Tag Archives: policies

Three ingredients to multi-generational firm success

Drew Mendoza
Drew Mendoza

Over the last twenty-plus years of working with and observing multi-generational family businesses, three attributes common to the oldest, largest and best performing ones seem to present themselves repeatedly. 

First – the family shareholders are aligned around matters of vision, purpose and expectations of each other and the enterprise.  And, as often as not, they reach alignment through the use of family meetings or other such important forums for shareholder and family education, development, trust building and communication. 

Second, the output of those family meetings – their vision, purpose, sense of unity,  policies and agreements – these all serve as important contributors to strategy.  The outputs inform management of what is expected of them and the rules they’ll have to play by; what some may call the non-negotiables.

Third, their values implicitly or explicitly include transparency, accountability, stewardship, outside input and a responsibility to others.  These values usually guide them to establish appropriate and active governance – both for the family and the operating company.

At our website, www.efamilybusiness.com, you’ll find dozens of books, webinars and thousands of articles loaded with ideas about family meetings, governance and being an effective family firm shareholder.


What are Your Family’s Rules for Fighting

Chris Eckrich
Chris Eckrich

All families have rules for fighting, but very few families make them explicit.  Even worse many families have highly unproductive rules for fighting that leave heavy blast zones and bullet ridden bodies littered on the ground.  For business owning families serious about working together effectively, the unwritten and unspoken need to be made explicit and the family needs to craft and agree on methods of conflict resolution that will allow continuous learning and successful resolution of the issues causing tension.

Some common approaches include:

  • We speak for ourselves and do not blame others for our behavior or emotional reactions.
  • We own our individual emotional reactions and practice managing our hot buttons and triggers.
  • We seek to understand rather than rush to judgment.
  • We put one issue on the table at a time and make a list of new or unrelated issues that emerge during the discussion, coming back to them when there is time.
  • We state our goals in working with each other before we jump into conflict mode.
  • We behave as though there are cameras in the room and the videotape will be shown to future generations to judge how effective we were in caring for each other and resolving issues.

Ownership groups that agree on how they will address conflict and then put it into practice will benefit from strong alignment on how they handle sensitive issues.

How effective is your family’s plan for dealing with conflict?


Spring Cleaning – Organizing

Jennifer Pendergast
Jennifer Pendergast

Due to our long winter this year, my mind has just turned to spring cleaning.  The concept of spring cleaning – organizing, starting with a clean slate, focusing on priorities and getting rid of what’s not so important –  has a number of applications for family business.  So, let’s dedicate the week to Spring cleaning!

I spent a lot of my time with family business clients developing policies and processes to create order and accountability, increase family harmony and ensure the family and business operate effectively.  Often, hours of work goes into creating these rules, sometimes involving difficult family conversations and multiple revisions until the family is comfortable with the result.  Once all that work is done – what happens?  The policy is saved on someone’s computer under some name, and then…..  I often get calls from clients two or three years later asking me if I have the final version of a policy.  They can’t locate the document they spent so much time and care creating.

So, my first spring cleaning suggestion – create a protocol for how you name, store and revise your important family documents.  Each document should have a header or footer with an embedded date so that you can track versions.  A common naming protocol should be used – for instance, if a document is final, you might use final in the name.  If it is a draft, you might include the word draft and the date in the name.  And, you should use the same name for the same type of document. So, if you keep minutes of family council meetings, they should have the same file name each time with the appropriate date included, for example, FBCG board minutes 41013.

The naming protocol should be agreed upon by everyone involved in creating or revising family documents so that the standard form is followed.  Then, a central repository for documents should be created.  And, that repository shouldn’t be your family business consultant! Or the head of the family council, for that matter.  Ideally, a location that is protected and will last over time should be selected.  The company intranet or a family website is ideal.  The goal is to have a place where an archive can live for a long period of time.

For those readers who already have policies and other important family documents developed, take advantage of that spring cleaning spirit and review your current files.  Purge old versions or drafts that aren’t needed.  Consider renaming the ones you have in a standard format.  And, agree to a home for them.  When next spring rolls around, you will be glad you did!


Puppies and Babies vs. Doomsday

Jennifer Pendergast

In our work as family business consultants, we are often approached by a member of a family business who recognizes a need in their family to accomplish some work together.  It could be a specific need, such as the need to develop a family employment policy, or a broader need, like the need to begin planning for a generational transition.  Regardless of the scope, it is often the case that all members of the family have not recognized the need for this work.  The family member who sees the need is then put in a position of figuring out how to convince other family members of its importance.

When confronted with this challenge, I try to help the family member by sharing two approaches.  The puppies and babies approach is the soft-sell. Have you ever stopped to think about how many companies use puppies and babies to sell their products – anything from toilet paper to tires?  What does this have to do with family business work?  Well, the puppy and baby equivalent in family business is the family legacy.  Appealing to the family’s desire to leave something behind, to ensure there is a solid future for the next generation or to honor the legacy of the founders is an approach that may convince other family members of the value of working together to ensure these objectives are achieved.  By creating rules, policies or decision making structures, you are making an investment in your future as a family.

The Doomsday approach is more intuitive.  If you don’t do this work together, unhappy family members may want to sell their shares, family infighting may get in the way of making good business decisions, qualified family members may choose to work elsewhere or unqualified members may lead the business.   In a worst case scenario, you could end up on the cover of the local paper in a legal battle.

The approach you take to selling your family on doing the important work it needs to do to ensure long-term success will depend upon your family dynamics and culture.  Some families react to carrots, some to sticks.  Only you know what will work best for your family.


Distribution Policies

Norb Schwarz

When the family business has shareholders with diverse financial needs and interests, disagreements over distribution policies can be challenging to the business and the family.  To better manage these discussions, it may be helpful to know or consider the following:

  • Estimate the financial needs of the business utilizing both strategic and operational business planning.
  • Determine the shareholders’ risk tolerance –are they willing to utilize leverage to finance future needs o the company?  The current environment for obtaining outside capital should be taken into account.
  • Determine shareholder attitudes regarding desired ownership percentages into the future. Are they willing to take on outside investors? 
  • In situations where shareholders are taxed personally for business profits, allow for tax related distributions at the highest tax level applicable.
  • Set a base annual living expense distribution that the business should be able to accommodate without endangering its ability to compete.
  • Based on best estimates from the business planning process, estimate the capital needs of the business over the next 3 to 5 years.
  • Establish a distribution formula based on the needs of the business and risk environment of the business. Some businesses have relative low risk levels as a result of stable markets, strong customer base or niche products or services not easily challenged or duplicated. Potentially higher business volatility will generally demand a higher level of reinvested earnings and a lower level of shareholder distributions in excess of tax and baseline distributions.

Remember these issues are not static, it is important to review shareholder concerns on liquidity and risk on at least an annual basis. Discuss with the board potential implications of the answer to these questions on the existing distribution policy and capital needs of the business. This also underscores why it is critical that management of the company establish and review strategic initiatives with the board on a regular basis, and that the board consider the impact of those initiatives on shareholder objectives.  Finally, shareholders need to revisit their objectives and distribution expectations in light of the strategic opportunities identified for the business.


Falling in love at work

Drew Mendoza
Drew Mendoza

What rules, if any, should address what happens if you and / or other members of your family who own stock in the family business fall in love with an employee?

We’ve seen cases where that employee becomes an in-law and ascends to the highest offices of the company and then:

  • The couple divorces and the now divorced key non-family executive leaves a gaping hole in the management team after leaving the business;
  • The couple divorces and the now divorced key non-family executive remains in place and life goes on;
  • The couple never divorces and is a strong and positive influence on the business and the family.

Can having a written policy really trump the tidal pull of love?  How can you legislate feelings?  What are the risks inherent to this situation? 

While there may not be a simple answer to these questions – we find the very best multi-generational business families are proactive.  They do what they can to anticipate likely eventualities – while realizing they do not have a crystal ball. 

Ideally families would have a policy around ‘relationships in the business’ in place before the next generation is 16.  The best policies we find are those crafted and adopted by the family council – with broad involvement of family members, and a thoughtful preamble that explains the policy’s rationale.  In cases where the family is too small for such a governance body, it falls to mom and dad to put the policy in place; again, before the next generation hits their mid-teens.

Whether or not the family permits or prohibits any kind of office romance depends on the family – and possibly the business culture.  However, failure to think about these issues can lead a family to feel ‘blindsided’ when confronted with an actual relationship, which would then exacerbate the risk to the business and the family.

 What is your family’s policy on love in the workplace?