All posts by carolryan

Developing the New Leaders of your Family Enterprise

Recently the Family Business Consulting Group produced a new webinar program titled “Developing the New Leaders of your Family Enterprise”.  Below are responses to a few of the questions asked by the participants during the program.  The complete webinar is available for replay at this link. 

Developing the New Leaders of your Family Enterprise

 

Q.  What happens when the diversity of experience looks more like you can’t figure out what you are looking for? How do you avoid this?

A.  The key to avoiding this is to be explicit about your plan in advance. If key stakeholders (e.g., shareholders and senior managers) know that the plan is to have a diversity of experiences — and it would also be good to let them know why that diversity is being sought — then it is less likely that these experiences will appear to be aimless or uncertain.

Q. Doesn’t speed to trust also play a role in versatility? How does trust play a role in versatility?

A. Trust does, indeed, play a role in versatility… as do a number of other factors such as business acumen, time management, and communication skills. We’ve found, though, that focusing on the “What” (Strategic vs. Operational) and “How” (Forceful vs. Enabling) of leadership will give you the most “bang for your buck.”

Q. Interested in John Ward’s students “ learnings”

  • Sales are Vanity
  • Profits are Sanity
  • Cash is reality
  • Values are eternity

Q. How do you handle a situation where founder (patriarch) has stepped away and in later years seeks to become actively involved or promote projects initiatives that are aimed at leaving his “mark”? in the process he is altering the Next Generation working dynamic.

 A.   To the frustration of many successors, founders commonly “come back.” They claim there is unfinished     teaching and contribution. In fact, they are unhappy, perhaps very depressed, since letting go.

The best we can advise is to (1) see if you can channel his/her energy in a constructive way; (2) over, over communicated; (3) hopefully benefit from the support of an outside board (or, perhaps, from long-time professional advisors).

Q. How important is it to publish and share the mission, vision and values of the family?

A.   Family mission, family values, and the family’s ownership vision are the most important foundation and the backbone of the family constitution. We believe this is so as the family’s family commitment to each other is essential for long-term ownership continuity.

Q. Is Level 5 leadership a book or an article?

A.  “Level 5 Leadership” is an article from the Harvard Business Review by Jim Collins. It is an examination of one piece of his book called “Good to Great.”

Q. How do you deal with a founder who does not delegate and does not give away real power?  It makes it impossible to grow as a leader?

A.  A founder who does not delegate makes the situation difficult. There are many factors to consider, but the two that I would start with are (1) trying to figure out what is constraining the founder from delegating (sometimes, simply asking the founder, “What keeps you from delegating?” may be enough to loosen those constraints), and (2) painting a picture for the founder of the likely long term consequences of not delegating — often, the thing that constrains founders in situations like this is that they are so focused on today that they haven’t given much thought to tomorrow.

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Effective Strategies for Avoiding and Managing Family Conflict Questions and Answers

On September 21, 2011 the Family Business Consulting Group held a live webinar titled Effective Strategies for Avoiding and Managing Family Conflict.  David Lansky was the presenter for this program along with Carol Ryan acting as the moderator.  Below are a few of the questions presented by the audience during the live program.  If you missed the program and would like to listen to the on-line replay you can download the program using this link.  http://eventcallregistration.com/reg/index.jsp?cid=600t11pk#od  Future FBCG webinar programs are listed at this link.  http://www.efamilybusiness.com/index.cfm?md=Content&sd=AudioConference&MatterID=40

Q. How do you break negative habits?

A. Often conflict can result from repetition of negative communication habits. Provided all parties agree that they want to change their negative habits, creating opportunities to practice new behaviors can be helpful. Sometimes agreeing on a signal (“pulling your ear lobe”) that indicates that the bad habit is being exercised can help increase awareness and create an opportunity to practice a new behavior.

Q. Does “divorce” count as a cut-off and thus make it more likely that other cutoffs will happen in succeeding generations?

A. This is a good question. I think the answer depends on how the divorce is managed in the family. Some divorces do not impose a cut off, communication continues between the parties and may be encouraged. However, when one or more parties to a divorce expect other family members to stop communicating with an exiting spouse, this can result in all of the destructive consequences that come from other types of cut off.

Q. How do you communicate to the other person so the other person will listen?

A.As I mentioned in the webinar, the very best way I know to get someone to listen to you is by listening to that person.

Q. What happens when someone says they are a failure because you don’t agree with them?

A. I would ignore the comment. He/she is entitled to that opinion. The real question is how will we resolve our disagreement?

Q. With regard to destructive entitlement what if the injustice is merely perceived – not a true injustice?

A. It is ALWAYS a matter of perceived injustice, since what is “real” to one party may be trivial to another. As a beginning, I would take the perception very seriously and spend a lot of time listening and seeking to understand the other party’s perceptions.

Q. How do you recommend resolving this conflict across generations of siblings and next generation – One sibling creates conflict and fights to force fairness for her kids, speaks for them, creates special opportunities for them.  When the next gen kids haven’t earned what the parent is fighting for like their next gen cousins who did it on their own and who then become resentful.  The other siblings try to avoid the conflict by ignoring it. Is there a way to handle this without a third party facilitator?

A. Excellent question and a very difficult situation. There are elements here of over-protectiveness and triangulation. I would guess the overprotective party thinks that she is the victim herself of injustice, resulting in destructive entitlement. Can this be resolved without a third party? It would be very difficult.  I would expect a third party to bring an objective trusted perspective that is not perceived as interfering with parental rights.

Q. Is there a way to successfully transfer an asset (business) to two family members who will share power or is this a recipe for disaster?

A. It is certainly possible provided the parties agree before hand on how power will be shared: Who has authority over which issues? How will decisions be made? What if we are deadlocked? If these things are not addressed before hand the chances of disaster are vastly increased.

Q.  Were you suggesting that one listens better (or less effectively)-or more earnestly in the eyes of the talker – if you take pen and paper and write down what the person is saying while they are talking?

A.  Writing things down helps listening in two ways: it focuses you on what the other party is saying and occupies your mind so that you don’t immediately react to what you are hearing!

Q. Thoughts on dealing with the “always ‘toxic'” family member?

A. Be realistic, stop arguing, and consider whether a graceful exit is possible. “Toxic” family members will sometimes stop being toxic if they think they may be encouraged to exit. They will almost certainly stop  being toxic if they are no longer part of a shared enterprise.  The family council (or other family representatives) need to decide  whether they have a mandate to deal with the toxicity. Are they empowered by the family at large to manage the behavior of individual family members? If not,  the only strategy remaining may be to ignore them and give them as little attention as possible during family meetings. “

Q.How do you determine when a conflict is a public/family business conflict  or a personal interfamily member conflict?

A. Great question! Some conflicts do need to be ignored by the family at large, others require attention. When a conflict is spilling over into the larger family and interfering with family functions, it probably merits broad family attention. I have found that family councils, exec committees, etc., can usefully explore whether it is within their mandate to address the conflict or not.

Q.  What suggestions do you have when you have a sibling that unilaterally makes decisions and several of the other siblings are very angry and want him removed. He has been the one running the business  so he thinks that he has to make the decisions and refuses to listen.

A.  You all should sit down with a third party and explore the roots of the conflict. All options for a  solution should be on the table, including separation.

Q.  Would these issues be easier to handle if the enterprise is looked at as a business family and not a family business

A. Interesting question. Viewing yourselves as a business family might bring a greater emphasis on the shared goal of being together in harmony.   However, if the underlying dynamics do not change, conflict will probably continue.

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Coaching the Next Generation

Carol Ryan
Carol Ryan

Below are a few of the questions that were posed during our Coaching the Next Generation webinar.  If you missed the webinar you are still in luck.  The replay of this program is available at http://eventcallregistration.com/reg/index.jsp?cid=600t11pk

Question 1:

How would the speakers apply coaching for the senior family member who is thinking about passing the business to the next generation but is not sure what they would do if they don’t come to work each day for the next 30-40 years?

Answer:

In applying coaching to senior family members who may retire, it is critical that they have something else of meaning upon which to focus. Moreover, it is critical that they are recognised for the valuable contribution they have made to the business so they feel  valued. Ask them what they want to leave behind, how they would like to be remembered, ask them to share their lessons learned and perhaps operate as a mentor to younger generations.  Provide some training on mentoring so that both parties understand what is expected of them. And do draft clear guidelines around their continued interaction with the business. What will they continue to contribute, what will they stop doing? And document this.  Provide support to senior family members in helping them to build their “third career”. Support them in finding non-executive directorships elsewhere, contribute to charity work, start a new business. You could perhaps establish a Development Advisory Group comprised of family and non-family members who take responsibility for retiring family executives.  There is a course offered by Harvard for married couples who are facing retirement. Together, partners can learn how to live meaningfully together in their latter years and build a life of equal meaning.  Perhaps this is an opportunity to pursue new learning opportunities? http://www.hilr.harvard.edu/who/

http://www.guardian.co.uk/education/2010/jan/12/advanced-courses-retirement-harvard

Question 2:

In our family none of the five children or spouses have expressed any interest at all in the family business. They will undoubtedly reap some benefits from the business. But it is a shame for them to view it as just a “cash cow” with no contribution expected on their part.  It is wonderful for everything to be unconditional but let’s face it the business world is largely made up of trade-offs. Isn’t a sense of “giving back” necessary in order to avoid a sense of entitlement?

Answer:

 The business world is invariably made up of “trade-offs”. How easily can we sit with the fact that many benefit from the family business, exert enormous influence on the children, reap the benefits but have no interest at all in the family business? I think the answer lies in accepting that whilst one may not have an interest in the family business, there is no doubt that mothers in particular, play a pivotal role in raising responsible children. I am working with a family at the moment who is actively engaged in bringing mothers, daughters in law, sons in law, into the fold.  It is NEVER too late. Perhaps they have not been asked to get involved and don’t know how they could make a meaningful contribution. This starts with asking: their views on the family business, why or why they don’t want to be involved and finding them a role of meaning where they can make a contribution. This may take the form of contributing to the development of a family protocol, leading a social committee for the family, involving them in sharing their own family of origin stories, playing a role in educating the next generation.  I am sure they have many skills to bring and often play the Chief Emotional Officer role in a family. Perhaps one might begin by asking them how they have experienced the family into which they married, how the family might integrate outsiders more effectively in the future? Values and behaviours the family should seek to develop in order to do so?  Offer this opportunity to them, but do make it voluntary. You cannot force someone to contribute where they may not want to. Play with those who want to play.

I recommend viewing ownership as a job. That means you need to qualify for ownership through the duties involved (such as informing yourself of how the business is doing, reading annual reports, reading the financial statements, understanding the family’s dividend policy and reinvestment philosophy, understanding family values, going to the AGMs and other family meetings, being an ambassador for the company in the community among other things) and certainly, there are benefits (such as dividends, reputation, social status and so forth). Sadly, uninterested and uninvolved owners who view the business as no more than a “cash cow” can be a source of potential future conflicts due to misaligned expectations, so finding out how they can be interested and involved is a very important undertaking. However, all of this doesn’t just happen by itself. So-called responsible ownership is an attitude that the family needs to embrace, foster and work on, and is the result of hard labour by committed family members whose aim it is to have a united family ownership base that can really contribute and add value to the business through their values and vision. That is a key task of family governance work. Very importantly, this kind of work can be fun! Using your imagination and the resources in the family and business, building commitment and understanding through education can be very rewarding. Work with family business facilitators who can help you achieve this.

To read about a family business that went through building commitment, see Scott Family Enterprises parts A-C (Kellogg Case written by Canh Tran & John Ward). To read more about Responsible Ownership, see “How to be an effective shareholder” by Craig Aronoff & John Ward. We’ve done research at London Business School about how to foster “Emotional Ownership” in the next generation, you can find a copy on http://www.ifb.org.uk/media/24482/emotional%20ownership%20report%20final2.pdf

Question 3:

 Do family business members have a responsibility to make a “stamp” on the business. Can you comment please?

Answer:

 Of course they do. They own the business and must take their responsibilities as seriously as their rights. However, the secret lies in defining responsible ownership together with the family as a whole. What are the behaviours a responsible owner should demonstrate, how can their success/performance be measured and managed? How does this sense of responsibility become engrained in future generations?  And equally importantly, what are the boundaries of making one’s stamp but perhaps interfering with the day to day running of the business is a Board is in place to provide this role?  Putting one’s stamp on the business is important…but the nature of this “stamp” must be clearly articulated and managed through a Family Council. Consistency in “stamp-making” is critically important so as not to confuse or undermine the business. Finally, I would add, find out what each member’s unique stamp could be? What are their skills and capabilities, what can we expect from them. We often don’t know what their unique stamp can be as we take for granted we know our family members and their unique experiences. I’m working with a family now who has worked together for years. They want to work on more key business projects together. Despite their careers in many sectors, no one has asked them about their background, experiences and aspirations. This must be done before a positive “stamp” can be made.  Be structured about this and co-define together what responsible ownership really is.

One fundamental way owning family members make a “stamp” on the business is mainly through articulating family values and an associated family vision that act as guiding principles for the board in their formulation and execution of strategy. I think the key question to ask yourself here is – why is this company better off owned by this family? Then – why do we want to continue co-owning this enterprise? The answer to the latter question can vary very widely – people may look at the financial rewards, the social togetherness in the family, provision of jobs, giving back to the community etc. Whatever the answer is, the owners from a given generation will shape their contribution as they see fit, bearing in mind the traditions of the original founders but also being aware of how to change as times are changing. As one family business worded it in their vision: “Making change our tradition”. So really the reason why family owners have the responsibility to create their own stamp is to perpetuate the existence of the enterprise. If, indeed, that is what the family wants.

Question 4:

Where or how do you find coaches?

Answer:

 There are many good coaching organisations in the world. You want to ensure that your coaches are sufficiently experienced. Look for organisations with global reach, ongoing professional development, those who offer a choice of coach. You can try:

www.familiasco.com

www.praesta.com (not that focused on families)

http://www.instituteofcoaching.org

Business Schools should also be able to recommend good coaches.

Another way to find a coach is to ask those who may have used them. (both within the family business realm and outside it…eg. Corporate America!) Personal recommendations are best so do ask a friend!

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Sibling Revelry Questions Answered

Carol Ryan
Carol Ryan

Below are a few of the questions that were posed during our Sibling Reverly webinar.  If you missed the webinar you are still in luck.  The replay of this program is available at http://eventcallregistration.com/reg/index.jsp?cid=600t11pk

Q. What about those of us who are not in the sibling generation?

 A. If you are not a member of a sibling generation then much of what we talked about in the webinar is still relevant. For example, if you are a parent, you can think about how you raise your children and the effects this could have on them in the future if they are in a position of making decisions together. Even later generation businesses (cousin owners and beyond) may be affected by sibling bonds as there are plenty of situations where a family branch has to come to a consensus about how they might respond to a situation or decision and the ability to collaborate as a family unit could be very valuable.

Q. How about adopted children as siblings in family business operations?

A. Families will define ‘family’ in different ways – the ways in which families treat adopted children is often related to the age at which the children were adopted. In our experience most children who were adopted at birth or as very young children are treated the same as ‘blood’ descended children in the family. There may often be distinctions when a child is adopted into the family in adulthood – or as part of a second marriage. In this case I have seen those family members sometimes treated differently than blood descendents – from having no access to opportunities to work in the business nor ownership, to having the chance to make a career in business but not have ownership, to having access to it all. I know of a family where an owner adopted the adult children of her new husband and included them in her estate so they will inherit ownership just like any other member of the generation. In terms of working opportunities – whatever requirements are put to all family members should certainly also apply to children who have been adopted into the family.

Q. What do you do when the founder won’t let go?

A. This is a very common challenge. The best advice we can offer to siblings is for you to start to make the decisions that are actually empowered to make. The first one is to have an honest conversation with the founder. Ask him or her if they have any desire to retire, and if so when (some will honestly tell you no, some will say yes and mean it, and some will say yes but everything in their behavior suggests this is not likely to happen any time soon, or in a timely manner…). If they express a willingness to retire but you have your doubts you can certainly ask them about that they perceive as a reasonable timetable. Then you have to determine two things: do you believe them & do you have the patience to wait?

If you think it will be a long journey, if at all before your generation gets any real authority, then you have to ask yourself if you are willing to wait. If you find your patience is very strained by the process of waiting, you need to seriously consider getting out. Do not become a hostage of this situation if it is wearing you down – it will only damage your family relationships and will likely not do much good for the business either (especially if you become bitter, hostile, etc…). When you have a founder who is unwilling to let go it is sometimes much easier if you have siblings who understand your pain. In addition, if you have siblings then you make some joint decisions as siblings that demonstrate to the founder that you are able to work together. If you are not empowered to make decisions about the business – you could make decisions around how you would make decisions in the future when you do take over. For example, draft a policy on how perks will get treated in the business; determine if you would like to have a board and how board directors would be selected, etc… The exercise of working together will be a way for you to feel like you are moving the ball forward on things where you have a voice & as I mentioned, demonstrate to all stakeholders that the siblings can make complicated decisions together. This can go a long way to reducing the founder’s stress that everything will fall apart when they leave, and if their anxiety is reduced on that front, who knows what changes they may be ready to seriously consider…

Q. What is the best way to get siblings to begin sophisticated mode of communications?

A. The best way to ensure the siblings are able to really listen to one another. It is amazing to me how much can be accomplished if individuals will really give each other a fair hearing and seek to understand an issue or concern from their point of view.

If there is limited harmony between the siblings this may initially need to be facilitated conversations to help create the ‘safe space’ where everyone trusts that they can really speak their mind and be heard by others. When we work with families we almost always interact with each family member individually initially, to help us better appreciate the diversity of views or concerns, and to build an alliance and comfort with us, so that we can be trusted by all to create a ‘safe space’ where hard discussions can be had.

Q. How do you create an atmosphere of trust when the feeling is that only one sibling is the confidant of the founder?

A. If can definitely be a challenge when there is a ‘first among equals’ dynamic in a sibling group. If one sibling has far more access to information than the others this can breed distrust and jealousy. One important point for all families to bear in mind is that even if a member of the sibling team is the ‘most’ qualified to lead the business because they have the most experience or best knowledge – that person will not succeed if they do not also have strong ties to the family. Therefore, the sibling who is in that ‘favored’ spot has a challenge that they have to invest in their relationships with their siblings – and while they do not want to violate any confidences of other family members, it may be important for them to use the ‘special status’ they have with the founder to explain to that person that they have to share more broadly with the family or run the risk of creating mistrust between siblings.

Q. How do you get around entitlement – i.e. I’m an owner so I’m entitled to a place on the Board I’m entitled to make executive decisions?

A. As I believe we said on the webinar – entitlement is about the most toxic attitude you can find in a family business. Once a person believes that they ‘get’ to do things just because they are in the family the risk is that will compromise both family and business relationships. It is important to make clear to family members that if you have strong non-family executives, meddling family members who offer input on management decisions & expect their views to hold sway, are a serious risk for turnover. The best and the brightest employees will not tolerate this for long. Likewise, if you go to the trouble of putting together a serious and professional board, there is nothing that will kill its effectiveness faster than populating it with unqualified family members who are unwilling to work at developing skills & competence to add value – but rather feel their last name is necessary & sufficient.

Having said that – there are plenty of family businesses who want family on their board and do not have family who are as well qualified as outsiders. We would typically advocate for having some voice of the family on the board, but would suggest that this person should have as strong business experience as possible, or get some training around the governance role, etc. so that they are positioned to add value – not be a distraction. No one enjoys feeling useless, board members appreciate having some grounding so that they feel they can follow the conversation more effectively.

The bottom line is if a family member just feels entitled to warm a chair and are unwilling to put in any effort to learn how to do a good job, this is a huge risk (to the business and family – as all competent people will be angered by the presence of such an attitude) and should not be tolerated in any family.

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Succession Webinar Questions Answered

Tools of the Trade: Two Experts Talk About Family Business Succession

Q. How important are buy-sell agreements and clearly established valuation methods for family shareholders? What are typical valuation methods?

A. A buy sell agreement is a succession planning tool that; (i) protects existing shareholders against transfers of ownership to nonfamily members or parties they do not want as “partners;” (ii) provides for a well thought out method of transferring management and ownership of the business to the next generation; (iii) addresses when and how an existing owner may be able to sell their ownership interest; (iv) provides a means of valuing the business in the event of an ownership transfer; and (v) determines how payments will be made to a transferring owner in order to protect the ongoing viability of the business.

Common valuation methods are; (i) annual determination of value by the owners; (ii) a formula approach; or (iii) determination of fair market value by independent appraisal.  Additional information on business valuations can be found at www.MandAlawyer.com by clicking on the tab on the left side of the home page titled “Business Valuations.”

Q. What are your recommendations for pre/post nuptial agreements for family members working in the business who do not have ownership but may be having ownership in the future?

A. Many families use pre and/or post nuptial agreements to protect assets that were acquired before marriage and to keep shares within the family.  The effectiveness of such agreements is dependent upon state laws so discuss this with an attorney before making such a requirement.  If you do want to require agreements of this type before someone is allowed to become an owner make it should be discussed and planned well in advance of engagements.

Q. Do you advise to sell to a family at a discount price?

A. Generally, minority owners are the ones that face a possible discount on the sale of their stock.  Whether or not there is a discount applied may depend on whether the event triggering the sale is voluntary or mandatory.  If the minority owner just “wants” to get out versus a buyout due to death or disability, it is more likely that there would be a discount.  Discounts tend to give majority owners an unfair valuation advantage and are generally avoided in buy sell agreements.

Q. What range of discounts do you typically see for minority interest and lack of control? 

A. Discounts are generally due to lack of marketability and lack of control.  These discounts also overlap.  Lack of marketability discounts range from 20% to 45% for privately held ownership interests and minority ownership discounts also range from 20% to 45%.  Different appraisers apply these discounts in different ways and in different combinations, but rarely would the total discount exceed 40%.

Q. Where are good places to find advisers to help with providing ideas for liquidity for the outgoing generations? We have found that local banks don’t provide the level of experience or expertise required.

A. For information on selecting advisors see www.MandAlawyer.com and click on “M and A Professionals” on the left side of the home page.  The right professional “team” is the key with the right leadership.

Q. What’s your experience with what family members are involved? Spouses and partners are the people I struggle with – how involved should they be?   

A. It is important to clearly define family for the purposes of ownership.  If spouses are allowed to own some provision may need to be made for the business to purchase their shares in the event of a divorce.  Life-partners are treated much the same as spouses in most states and therefore, would need to be considered the same as spouses.  There is no simple answer but there needs to be open discussion within the family and good documentation of decisions for future reference.  Since spouses and in some cases life-partners are influential in raising children who will be the next generation their cooperation and participation in the family business continuity plan is often critical.

Q. Can you review the valuation process you described with the two owners and two envelopes bids?

A. The simplest form of the “shoot out” is when two partners (A and B)  provide bids for the company in sealed envelopes. The envelopes are opened at a meeting of the parties and the highest bidder has the right to buy out the other owner.  If the A is the highest bidder and does not buy out B’s interest, then the B, the lower bidder, has the right to purchase A’s ownership interest at the price bid by B.  In a multiparty shoot out the rights would go from the highest bidder, in order, down to the lowest bidder.

Q. How is stock valuation different than an appraisal?

A. They are the same.  Stock values should be set based upon an appraised value.  Share prices increase when valuations increase.

Q. What are the unique concerns for succession of a C corp? My retirement fund is currently 90% company stock.

 A. The fact that a “C” corporation is not a pass through tax entity (C corporations are taxed at the corporate level and the shareholders are also taxed on dividends from the C corporation) requires additional tax planning to make sure the buy sell agreement, current ownership structure and future business operations are all structured in a manner that minimizes the double tax.

Q.  Is there any published stuff out there on typical valuation methods for private companies for those with minority interest?

A. Google “discounts on minority interests” and you will find volumes of material.  One of the leading writers on this issue is Lance Hall with FMV Opinions.  Applicable information can be referenced through FMV’s web site at www.fmv.com.

Q. What are the steps to help a family transition to a family business office if they have not considered it before?

A. Generally, a family office is useful when a family reaches a size and net worth that can support central functions such as investment planning, tax planning, philanthropy and even clerical services.  If the separate needs of the family are placing an inappropriate burden upon the staff of the business it might be wise to consider a family office.

If you missed this program and would like to order the On-Demand version click here

For additional information about our upcoming webinars click here.

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Questions Answered From Mastering Family Business Paradox Webinar

The following questions were asked during the recent Family Business Consulting Group webinar, Mastering Family Business Paradox.  Amy Schuman and John Ward were the presenters of this program.  CD’s and On-Demand Playback of this program are available at this link.  Mastering Family Business Paradox

 

Q. The polarity map is a nice academic model to frame the paradox. Are there practical tools that can allow family members to display the courage to be vulnerable about their fears and needs?

A. The Polarity Map™ (originated by Dr. Barry Johnson of Polarity Management Associates) is actually very simple, practical and safe – give it a try! In our book we give a step-by-step guide to completing the Polarity Map™ – hopefully, once you read it you’ll see it’s quite straightforward.

But you’re absolutely correct that, much of the time, the issues that need to be mapped can be quite emotional. It takes some courage to approach the ‘map making’. However – and I’ve been working with these maps for over a decade, so I am drawing on years of experience here – the maps provide a neutral and objective framework that maximize the success of the conversations. They really work!

One quick example – take the paradox of ‘harvest and invest’. Folks often have strong opinions here. Many times, those in the business want to preserve capital for the business, those out of the business are eager for a tangible, timely, return. How to talk about this calmly, and not open up a wide gap between the two groups?

Get the entire group in the room, and fill out the map together. Take the minority position first. Let them describe 4 upsides of their pole. Then, ask them to describe 4 downsides when their pole is ‘overemphasized to the exclusion of the other side.’ Then, switch, and let the majority group fill in upsides and downsides. This could be the very first time that each side has been fully heard by the other. That alone can be a major accomplishment.

Some keys to doing this successfully when emotions run high:

1. Let the minority group – the less powerful group – the group with fewer numbers and less opportunities to express themselves – be heard first. They often have years of being ignored or dismissed, and this will need to be overcome in order for both sides of the paradox to come to the fore.
2. Ensure that all views are fully heard, without interruption or judgment.
3. Start with the recognition that both poles are essential and both will be sought.
4. Recognize historical preferences for one pole – and be prepared to balance those out without over-correcting.

These are just first thoughts – more ideas can be found in our book or at Dr. Barry Johnson’s website, polaritymanagementassociates.com. Or, we can continue discussing the Polarity Map™, here, in this blog!

Q. What does the “agency problem” mean?

A. An agency problem exists when management and stockholders have conflicting ideas on how the company should be run.

Publicly owned companies can have an ‘agency problem’ because the shareholders and management are different parties.  Management is drawn to being an ‘agent’ for themselves – if a conflict arises between them and shareholders, management might be tempted to act on their own behalf rather than on behalf of shareholders.

In family enterprise, this problem disappears to a large extent, because management and shareholders are (largely) one and the same group. As the two groups draw apart, the agency problem can resurface.

Q. In my personal experience from family businesses (2nd and 3rd generation) there is a strong history of placing family first.  Currently some siblings work in the business and others not, so it seems it is now family first and family members working in the family business first and others second what is your experience?

A. Yes, in our book we hypothesize that a second generation will tend to place family first, so we understand!

It’s not uncommon that the world looks very different to family members working in the business, and those not working in the business.  In our book, we take a stab at listing the areas where these two groups will tend to see things differently. For example, in terms of the paradox of privacy/transparency, it is common that those working in the business tend to favor privacy  and those not working in the business seek more transparency.   Or, in the paradox of invest/harvest, we tend to see those working in the business favoring investing and those not working in the business favoring harvesting.

Introducing the concept of paradox could give you a great excuse to start an open conversation about what’s going on in your family. Start with the basic paradox of ‘family first/business first’. Take out a blank Polarity Map™ and fill it out together as a family.  The dialogue that you have will be a great first step towards building more mutual understanding – and possibly making some helpful changes in how you are approaching these issues right now.

Let us know if this is helpful!

Q. How do differences in personalities of the leadership affect the paradox dilemma? And of course do gender differences between family members have any impact on family paradox’s?

A. Interesting question. A leader’s personality can certainly lead him or her to overemphasize one half of a paradox. For example, a highly facilitative leader may be blind to the need for directive leadership. Or, a very transparent leader, who highly values open communication, may miss the necessity of privacy and discrete communication.

In our book, we do talk about cultures that are more conducive to paradox management. We believe that curious cultures are more conducive to managing paradox than are judgmental cultures. In the same way, we might say that leaders who are more curious – that is, open to new perspectives and eager to explore them – will be better at managing paradoxes than leaders who are more judgmental – that is, closed to new perspectives and more black and white in their thinking.

Finally, on the gender question, it is hard to make a blanket statement. A gross generalization might say that women tend to be more family first, and men more business first, in their approaches. You might think, based on research in different communication styles between men and women, that women would tend to prefer openness while men would prefer discretion,  or that women would tend to be more inclusive and men more exclusive. Although it is dangerous to make blanket statements in this regard, I do believe that within families, there can easily arise consistent gender differences generations that persist over time. Females and males can harden into ‘camps’ that ardently defend their position year after year, each representing one side of a paradox. In these cases, using the paradox framework (and the Polarity Map™) to surface and openly discuss these dynamics, would be a very powerful approach.

Q. I wonder if the inclusive/selective would also apply to spouses vs. blood lineal descendants?

A. Thanks for this good question, – which we did discuss on the webinar. The issue of spouse inclusion is a big one for families in business together. People tend to have very strong opinions on this matter — expressed in the extreme:

“It’s unthinkable for us to allow in-laws to work and/or to become owners in the business”
…or…
“How could we even imagine excluding in-laws from employment or ownership in our business?”  

Like so many things, neither of these approaches is the one ‘right’ answer – families can make either approach work well – and unfortunately, either approach has the potential for disaster.

Interestingly, there are several specific decisions here that are NOT paradoxes, they are problems to be solved. Two simple examples: – will our policies include in-laws as shareholders? Yes or no? Will our policies include in-laws as employees? Yes or no? These are problems to be solved – not paradoxes to manage.

However – along with the need to make clear decisions come some important paradoxes to manage. No matter what policy is selected, the paradox of inclusive/selective needs to be managed.

So – if the decision is made to exclude spouses from employment in the business, extra efforts and opportunities should be sought to include them in other meaningful ways, for example in the family’s philanthropy or in the preparation of the next generation.

If the decision is made to include spouses in employment, extra emphasis upon exclusivity might be necessary. For example, if this policy results in quite a few family members working in the business, extra attention to family performance appraisals and clear processes for promotion will be especially important.

This dynamic provides a great opportunity to explore the difference between a ‘problem’ and a ‘paradox’, and how they both need attention and care! Thank you.

Q. Do you find that individual families who have recognized and worked through these polarities end up somewhere in the middle or continuously cycling through the infinity path?

A. Thanks  – it’s a great question about how paradoxes and polarities work. It may be logical to conclude that the ‘best’ place to be on a Polarity Map™ is smack dab in the middle, between the two poles. However, this notion of staying put in one place on the Map is much too static for the lively dynamic of a polarity. Families that are highly experienced in managing paradox find themselves comfortably and continuously cycling through the infinity path, moving steadily and deliberately from one side of the paradox to the other. By tapping the power of both poles, over and over again, and giving full respect and honor to both sides, these families keep themselves well positioned in the upsides of both poles, spending minimum time in the downsides.

Trying to pick a middle ground and stick there is actually impossible, as the movement through a polarity is organic and unstoppable. Trying to stop this natural movement will tend to find you over-emphasizing one pole to the detriment of its complementary opposite.

This is not to say that ‘synthesis’ is impossible. There are actions – experiences – where you are experiencing the full power of both poles of a paradox. For example, in family education, when you honor the need for education of both the individual and the group, it can be impossible to separate them. Skill building for the entire group, by definition, will strengthen the skills and knowledge of the individuals in the group. Conversely, it’s impossible to separate an individual’s skill building from the skill level of the whole family. This is a great example of synthesis – emphasizing both group and individual at once.

Q. How have you seen families effectively debate the common family business paradoxes?

A. Actually, one of the appealing things about working with a paradox is that it tends to move a family away from ‘debate’, and towards more open sharing with the goal of mutual understanding.

For example, let’s say that a lively ‘debate’ in your family commonly has to do with the strategic direction of your business. One group tends to focus on the historical strengths of the enterprise. This group is firmly rooted in preserving the successes of the past, appreciating the family’s proven strengths, and staying true to the way things have always been done – their motto might be, ‘If it ain’t broken, why fix it?’

The other group tends to be centered in the need for change and innovation. This group speaks of the untapped opportunities for success in new ventures and the exciting potential for invention and experimentation into areas not yet imagined – their motto might be, ‘Change or die.’

Many families will engage in a debate between these two camps. Each camp flings their well-reasoned arguments against the other. Who wins? The wisest position, or the one with the loudest, most persistent and stubborn adherents? Whoever ‘wins’ the current debate, these arguments tend to be a losing approach over time.

If you shifted your perspective, and viewed this dynamic as a paradox – with two desirable poles that appear to be in conflict with each other, but are in fact, complementary – you would accept both the need for Tradition and  the need for Change. Instead of trying to choose one over the other, picking one instead of the other, the family would seek ways to pursue both. The debate would shift to a dialogue, where the upsides of each pole were fully explored. The group might analyze how well they are doing at valuing and pursuing both. Instead of trying to convince each other of the wisdom of each separate position, the two groups would work together to ensure that both tradition and change were being respected and pursued throughout the organization, and that both were being executed with skill.

Q. Your thoughts to us advisors in dealing with our own dilemmas?

A. Yes, we had a bit of time to talk about this on the webinar. There are plenty of paradoxes in our work as advisors to family enterprises. To what extent do advisors challenge as vs. support  their clients?  How much do we, as advisors, facilitate our clients’ decision-making, and how much do we direct them? And how much do we focus on process as vs. outcomes, or people as vs. tasks? All of these dilemmas are paradoxes – in each case we may have a strong preference for one side of the pair, and miss the need for both.

Pushing ourselves, as advisors, to recognize paradoxes when they are present, and to appreciate and value both options, will be crucial. This is where working as part of an advisor team is advantageous. Not only do we have the advantage of multiple perspectives and areas of expertise, in a team we can make sure that all sides of an issue are being recognized and respected. The best cross-functional teams see paradoxes as a source of energy for excellence, rather than a frustrating source of complexity and challenge.

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Board Webinar – Sept. 29th, 2010 – Q&A

Kelly LeCouvie
Kelly LeCouvie
Jennifer Pendergast
Jennifer Pendergast

The Family Business Consulting Group held a webinar on September 29th titled Developing Your Board of Directors for Maximum Impact.  Jennifer Pendergast and Kelly LeCouvie were the presenters and Stephanie Brun de Pontet was the moderator for this program.  Below are a few of the questions posed by a few of the several hundred attendees and the responses from the presenters.

Asked: Isn’t the function of a board – whether family business or not – to be supportive and also constructively critical?

Absolutely! The model we discussed during the webinar represents a continuum between the two – and boards that behave at either extreme will not add the same value as a board that can be both. Fiduciary responsibilities demand constructive critique; a board that sends a message to management that says “we believe in you and want to navigate with you to a mutually desired end result” is also a necessary act in any partnership.

Asked: What are the essential attributes of a successful Board Chair….i.e. competencies, experiences, skills, etc.

A successful board Chair brings a mix of skills, experience, expertise and attributes that is appropriate for a specific board, so there is some variation. However, in terms of attributes, good Chairs typically will:

  • Demonstrate excellent listening skills
  • Exhibit empathy to directors and management
  • Foster creative and constructive dialogue among directors
  • Extract the most value from each director
  • Summarize discussions and share the primary conclusions during board meetings
  • Manage dissention effectively

Asked: Is there an ideal term for directors? 2 or 3 years? overlapping? 

Ideally, directors will remain on a board for at least three years. Part of the reason for that is because it typically takes at least a year (which is often only four meetings) before a director feels really equipped with appropriate knowledge about the company to contribute in a meaningful way. So given that searching for, recruiting and orienting directors requires a significant investment, at least three years is optimal. Having said that, many boards have one term limits and vote directors in annually. Ideally, you would not have turnover of more than 20% of your board in any given year. 

ASKED I have a family that thinks the “executive committee” can make the CEO accountable-v.s the Board. They see the committee as all the C roles. Your thoughts? We have an urgent situation in that 4 key people have left a company and the son and father are in disagreement as to the next best steps. How will a board sort this out without being involved day to day?

This is an interesting concept, and perhaps one that can work under your circumstances. However, the two primary roles of the board are to contribute to strategic decision making and to ensure the CEO is doing his/her job. They are also somewhat connected. So if the board is enhancing the strength of both the construction and execution of the strategic plan, part of that process will involve evaluating the CEO’s performance. Typically the Compensation Committee will do this, and will certainly solicit input from other C level executives.

If four key people have left the company the first question to ask might be “why”? It sounds like there is perhaps more going on than just four, more attractive employment opportunities emerging for four individuals at once. People do not like to work in an environment of conflict – it’s stressful and unrewarding. That source of conflict should be addressed within the family, or with an outside facilitator if need be, before directors participate in such a process.

Asked: Can you please address how a) family members in management who also sit on the board and b) family members not in management who sit on the board are compensated?

Family managers acting simultaneously as board members can be tricky. They can often find themselves in a conflicted situation where the area or division for which they are responsible is discussed at the board meeting. Directors will likely feel uncomfortable discussing this with a shareholder who is also the manager of that area. If a family manager is VP of marketing for example, then marketing plans, budget approvals, and critique should not really take place at the board level while that family member is in the room. That said, we do see family shareholders who are managers (non-CEO) sitting on the family business board. They must excuse themselves from any discussions that might pose a conflict. Typically, the CEO is the only voting board member. Other family members who are in management often attend various parts of the board meeting but do not have a vote.

In terms of compensation, there are a few options: 1) in some cases family members who serve as directors are not paid at all. The rationale is that they receive distributions from the company and therefore do not require or merit board compensation; 2) other families pay family directors the same amount as independent directors. They have to prepare for meetings in the same way, attend meetings, and there are opportunity costs to do so; 3) finally some families pay a percentage of independent fees to family directors (50%) for example.

Asked: We currently have 8 directors on our board (5 family owners who work for the company and 3 outside directors). We are looking at the right number and whether or not to stay at 8, add or subtract. Any advice? 

The 8 member typical board size shown in many board studies is not really tied to a company size.  That said, smaller companies may have a smaller board, in the 5 to 6 range, but larger companies don’t necessarily have a larger board.  We find that the size of the ownership group is one of the main drivers of board size.  If all owners feel a right to be on the board, then that can drive board size up.  As we said yesterday, we believe 3 independent directors is a good number of outsiders. So, if combined with 4 to 5 owners that gets you to the 7 to 8 range.  Many families have a problem with giving a majority of seats to independents, although we don’t think it should be an issue. The degree of control given up is small, since the owners can always unseat the board if they don’t like their contributions. 

ASKED: Is a board more effective if the CEO is not chair of the board ?

The answer is – it depends.  There are pros and cons to splitting the chair and CEO roles.  The negative is that the CEO has a handle on the strategic issues facing the business so is in the best position to set the agenda for the board to ensure he/she is getting the input required from the board.  That said, the board is also responsible for overseeing the CEO, so when the CEO is chair, he/she is essentially his/her own boss.  And, sometimes the CEO is not the most qualified to facilitate the board meeting.  If the job is split, the key is to ensure the chair and CEO coordinate appropriately.

ASKED: Please comment on board interaction with management outside of board meetings. Frequency/Time

The board’s job is to oversee management at a high level, not on an operational level. So generally the board would not have a great deal of interaction with management outside the board room. This can encourage the board delving into operational issues and perhaps subverting the authority of the CEO.  Contact with the level below the CEO should be with the CEO’s knowledge and approval.  That said, board members may have expertise that can be valuable to that layer of management.  And, if a board member has experience in a particular area, market research for instance, that may be valuable to a particular manager in the company, then getting together to share that expertise would be reasonable.  Typically, most of the out of the boardroom interaction for a board member would be with the CEO.  This may be a couple of phone calls a month at most, but would most likely be originated by the CEO asking for the board member’s input. 

ASKED: How long should we expect search process for independent directors to take? 

With respect to timing, we find that an independent board can be put together in 6 months or less.  Three variables that affect timing are whether or not you have to take time to get all owners on board with the value of independent directors, how much support you will have in searching for candidates (if you use a search or family business consultant, they can source people quite effectively) and how many owners will be involved in the process (the more people, the more time it takes, but also greater buy-in so having more involved can have value).

ASKED: How do you review operations and financials without raising issues and asking questions?

 My response would be that the board’s job is to raise issues and ask questions.  So, that should be happening.  The board is there to be supportive of management but also to oversee them and ensure they are running the company well…..  That said, questions should be not be overly critical or challenge management’ authority or competence.

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Reframing “Letting Go”

Carol Ryan
Carol Ryan

Recently I was at my own family’s business board meeting. We are at a transition point in leadership.

 We started to have a bit of a discussion about the difficult topic of succession. It began with a discussion around how to “replace” the CEO and founder of the company. While listening to the various comments, experiencing a strong feeling of resistance from some and push from others I remembered how difficult this inevitable stage is for all family businesses.

 At FBCG we frequently field calls for family businesses that need a “succession plan” or we have organizations contact us about having someone come and deliver a talk about succession planning. Our leadership series book on succession planning is hands down the most popular of all of our books.

But what really struck me while sitting in a board room with my own family, was the struggle that occurs from an emotional, a family, and a developmental perspective. While you can talk about structures and mechanisms and best practices all you want, and they are definitely important, it seems to me it is equally, if not more important, to be able to wrap your mind around the struggle to understand what is going on with the founder or head of the company when they start to realize that a transition is inevitable. I believe that when you understand this you begin to understand what is keeping this important stage in the life cycle of a business from happening.

And lets not forget the flip side of this transition, the “one in waiting”. They have experienced a seemingly endless wait, they usually have an internal struggle to not push too hard but then at the same time to be heard and for someone to understand, “Hey it’s my turn! “

We can always wait around for the proverbial bus to hit…but is that really the best way? Of course not!

The challenge is, how do you make someone, often in their seventies or eighties, feel good about the fact that they are in the last third of their life? The truth is the incumbent knows that they need to move on for the business and often for the sake of their relationship with the child that has stuck it out and is waiting. But the gap between knowing this intellectually, and being able to act on it in the face of powerful emotions, is another thing altogether.

No matter what though, some kind of transition will happen. Whether the transition ends up well-planned and intentional, or comes about due to a sudden change in circumstances, it will still be a sad day for both the incumbent and the next generation.

An important ‘process’ point that is often overlooked is the need to honor the range of feelings, whatever they are, anger, disappointment, sadness, grief – that come about as a result of this transition.

Possibly we think about something ceremonial to mark the day. In addition, we want to ensure the incumbent has thought through a plan for his or her retirement, a solid process to make the transition occur. We want to be sure there is a system in place to ensure the successor has the best chance at success in his or her new role.

 But, after dealing with all these practical dimensions, we could say it’s okay just to cave to the sadness for a bit, understand there is a grieving process. In so doing, be mindful and intentional about acknowledging what was built and by whom so as not to focus too much on the loss but rather what has been gained for the family, for the community, for customers and employees. We all know there is a business there and a legacy that we are trying to steward along to the next generation.

And my last piece of advice? …. as family members, board members and advisors just remember that no matter how frustrating it gets, no matter how difficult , no matter which process or path finally gets taken… something as simple as a little empathy and understanding for all can go a long way…. (Recommended reading: Dan McAdams, The Redemptive Self, Stories Americans Live By)

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The Impact of Emotional Issues on Family Businesses

Carol Ryan
Carol Ryan

As a family business consultant who has a background as a family therapist, I often reflect on the profound impact of emotional issues on family business functioning.   

For example, I have always thought that from a developmental perspective it’s a bit wrong to grow up in a family, live with a family and then go work with your family. I say that not because I don’t believe in family businesses (I do!), but rather because it’s very difficult to become an individual AND to hold your own inside of your family system. And this can be made even more difficult by working with your family every day and maybe getting a bit “stuck” in your family role.

Developmentally, you need some kind of break, you need to spread your wings, go out in the world, work for someone else, make your own way and gather your self esteem from what you accomplish for yourself using your own brains, charm, personality, skills etc. This is certainly some of the reason that best practices suggest children work outside the business for three to five years before deciding to join the business.

When you move right into the family business sometimes you are locked into your role in the family, you are locked in by yourself, your parents, your sisters, brothers, cousins etc. and you probably do the same thing to them!

Some of you might find your ‘assigned family role’ is positive.  Maybe you are the one everyone thinks of as the leader so you get to continue with this role. But what if you are the troublesome black sheep?

How do you get past that and not continue to be labeled by your family?

In my case, I laugh about how at 52 years old my family still thinks of me as “the kid who constantly gets in car wrecks”….they used to call me Crash.

When I was talking about the car I recently purchased with my family members, the first thing out of everyone’s mouth was have you wrecked it yet?

Funny thing, I haven’t wrecked a car or gotten a speeding ticket for more than twenty years! But old labels take a long time to die – and apparently, some never really do…!

And on one hand it’s okay, as long as you still can stand up to people and forge ahead being who you are and not just becoming the person that everyone expects you to be. I promise you, I will not be having any car wrecks just to make my family happy or right!

People do change, we have to stand up and hold firm in our families and not cave to our “role” if it no longer suits us.

And even if you were always thought of as the leader that is not always such a great label either. Because when do you get a chance to NOT be that person? Leaders can really disappoint people when they don’t do what others expect, and the expectations are high – that is a heavy burden to carry.

I feel like all of us who are involved in the world of family businesses need to remember that these issues around family are always there and can be the most complicated, the most embedded, the most deeply internalized.

The emotional issues are difficult to deal with, but when you do, when as a family we start to respect who each member is, as part of a group AND as an individual, it opens up communication, it frees us from ourselves and our own internalized beliefs about who people think we are and it really makes us happier people. I believe that, and I have seen this truth in action countless times.

 In addition, once we can be authentic, mature individuals who have a perspective based on our individual experiences, as well as our family experiences, our contribution to the business can be even greater.

There is nothing more liberating than knowing who you are and letting your family see that, and then finding out that the reality is they accept us….because down deep families want the best for each other and more than likely, just want you to be happy.

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