Family Business Basics

Transcription

1 Family Business Basics Andrew Pitcairn, Pitcairn Steve Walker, National Association for Corporate Directors Wendy Sage-Hayward, Family Business Consulting Group Peter Begalla, Family Business Magazine Why Do Families Come to Transitions? Learn about family governance Getting a Family Council organized Develop a plan of action for family meetings. Hear about how to develop a family constitution Develop Communication Strategies family dynamics separating business & family issues. Promoting cooperation and building consensus Learn about how to develop the next generation to be responsible business owners and family leaders

2 Important Topics Most important Important Least Important Navigating Shareholder Dynamics: Relationships, Policies and Process Uniting Siblings and Cousins Engaging the Next Gen with the Family Enterprise Successful Successor Development Secrets of the Oldest Family Businesses Family Business Basics 51.2% 35.8% 13.0% 47.8% 34.8% 17.4% 51.9% 39.9% 8.2% 64.2% 26.5% 9.3% 30.0% 49.4% 20.6% 19.0% 45.6% 35.4% Why did you come to Transitions?

3 Profile of Transitions Families Data from Transitions East 2016 attendees How many generations old is your family enterprise? Average: 3.9 generations How many generations are currently actively involved in management of the family business? Average: 2 generations actively involved in management What are your family business s approximate annual revenues? 18% under $25 million 49.6% between $26 and $300 million 34.6% above $300 million Key Family Business Concepts

4 What is a Family Enterprise? Family Enterprise Operating Business Assets (Family Business(es)) Financial Assets Real Estate Assets Family Heirloom Assets Philanthropic Assets What assets does your Family need to manage and share? Fast Facts about Family Enterprise Account for percent of all new percent of leaders of family businesses who will retire in coming 5 years percent of all businesses world wide are owned by families jobs in the US Account for percent of all wages paid in the US percent of Fortune 500 companies that are family controlled employment percent of total US approximate percentage of all public companies in the US are family controlled percent of US GDP percent of entrepreneurs in their 60s or 70s have NO exit strategy percent of family businesses have NOT established a process for selecting a successor

5 Performance of Family Enterprise ROA= Return on assets; TSR= Total shareholder returns Source: Miller, D. & Le Breton-Miller, I. (2005). Managing for the long run. Boston: Harvard Business School Press. Family Enterprise Complexity 3 Integrated Systems Family Private Supportive Emotional Traditional Business Public Competitive Objective Changing Ownership Management Marketability Information Profit Source: Tagiuri, R., & Davis, J. A. (1996). Bivalent attributes of the family firm. Family Business Review, 9,

6 Cornerstones of Continuity 1. NURTURING FAMILY: Climate of openness, trust & communication Clear, compelling family purpose & direction Strong family governance that evolves flexibly with family 2. STEWARDING BUSINESS: Strategic plan for wealth & enterprise development Exit & distribution policies for individual shareholders 3. DEVELOPING THE NEXT GENERATION: Support development of next generation leaders Communication & decision-making: The intersection between family and wealth Family Governance Leadership Succession Decision Making Communication Conflict Management Business Wealth

7 The evolution of a family The Pitcairn Family 14

8 Growing and preserving family resources A family council Can have a variety of goals including: Family unity: Cohesion or connection Communication among family members Communication between the family and the other elements of the family enterprise Education about the family enterprise Leadership development Fostering entrepreneurship Clearly defines its purpose, membership, decisionmaking processes, and structure through a charter 16

9 A family council Is a part of a family governance structure Serves as a Board of Directors for the family in its relationship to all aspects of the enterprise (businesses, philanthropy, liquid wealth, family office) Helps family members navigate their relationships in light of the variety of roles they may play (family member, owner, trustee, beneficiary, director, manager, etc.) Can include all family members (smaller families) or be a representative body (larger families) 17 7 Pillars of Healthy Families Don t be a statistic Identify problems before they go viral Mission and principle Engage multiple Be open and transparent Take advantage of family gatherings Have fun!

10 19 A sample of family councils Jones Smith Green Park Brown Generations 3 G1, G2 3 G1, G2 4 G3, G4 6 G4, G5 6 G4, G5 Operating business One One None; sold Multiple One; original sold Membership No spouses Includes spouses Includes spouses Includes spouses Includes spouses Frequency of meetings Quarterly Semi-annually Quarterly Quarterly Quarterly Mission and goals Education about the business, family cohesion, leadership development Leadership development, succession planning, family cohesion, education Fostering entrepreneurship, leadership development Education, leadership development, communication, passing down the family legacy Identifying potential employees, directors and co- trustees, family history, family engagement, education Charter No Yes Yes Yes Yes Family Corporate Governance Issues

11 Importance of Independent Board Leadership The family-only attitude may prevent family business from gaining the many benefits an independent board member can offer, including: Outside perspectives New complementary skill sets A more formal governance structure Constructive tension A re-thinking of the strategic and risk oversight process Identifying potential competitive and innovative disruptors A new lens on risk Top priorities as identified by respondents in the NACD Private Company Governance Survey: Family Business Boards Family-Owned Overall Private Companies Strategic planning and oversight 51.1% Strategic planning and oversight 50.5% Corporate performance and valuation Executive talent management and leadership development 34.7% 23.2% Board effectiveness 22.6% Corporate growth/restructuring (e.g M&A) Corporate performance and valuation Corporate growth/restructuring (e.g. M&A) Executive talent management and leadership development Source: NACD s Private Company Governance Survey: Family Business Boards 41.8% 22.0% 21.9% 19.0% Board effectiveness 18.6%