my head – windfall. Like in Monopoly. A windfall is defined as a “sudden unexpected gain or piece of fortune.” I’ve played Monopoly for decades with my siblings, friends and now children, and have never understood the meaning of that word.

Too often in life we forget to ask family members what they know and how they know it and what they believe and why. By listening to their reasons for doing certain things in a certain ways, we can discover, not only more about them, but also more about ourselves. Why does mom put the paper towels on the roll one way versus the other? Why does granddad add water to the pancake batter? Why does Uncle Steve say “a quick nickel is better than a fast dime”?

There are usually very good reasons why people believe what they believe and behave the way they behave. But if we never ask, we’ll never learn. We can gain so much from each other, regardless of age or gender or role in the family. And learning will ultimately help us avoid some of the pitfalls that others have experienced and shape our views of the world and how we want to experience life. It is not uncommon for adult children to take their experiences from younger years and find ways to improve on them. Watching parents struggle with financial challenges, for instance, and living paycheck to paycheck can cause a young adult to focus on discovering ways to ease those challenges in her own future.

Improving our ability to ask “why do you do this or believe that” and listening carefully to the answer will provide greater benefit than simply observing and either dismissing or mimicking behaviors. This is a habit we can begin to instill into future generations. And when one of our children or grandchildren ask us why we ask so many questions and listen so intently to the answer, we’ll know we’ve reached our goal.

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Compensation in Sibling Partnerships – A “Fairly” Complicated Topic

Dana Telford

Dana Telford

A common anecdote told by family business advisors quips that the first three things a second born child learns to say are “Mama”, “Daddy”, and “That’s not fair.”

Tensions and complications related to sibling partnership compensation are grounded in the early-formed, emotional quest for fair treatment between siblings. Like it or not, brothers and sisters compare how much time and resources they receive from parents and grandparents with that of brothers and sisters. This dynamic lasts throughout the sibling relationship – which on average is the longest in life – and must be confronted and managed if we hope to put together a successful compensation system for family members in our businesses.

Earlier this year I analyzed my 70 most recent client engagements and was not surprised at how many of them struggle with the question of siblings and compensation.

  • In 60 of the 70 family companies (86%), siblings work together on a frequent basis (at least one day per week).
  • Of those 60 family companies, compensation is a major issue in 54 (90%).
  • Of the 70 total companies, family member compensation is a significant issue in 58 of them (83%), regardless of whether siblings work together.

Though it may seem simplistic, many of my clients use the Golden Goose analogy to teach children (and adults) about their family business. Protect the Golden Goose from the Sly Fox (primary competitor) and it will lay Golden Eggs for its owner. If the owner gets too fixated on the Golden Eggs and forgets the Sly Fox, he’ll kill the Goose. Dead geese don’t lay eggs, and families miss them when they’re gone.

Compensation in sibling partnerships becomes more straightforward when viewed as an important part of keeping the business healthy for its owners. Owners want their businesses to grow profitably. Profitable growth is a result of excellent decisions made by managers. Owners understand that overpaying under qualified managers, whether family member or stranger, isn’t going to protect the Goose for very long.

Developing a Compensation Policy can help provide clear guidelines for the family to consider when analyzing sibling partnership compensation. Some important elements of compensation policies include:

  1. The concern that any advantage given to family members working in the business will be seen by employees as family socialism superseding free-market capitalism.
  2. Family employees will be compensated in the same manner as non-family employees, period.
  3. Compensation levels will be determined by fair market value analysis.
  4. Family member performance will be measured consistently and compensation adjustments made accordingly.
  5. Family employees are expected to live within their financial means and not encumber themselves with excessive debt or rely on special disbursements.
  6. Extra compensation, when deemed fair and reasonable by the Board and/or Family Council, will be provided through ownership and/or family channels.

As a mechanism for satisfying point number six, consider compensating family employees as owners or future owners. Provide stipends for serving on the Board or Family Council, provide a fair and reasonable dividend taken from profits when the company performs well, pay family members for special ownership-related research projects (e.g. A review of a top competitors strategy) or to serve on an investment committee.

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Continuity vs. Succession: The BIG Question for Family Business (Part 2)

This is part 2 of Dr. Baskin’s post on Continuity vs. Succession. Read part one here.

Otis Baskin

Otis Baskin

Continuity Planning differs from Succession Planning because it addresses the deeper issues of how ownership and governance issues will be handled in subsequent generations.  While Succession Planning is generally about who will succeed YOU, current generation leader(s) of the business, Continuity Planning is all about how WE will go on together.  As a family business transitions from first generation to second and third generations and beyond, success depends more upon a group process than a single leader.

Continuity Planning requires thoughtful preparation for the following questions:

  • Who will own the business in the next and succeeding generations?  If the major transfer of wealth in an estate plan will be in the form of an operating business careful planning must be done to protect this engine of prosperity for the benefit of all owners.  What will be the responsibilities and benefits of ownership?  Whether the assets are transferred directly to members of the next generation or held in trust, those intended to benefit from this blessing must be prepared to be good stewards together.
  • How will the next owners make decisions together?  When a generational transition benefits multiple owners (siblings or cousins) they need to be prepared to work together as owners and stewards for subsequent generations.  An otherwise well-educated and business family that has relied upon the current generation to make decisions can disintegrate if they are not prepared to make decisions together.  This is particularly true as families grow and all owners cannot or choose not to work in the business.  The CEO must become accountable to ownership when he or she is not the sole owner.
  • What will guide the next owners?  When parents are no longer able to provide guidance and counsel to the next generation where can this support be found?  A clear understanding of the family values that made it possible for previous generations to build a successful family and business is critical.  Having these values documented in a way that allows the current generation to continuously review them and apply them to their situation and time can provide a stable foundation for family harmony and business success.

Continuity Planning is also planning for good governance practices in subsequent generations.  Providing decision making structures and processes that assure all owners, whether they hold an executive position in the business or not, that their interests are equally considered and their voice can be heard.

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