Family business in Italy

Moscow, February 7, 2013 Dott. Francesco D’Aprile, Italy

Transferring the Control of Business to the relatives in the Family business: how to make it effectively

35% = Family Business

Scenario: World

50% of total US employers Family Business

80% = Family Business

Scenario: USA

Represent 50% of the US GDP

25% of the first 100 EU co. Family Business

66% = Family Business

Scenario: Europe

Represent 40%-60% of the EU GDP

17 M. companies with 100 M. employers

43% Boss older then 60s (Founder)

93% = Family Business

42% 2nd Generation involved in the company

25-30% dies at starting the 2nd Generation

4,9% survives after 3rd Generation

Scenario: Italy

Structure of Italian companies (year 2010)

Size of Italian Companies (n. employers)

N. Companies

% N.Employers

% Revenue€ /Mil.

%

1-9 (Micro) 5.024.657 95,24 8.133.573 47,00 780.351 26,84

10-49 (Little) 221.522 4,2 3.512.555 20,29 672.031 23,11

50-249 (Medium) 25.359 0,5 2.110.525 12,20 572.517 16,69

≥ 250 (Big) 3.977 0,06 3.549.081 20,51 882.996 30.36

Total 5.275.515 100,0 17.305.734 100,00 2.907.895 100,00

Source: ISTAT

Scenario: Structure of Italian companies (year 2010)

80.000 Italian entrepreneurs are yearly involved in

family business transfer

Companies Employers Revenues

Focus to: Family Business and Succession Planning

USA: “Shirtsleeves to shirtsleeves in three generations”.

Mexico: “Padre bodeguero, hijo caballero, nieto pordiosero”. (Father merchant, son gentleman, grandson beggar).

Brazil: “Pai rico, filho nobre, neto pobre”. (Rich father, noble son, poor granson).

China: “Fu bu guo san dai”. (Wealth survives three generations).

Italy: “La prima generazione crea, la seconda conserva, la terza distrugge”. (The first generation creates, the second preserves, the third destroys).

Russia: …

A challenge everywhere

Succession Planning in Family Business

• Succession is not only a merely leadership replacement, but it is a learning and regeneration process;

• Several researches show how Succession Planning in Family Business is the key time to re-think and re-design the

– ownership

– strategic model

– operational model

– management

of the company

Time for changes

Individual

and Psychological

level

Family dimension Corporate culture

and

managerial style

Father – sense of loss– afraid to leave out

– lack of objectivity in the evaluation of the Heir

– difficulties in sharing knowledge

– paternalistic– poorly delegation

oriented

Heirs – continuous confrontation with the father figure

– Entrepreneurship is something that you can not inherit

– It is quite impossible to play a real leadership

– opposing risks: risky and not so rational management

– management under the shadow of the father, inability to self-manage

Management/staff – familiar with the charismatic style, difficult to change.

– resistance to change

Succession Planning in Family Business: Main Issues

11

SUCCESSION WITHOUT ABDICATION

The founder manifests a reluctance to delegate gradually his powers, which means, as a result, a

sudden entry of the heir in the company. The success of the process is subject to the capacity

of the emerging generation to manage the impact with the responsibilities of corporate

governance.

SUCCESSION WITH ABDICATION

The founder has an high inclination to the delegation and a remarkable ability of

adaptation, with an orientation to long term. The training of heirs is accurately programmed and

they are gradually involved in management activities, until there is the succession from the

father to the son/daughter.

ELUDED SUCCESSIONLow propensity to delegation, and collaboration,

together with a poor orientation to the future. This attitude leads fathers to evade the issue of

succession and to send it back to the future, keeping the decision-making system strongly

concentrated in their hands.

DEFERRED SUCCESSIONThe founder has a collaborative attitude a

present - oriented mindset. The new generation is gradually involved in the company and

acquires managerial responsibilities step by step. The two generations coexist for a long

period and the problem of succession is postponed in time, with an evident priority

assigned to the results of short-term.

LH

L HCOLLABORATIVE BEHAVIOUR

LO

NG

TER

M O

RIE

NTA

TIO

NSuccession Planning in Family Business: Main Issues

Succession Planning in Family Business:

1. The Family Act;

2. 3 traps e solutions;

3. Balancing Family and Business;

4. The Succession Planning

Solutions

The Family Act

A list of clear and accepted principles, guidelines and rules, useful to manage the relationships between family and business, designed in order to guarantee a long term perspective

to the business.

What the Family Act is:

The Family Act

How it works:- It is a Self Regulation Process;- It Acts in advance;- It is Approved by consensus;- It is the starting point of the process, not the final goal.

- Actual shareholders members of the family;- Future shareholders members of the family.

- Without existing problems;- 10 years before the real need;- when there is the need to manage a succession planning.

Actors

Timing

• Values and guide principles of the family (ex. mission, philosophy,…);

• Rules that make those principles concrete (es. Transfer of shares policy, profit sharing policy, family members entering rules, family members salaries policy,…);

• Governance: activities on how to manage the above rules (ex. Estate plans, Family plans, Succession plans,…)

The Family Act

The contentIn Italy, since 2006, recognized by the Law !

3 Traps that can destroy the family business

1. “There’s always a place for you here!”

Working in the family company is not a right ! How to avoid: preparing an appropriate training and recruiting plan. (Stalk & Foley, 2012)

2. “The company can not grow so fast as to satisfy the needs of all family members”

Families grow faster then the companies !

How to avoid: managing the entrance of the family members. Opening the

doors only to the Talented family members. (Stalk & Foley, 2012)

3 Traps that can destroy the family business

The Ford Family 1909

3. “Family members remain in silos according to bloodline”.

Family members often use to specialise themselves on the same skills of their older relatives (Finance, MKT,…).

How to avoid: assigning a mentor out of the family (Stalk & Foley, 2012)

3 Traps that can destroy the family business

Balancing Family and Business

ISSUES BUSINESS FIRST FAMILY FIRST

FAMILY EMPLOYMENT

Qualification-Based EmploymentOpen-Door Policy for all family

members

COMPENSATION Merit-Based pay Equal pay for all

LEADERSHIPLeadership granted to the right person

(family or non-family)Leadership based on Seniority in

Family

RESOURCE ALLOCATION

Business resources only used for business purposes – separate family

reserve fund utilized for family needs.

Business Resources used for personal needs (e.g., loans, grants)

DECISION -MAKING

Mulit-lateral, based on Defined Governance Structure (e.g., Executive

Committee)

Unilateral & Concentrated with Senior Family Member (e.g., Chairman/CEO)

The Succession Planning

• Starting Early;

• Create Career Development systems;

• Seeking advice: (external independent directors or senior non-family members);

• Building Consensus;

• Clarifying the transition process

The main steps

Francesco D’Aprile

Partner

Mobile: +39 393 4142258Mail: fdaprile@pedconsulting.it

Web: http://www.pedconsulting.it

Contacts