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Working With Family Businesses:What to Look For &

What to Look Out For

Presented by:William (Chip) Valutis, PhD

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Family-Owned Businesses

Impact on the U.S. Economy

Number more than 13 million

Produce over 60% of the GDP (Gross Domestic Product)

80 - 90% of all proprietorships, partnerships, private and public corporations are family-owned or family-influenced

Employ approximately 1/5 of the working population (50 million people)

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Family-Owned Businesses (cont’d)

Odds of successful succession:

Average life span is 24 years

2 out of 3 FOBs fail to successfully pass the business through to the 2nd generation

Of those who succeed, 1 in 7 make it to the 3rd generation

Of those, 1 in 10 make is past the 3rd generation

“From rags to riches to rags”

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Positive Characteristics of FOBs

Quality focus: pride, high service, high-quality product or service

Paternalistic: good benefits, care for employees, few layoffs, long tenure

Stability: long-term focus, care for employees, few layoffs, stable work force

Family-like: feelings of community, commitment and loyalty

Personal: owner/operator maintains close relationship with employees; accessible to questions or comments

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Negative Characteristics of FOBs Resistant: slow to change; suspicious of outsiders, new

ideas and/or new methods Autocratic: owner/operator can be controlling,

dictatorial, secretive, and foster a dependent work force Nepotism: may be too tolerant of inept family members

as managers; fail to find competent non-family professionals

Dramatic: openly fight and argue (particularly during periods of succession)

Confusing: lack clear division of structure, tasks and accountabilities

Poorly managed: founder often has technical expertise but little management experience

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Primary Reasons FOBs Fail

Two conflicting systems in the same environment

Lack of professional management experience and/or knowledge

Inability to resolve family issues

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Conflicting Systems

The two systems are:

1. The family Emotionally based Emphasis on

loyalty, nurturing and caring

Harmony and belonging are critical

2. The business Task based Emphasis on

performance and results

Productivity and profits are primary

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Potential System Relationships

High

Focus on the needs of the business

Low High

Focus of the needs of the family

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Endangered/Static“The Many who Fail”

Low attention to business needs

Low attention to family needs

Waffle — no consistent effort

Family First“Family at the Expense of Results”

All attention to the needs of the family

Harmony over business results

Acceptable vs. sound management

Less focus on needs of the business

Locator Model

Business First“Results at the Expense of Family”

All attention to business

Low attention to needs of family

Logical, not emotional

Results driven

Family Enterprise“The Few who Succeed”

Appropriate attention to business & family

Allow for needs of family within the realities of business

Win/win solutions

Develop the business and family members

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Critical Issues for FOBs

1. Succession: The process of identifying and training a successor, and making the transition of power while supporting the needs of the business.

2. Participation: The policies, procedures and family guidelines for deciding on key family and business issues. These may include compensation, accountability, hiring, firing and retiring.

3. Compensation and ownership: Decisions regarding the pay and power in a family-owned firm. Includes working and non-working family members, stock considerations and dividend payments.

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Critical Issues for FOBs (cont’d)

4. Family harmony: Must build and maintain healthy relationships among the family involved and not involved in the business. Conflict resolution and communication skills are paramount.

5. Responsibilities & accountabilities: Identify the obligation of family. How are major life events to be handled: divorce, death, marriage, in-laws, legal issues, etc.

6. Owner/operators: Typically technicians or visionaries. They must learn professional management strategies. Having professional systems and leadership is critical in attracting competent non-family leaders.

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Strategies: What to Look For...

The Business

1. Clear responsibilities and appropriate authority

2. Accountability and consequences for performance

3. Constructive contention

4. Sound decision making and problem solving

5. Professional but appropriate business systems

6. Clear boundaries

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Strategies: What to Look For...

The Family

1. A common philosophy

2. Family councils and creed

3. Open communication and ability to resolve

conflict

4. Support and encouragement

5. Non-family mentoring

6. Outside experience

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What to Look OUT For...

1. Secrets

2. Triangulation

3. Chronic conflict

4. Monarchs

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What to Look OUT For... (cont’d)

5. Isolation

6. “Stuffing”

7. Mystery guests

8. Family dynamics

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Recommendations for Helping FOBs

Here and Now vs. There and Then

Visionary vs. Pathology

Learning Environment vs. Evaluative Environment

Self-Focus vs. Other Focus

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Keys to Success

Is there a common goal toward which they can work?

What criteria should be used in decision making and problem solving?

How to balance the needs of the business with the needs of the owner?

Help Pick a Common Philosophy

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Keys to Success

Identify the different roles

Define expectations for each

Keep appropriate roles in the interactions; monitor

Remember your roles and boundaries as well

Clarify Roles & Boundaries

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Keys to Success

Candor builds respect

Be a reality test - call it the way you see it

Talk about what no one else will talk about

Don’t be “yes men” advisors

Challenge & Deliver Bad News(when needed)

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Keys to Success

Know your limits

Build a network of trusted advisors to help with clients

Communicate with the other professionals involved

Ensure no one is working at cross purposes

Encourage Multi-DisciplineInteractions