Tag Archives: stewardship

Patience, Planning & Perseverance: A Client Success Story

Mike Fassler
Mike Fassler

During the first quarter of this year I had the great privilege of witnessing a significant accomplishment by a long time client.  I started working with this family in the late 1980’s as they were contemplating exiting their business due to some feedback from their lender and general frustrations with short cash flow.  They asked me to take a look at their situation and share my assessment and recommendations.

Their lender had indicated that since they were not able to “zero out” their operating loan once a year from the operating cash flow of their business, this suggested they were not making money.  The lender further argued that if they were not making money they should consider exiting their business.  My client was alarmed and considering an exit.  I dug into the numbers and had extensive discussions with the client.  My analysis indicated that in fact they were very profitable but the combination of their growth rate and the structure of their balance sheet was creating their liquidity challenges.  I shared with them that they were bankable and they could likely have their choice of lenders.  They shopped their financing package and were presented with financing offers from 3 different lenders.  The flood of emotional relief this family experienced upon refinancing was moving.

Fast forward to the first quarter of this year, 25+ years later, to the incredible experience for me.  At our annual planning meeting where we were reviewing their financial statements, this client proudly shared that as of this past December they had completely paid off all of their debt.  Their personal equity position is now over “8 figures”, they have plenty of liquid assets, and their business continues to churn out positive earnings and cash flow.  We spent the meeting discussing the future for them personally, for their family and for the business.  The pressures they now face are around stewardship of their sizable equity position, and making choices between options – enjoyable challenges to consider.  It has been my privilege to serve this family along their remarkable journey of success.


What is Stewardship?

Jennifer Pendergast
Jennifer Pendergast

Stewardship is a term often used when describing the perspective of family business owners.  As many owners of family businesses seek to pass their business on to future generations, the term stewardship is an accurate one.  The dictionary definition of stewardship is “the careful and responsible management of something entrusted to one’s care.”  This is quite different from the term ownership, defined as “the legal right of possession, full claim, authority or dominion.” 

I see stewardship and ownership as two sides of the same coin – the former emphasizes responsibility, the latter emphasizes rights.  In truth, ownership implies both rights and responsibilities.  Too often, owners are concerned about their rights – to a dividend, to a say in how the company is managed – but pay less attention to their responsibilities.  Yet, if they seek to pass on their business to future generations, owners should be equally or perhaps even more concerned with responsibilities.  What are the responsibilities of owners?  They include:

  • Ensuring the business is well-run, ideally by electing a qualified board of directors who oversee a capable management;
  • Planning for the orderly transition of ownership across generations;
  • Staying informed about the business and its operating environment;
  • Representing the business and family well to employees and the community
  • Investing time in education to ensure one is prepared to make big decisions around the business.

As the old adage goes – to whom much is given, much is expected.  An emphasis on stewardship responsibilities will help to ensure that the aspiration to pass the business will be achieved.


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.


Two Interesting Family Business Lessons from the Holy Land…

Stephanie Brun de Pontet


Did you know that it is a Muslim family that holds the key to one of the most sacred churches in Christianity?  Further, did you know that they have been fulfilling the obligation of opening and closing this church every day for centuries:

The Nuseibeh family was first made custodians of the key when Caliph Umar Ibn Khattab first conquered Jerusalem in 638AD. The only gap in the family tradition was during the 88 years of Crusader rule in the 12th century, which ended in 1187 when Saladin recaptured Jerusalem and promised Richard the Lionheart that he would restore the Nuseibehs as the custodians of the key.

As the current generation prepares to pass this important responsibility on to his son, they represent two important lessons for all families in business.  First, sometimes the ‘best choice’ to take over an important responsibility is an individual or group that is deeply trusted and seen as free of any ‘agenda.’

His ancestors were chosen for their long service and ability to navigate the sometimes violent rivalries between the various Christian sects represented in the church. “I am the custodian of the key of the Holy Sepulchre,” said Mr Nuseibeh, 62, as worshippers made their way up the Via Dolorosa through Jerusalem’s Old City to mark Good Friday. “I see these people and I feel how important the task is, how good it is that my family has held the tradition all these years. I am proud that my family will continue to hold this honour.”

Second, teaching the value of the legacy of stewardship is incredibly powerful.  While pride is important, communicating some reverence for the responsibility and the benefits one is hopefully able to confer to others (for business owners through creating good jobs, delivering an excellent product, etc.).  As the son gets ready to assume his father’s role, he states:

This year, Mr Nuseibeh will pass the responsibility as key holder over to his son, 30-year-old Obedya Nuseibeh who works by day as a hairdresser in Jerusalem.After the Easter festival he will begin to take over responsibility for his father’s gate-keeping, arriving at the Church at 4am to open the doors, and at 8pm to lock them shut. “I’m nervous I won’t do it correctly at first, there is a lot of ritual to remember. But I’ve been watching my father do this for years, and I think I know it very well,” said Obedya. “My father advised me to stay neutral, to remember this is an important, historic role.”

Food for thought for all of us.

Full article can be read at: http://www.thetimes.co.uk/tto/news/world/middleeast/article3726764.ece



Stewardship and Management Expectations

Otis Baskin

The concept of stewardship in family business has its roots in the long-term view that family businesses take.  Building strength for the next generation not just the next quarter is the strategic advantage of family business.  Because family companies have different expectations than public companies regarding long-term planning they have the opportunity to create a culture of stewardship that pervades the organization.

This culture should begin with the family’s commitment to building value for future generations and be described in a family values statement.  These values then become the foundation for company values, vision, and mission that can guide management decisions and actions.  But these statements must not be just “window dressing”.  The guiding principles of the family should be translated to guiding principles of the business that can be lived every day.

Just having family members leading the business and working in the business will not be sufficient to accomplish the kind of culture discussed here.  It is too easy for even family members to compartmentalize family and business and in so doing fail to let family values consciously guide their actions.  If family and non-family executives are going to manage as stewards rather than agents they need the support of ownership.  Active owners who take the time to understand the goals, opportunities, and strengths of their business can give management the conviction to stand firm when peers in other companies are looking out only for their individual interests.

One of my clients, a fifth generation building products supplier, was hit very hard by the economic contraction of 2008.  While it was necessary to cut costs in the business, the owners did not expect the employees to bear that burden alone.  They worked with management to cut the distributions to owners significantly in order to preserve the strength of their business to take advantage of an upturn in the market that would surely come.  This was a lesson they had learned from previous generations and their commitment to preserving value for  future generations gave business leaders support and confidence in doing what was needed to respond to the challenges of the market.


The Pygmalion Effect on Responsible Management

Otis Baskin


As Henry Higgins expectations of Liza Doolittle transformed her image of herself, our expectations of those in top management positions may explain their behavior.  

The ongoing revelations about the failures of chief executives to manage the companies they serve in the best interests of shareholders and society has caused many to pronounce greed as the driving force of business itself.  Yet, those of us who work closely with family businesses see a different picture.  We see executives, both family and non-family, who are loyal to the organization, its mission, the communities in which they operate, their employees and the owners.  Great leaders whose concern for others is demonstrated in everything they do.   

Of course, it is overgeneralization to say that all family business CEOs are somehow better and nobler than their public company counterparts.  There are truly excellent managers in all types of companies regardless of industry, size, or ownership structure.  But it has been my observation that family companies are better at spawning these “servant leaders”.  

One explanation may lie in the expectations that are communicated to executives when they accept positions and as they work their way into roles of greater responsibility.  As modern organization theory developed the problem of agency theory emerged as a chief tenent taught in every business school and economics course.  Agency theory depicts top managers in the modern corporation as “agents” whose interests may be different from those of shareholders because both are attempting to maximize their own personal gain.   

If executives understand their role as maximizing their own personal gain it is no surprise when they take unreasonable risks with the capital of shareholders to increase the potential of their own bonus plans.  Therefore, complex compensation schemes and onerous accountability mechanisms have been devised to assure that executives manage with the interests of their shareholders in mind.  However, these mechanisms only serve to highlight the underlying theme that “agents” are not expected serve the interests of shareholders.  Thus, the more “protections” we put in place the more we may be contributing to the cause of the problem.  

Why the difference in family business?  I propose that, at least one reason is the generally accepted concept of stewardship.  In successful family businesses executives assume their roles as heirs of a great tradition and understand that their primary responsibility is continuity.  The same is true for good owners of family businesses.  They understand that this is not “my business” but rather ours to nurture, grow, and deliver to another generation.  The expectations communicated in a successful family business are shared values and a common future that serve to align the interests of executives and owners.


What does it take to make it as a next gen leader?

Drew Mendoza
Drew Mendoza

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. 

Read on to learn more.  Making the Most of Your Emotions