It can be a lonely place to lead a family business but CBS Television’s Sunday show ‘Undercover Boss’ http://www.cbs.com/primetime/undercover_boss/ has become a useful tool for many family business leaders to get a glimpse of how others interact and relate to their companies. This past week’s episode featuring family owned NASCAR was the latest installment of the top rated show. ‘Undercover Boss’ has featured many family companies including White Castle, Herschend Family Entertainment, Hooters, and Great Wolf Lodge, as well as non-family owned companies including Waste Management. In this week’s episode, The “Undercover Boss” had to be non-family executive Steve Phelps, Senior Vice President and Chief Marketing Officer, because Brian France, CEO and Chairman is simply too well known in the NASCAR organization to be able to go “Undercover”.
The typical ‘Undercover Boss’ features a CEO working incognito from the entry levels up the organization in multiple roles and gaining a new perspective on their company’s process and people. In spite of some slick Hollywood editing, a dash of cheesy music and a predictable formula of a story, it still results in a good hour of reality television which is not an easy feat in 2010. But perhaps the most useful aspect of ‘Undercover Boss’ to many of my clients has been the opportunity to see other leaders interact with their staffs. From running a meeting with their own executive teams to having difficult conversations with a manager that has not been doing his or her job.
‘Undercover Boss’ serves as both good and bad examples in leadership and tactical day-to-day management that many family business leaders simply don’t get an opportunity to see as an outside observer. Other clients have mentioned that the show has been a conversation starter with family members about what they observed in ‘Undercover Boss’ and a source of perspectives on matters of their own family business. Family members as young as eight have talked about what they have seen on the show, from the emotional aspects of employee’s lives to questioning the basics of customer service. ‘Undercover Boss’ has even brought some families together around the television on Sunday evenings like way back in the 1990s pre-TIVO.
Finally ‘Undercover Boss’ has emphasized the connections to the human element regardless of your level in the hierarchy of the organization. Each episode has reiterated the importance of a strong corporate culture based on treating the customer right, as well as living the basic simple values of the golden rule “treat others as you would like to be treated,” the central theme of ‘Undercover Boss’ that just happens to be part of the competitive advantage of a family business. This is one case of a television show being a useful reminder of never forgetting that the most important aspect of being in a family business is getting out of the corner office and managing by walking around once in a while.
The ‘personal finance’ columnist at US News & World Report, Kimberly Palmer recently wrote a book titled: “Generation Earn: The Young Professional’s Guide to Spending, Investing, and Giving Back” (Ten Speed Press). In this book she cites an impressive statistic from the Center for Philanthropy at Indiana University that on average, people under 40 donate about $1,200 a year. While that is a healthy amount for the average person, ms. Palmer indicates that young adults are giving back differently. In particular, she point out that a lot of young people today like to start their own charities. This is in keeping with my recent post, that there is a trend towards wanting to be more hands-on and contribute time as well as money. Families with strong entrepreneurial genes may enjoy the challenge that comes with setting up a charity for a cause in which a number of them share a passion.
If you are looking for something a little less labor-intensive, ms. Palmer also speaks about ‘Giving Circles’ that pool the funds of a group of friends who want to take the time to research charities and ensure their donations are being well used. These are not too dissimilar to the investing clubs that were popular in the 1980s and 1990s (where people got together to research companies in which they wanted to invest in to make a profit). This strikes me as a great model that families could emulate for next generation groups who are eager to give back in their communities, and also want to practice decision-making skills and learn how to differentiate between different uses of money (relevant when evaluating the merits of a for-profit or non-profit investment choice). If your family is not ready to start their own circle, interested family members can find a giving circle (givingcircles.org is the website where these can be found) that already exists in their area, and join themselves to learn and hopefully bring the model back to the family for consideration.
Our colleagues Asa Bjornberg and John Ward have both spent considerable time reflecting on and analyzing the answers to this question. Their sage advice: cherish what was as you embrace what will be. Base your entrepreneurial initiatives on the spirit and culture of the business you are taking over.
There has been a lot of buzz in the press of late around the ‘Giving Pledge’ launched by Warren Buffett and Bill and Melinda Gates, as an effort to encourage billionaires around the world to donate the majority of their wealth to charity. According to a recent article in Daily Finance (See full article at:http://www.dailyfinance.com/story/forty-billionaires-pledge-wealth-charity/19581080/?sms_ss=email&icid=sphere_copyright) over 40 well-known figures have signed up for this pledge, such as CNN founder Ted Turner, Ronald Perlman, designer Diane von Furstenberg, to name but a few. Members are expected to make a public statement about their gift, explaining their decision. Buffett describes the effort as follows:
“At its core, the Giving Pledge is about asking wealthy families to have important conversations about their wealth and how it will be used. We’re delighted that so many people are doing just that — and that so many have decided to not only take this pledge but also to commit to sums far greater than the 50% minimum level.”
While obviously the huge philanthropic commitment being pursued through this Giving Pledge is to be lauded, we know families that own businesses might not have the ability to make the commitment that is being encouraged on this platform, but remain among the most philanthropic and high-contributing members of society nonetheless. The reality for a family that aspires to see its business vision carried into the next generation is that transitioning a capital-intensive business to the next generation while funding ‘Uncle Sam’s’ cut will tie up the resources of even the most generously-minded soul!
In an informal poll among our family business advisors I heard a number of comments around trends and approach to giving among our family business clients. Chris Eckrich offered the following series of examples:
“The biggest trend I see with clients is getting actively involved in their giving. Visiting Africa’s micro businesses, walking in fundraising walks to which they contribute, touring hospital wings that have been donated by the family, serving on boards for causes they feel strongly about, helping build buildings, and many site visits to recipients of grants are examples.
Those who seem to enjoy active involvement with today’s dollars…as opposed to future dollars at death, show great vibrancy in their foundations.”
Others mention the frequent family time devoted to service projects such as a building a ‘habitat for humanity’ home as a project undertaken by the ownership group. These efforts of going beyond writing a check, and getting involved in person demonstrates a genuine connectedness that provides a strong example to the broad community, employees as well as to future generations of owners.
John Ward also underscores the importance of choosing to keep a family business private (rather than selling and creating cash that can then be given away). Many closely-held businesses are run very ethically and provide value to their customers, and an excellent work opportunity for hundreds or even thousands of employees – staying the course in this case represents another important way of contributing to society. These business-owning families are often deeply connected to their communities and also contribute tirelessly to local charities and community development (which is always enhanced by the presence of stable, well-paying jobs).
Finally, Jennifer Pendergast underscores the importance of a family having an intentional conversation about the purpose of their wealth. Most families with whom we work have philanthropy and giving of funds as one of their shared purposes as a family – but many also choose to reinvest funds into new ventures, contributing to society through business innovations and employment.
It would be great to share how different families have found meaningful ways to contribute – as community-minded families are eager to hear of new approaches to stimulate their own family’s thinking. To quote John Ward: “different approaches for different people is the American way.” Feel free to share your ideas or comments as we are always eager to learn about the many ways that families fulfill their ‘obligation’ to be generous and engaged members of the community.
Tony Leahy, the retiring CEO of the UK’s largest retailer, Tesco, offered great insights to what’s different about family firms. Though Tesco is no longer a family business, he explained, “Tesco began life as a family business and one of our strengths is that we’ve not forgotten the values and approach we inherited from our founder.”
He goes on [the underlining is mine]: “We have a stable management.” In fact, he and many of his top management colleagues spent their entire careers at Tesco. “Our employees are encouraged to own a stake in the company; and there’s a willingness to take risks and to plan for long-term value creation… they enjoy the benefit of loyalty, long-term thinking and the courage to make bold decisions. Add to that a slim line, tight management and the stability families can bring and you have laid strong foundations for a powerful company.”
He closes with a profound observation about the distinction of family company ownership when he asks fund managers who invest in listed companies to consider, “Next time you’re in a meeting with management from a company…try referring to them as ‘we’ rather than ‘you’.”
A recent piece by Dave Logan in “Tribal Leadership” made a compelling argument about why most business books are ‘bad for you’ – and while I am not sure that many are actually dangerous, I do agree with his premise that most offer painfully simple advice OR read like stories about ‘hero-figures’ that can mislead the reader into thinking that an individual’s personality is what leads to business success. To quote Logan:
“Most business books use stories to cover over their complete lack of insight. This week, I read a galley of a book that I hope will never come out. After some catchy anecdotes about hero CEOs, it advised, among other things, that leaders figure out what’s really important, then do those things. It went way out on a limb by saying that great leaders are remarkable at forming relationships. And (are you sitting down?) the best leaders are honest when a strategy isn’t working.
Are you kidding me? How about we add that true leaders can dress themselves, use full sentences, and bathe before work.
Business success isn’t a checklist, and that’s the implied message from many business books: do these things and you’ll be the hero. Business success is a dance: with the market, employees, investors, customers, landlords, and creditors — not to mention spouses and kids.
Business leaders need a reboot on the ideas that make organizations run. Is your time best spent reading business books, or talking with people with radically different ideas? Put down the business book and go interact with ideas that challenge you, frighten you, or piss you off.”
He then went on to suggest some useful non-business books that aspiring leaders should actually invest time in reading, such as the Odyssey and Atlas Shrugged. While these are certainly classics that are thought-provoking, I would add Stewardship by Peter Block, Flowby Csikszentmihalyi, and Predictably Irrationalby Dan Ariely to a recommended reading list for thoughtful business leaders. Would love to hear about other books that have pushed your thinking and excited your imagination.
This is a follow-up to the October issue of the Family Business Advisor, which presents the non-strategic value of directors. We are often so focused on finding “the best” director candidates, that not a lot of thought is given to the circumstances under which they will find our family business attractive. How do we appeal to outstanding directors?
The list can be very lengthy, but there are a number of questions we often get from the candidates we try to recruit – some food for thought:
Is there currently a functioning board in place?
Are there other independent directors, or would I be the only one?
Does the family really want outside advice or are they just attempting to appease a group of shareholders?
Have they developed specific expectations for this position?
How would you describe the communication within the family (collaborative, conflictive, for example)?
Does the business have a strategic plan?
How would you describe the leadership style of the current Chair? The current CEO?
Remember that board candidates are interviewing you and your business as well. They want to commit to a board that works well together, knows how to be productive, and presents a culture that is aligned with their own values and business principles. So getting your ducks in a row prior to your search is a good way to send the right message to great candidates!
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.
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)
While there are many things that I appreciate about working with families that own businesses together, one aspect that always takes my breath away is the depth of generosity that so many of these families demonstrate. While recently looking for examples of statements or philosophies around giving for a family that wanted to have a discussion of how they could make a powerful contribution, I came across a few good quotes that I share just for interest…
From Andrew Carnegie: “I resolved to stop accumulating and begin the infinitely more serious and difficult task of wise distribution.”
From Eli Broad: “To me, money is a means to do good. I reached a point in my life where I had enjoyed tremendous business success that afforded my family everything we could possibly want. My wife and I then decided that we could use our wealth to make a difference. So we created the Broad Foundations to do four things: to improve urban public education, to support innovative scientific and medical research, to foster art appreciation for audiences worldwide and to support civic initiatives in Los Angeles.”
From Carlos Slim Helu: “I’ve always said that the better off you are, the more responsibility you have for helping others. Just as I think it’s important to run companies well, with a close eye to the bottom line, I think you have to use your entrepreneurial experience to make corporate philanthropy effective.”
As always, we are eager to hear about how your family addresses its responsibilities around philanthropy and community service.