As much as objective, rational-thinking business advisors caution against mixing business and family, the fact is that – by their very nature – the family and business aspects of a family business are inextricably linked. Sometimes, when issues and conflicts arise – like those surrounding the transfer of leadership of a family business from one generation to the next – searching for their cause and remedy within the business simply isn’t helpful.

So why can passing on a family business be so difficult? As explains French psychiatrist, business consultant and author Jacques-Antoine Malarewicz, transferring a company to the Next Generation isn’t just an issue of managerial logic – or that particular mental model (comprising biases, assumptions and beliefs) from which a manager(s) operates or approaches problem-solving.

Actually, says Malarewicz, it’s a meeting of managerial logic with family and/or patrimonial logic. If these mental models aren’t congruent, conflict arises – since there’s no dominant (agreed upon) logic for approaching scenarios and resolving challenges. Throw in the issues of money and the transfer of capital (which is what the family business, in effect, represents during this time) – and handing over the baton can very quickly turn emotional and heated.

Mixing business and family

When emotions bubble over, says Malarewicz, past issues – even those which have been buried for decades, like scandalous family secrets such as illegitimate children or nepotism – can resurface. This hampers effective decision-making in the family business in general and surrounding the transfer of power itself.

If not carefully managed, this bad blood can actually destroy the business – in fact, as Malarewicz points out, faulty family dynamics is why ownership of two out of three family businesses no longer rests with the family itself. Another reason why passing on a family business can prove difficult to negotiate, says Malarewicz is when the current head of the business is unable to relinquish control (even if of an advanced age).

The transfer of a family business

Malarewicz also highlights how the so-called generation gap is impacting on family business succession in his native France (some of these trends can be noted in other countries, too). In particular:

• Until recently, a family business would follow the law of primogeniture – that is, it would be passed down to the oldest son. Nowadays, succession is possible via daughters, as well.
• The current generation is not necessarily following in the footsteps of the previous one, instead choosing to follow their own career paths (which may not involve working in the family business).
• In days gone by, religious beliefs actually informed the structure of family businesses – as Malarewicz puts it, there was a kind of ‘collusion between the structural dimension of religion and entrepreneurship’ in France (particularly in the industrialised North and East of the country). As religious practices (predominantly Catholicism) become less a feature of daily life here, so it’s slowly becoming less a feature of the fabric of work life, too.
• Having many children, however, remains a characteristic of entrepreneurial French families – the belief persists that few or no heirs will prove problematic for the continuation of a family enterprise.

How to overcome a crisis of succession

Malarewicz offers the following advice to family businesses in the midst of succession planning, or that are dealing with conflict arising from such a succession:

• Crises occur because problems aren’t anticipated – proper planning will mitigate many of the common succession flashpoints;
• Leaders should resist clinging to power past their ‘sell-by date’ – rather move aside gracefully and empower the next generation to carry things forward;
• Draft a family charter which sets out the family’s mission, ethics, policies and procedures, as they relate both to business and family matters ;
• Look within the family, not the family business – trying to resolve issues present in a family business by addressing them in isolation, without taking cognizance of family dynamics makes no sense. As Malarewicz so expertly phrases it, solutions will be found, not within the family business, but within the family.

by Christophe Bernard (KPMGFamilyBusiness.com)

The post When Family and Family Business collide appeared first on Mosaic Global Ltd..

Ask any family business owner why they went into business for themselves and the usual answer is to provide an income for them and their families. Most of these entrepreneurs are too busy with the daily grind – marketing and selling the business’s products and/or services, managing staff, doing admin and so on – to think about what happens when one day they want out.

But, that take-it-as-it-comes approach to exiting the family business could be short-sighted. Rather, considering your exit strategy from the get-go is a smarter tactic… Reports The Business Journals – an online resource for business in America – 80 percent of small business owners only start thinking about their exit strategy when retirement looms large on the horizon.

But this is akin to leaving your business on a whim – which means the outcome could be unexpected (and not necessarily in a good sense).

Family business owners should consider exit strategies

Here’s why it’s wise to have an exit strategy in place:

• Planning properly helps secure your future, which helps you enjoy your golden years, free from financial anxiety
• An exit strategy can actually facilitate better management of your business – helping you steer it in a defined direction, thereby aiding its growth (and increasing its value)
• Not worrying about what will happen to your business (and the people involved in it, whether family members or outside employees) when you’re gone will give you peace of mind.

Handing over the reins to a younger family member is just one of the ways in which you can exit your business. Other options include:

• Selling the business to an outside buyer
• Going public and floating the business on the stock exchange
• Facilitating a management buyout – where your management team or employees purchase the business from you
• Winding up the business by liquidating it.

Think about an exit strategy long before retirement

Creating a legacy for subsequent generations is one of the proudest achievements of any family business owner. However, families being families, passing on the torch needs to be correctly managed to enable a smooth transition. When formulating a family succession plan, be sure to take the following into account:

• The role you’ll play in the company after retirement? Will you still maintain some degree of control or act as a consultant or advisor?
• Which family member will you appoint as your successor? Is the decision based on ability, talent, knowledge, education, skills and experience or on another factor, such as birth order, gender or personal preference?
• How will you help the next generation gain the appropriate experience? Getting them involved in the business from an early age gives younger family members time to learn the ropes and form relationships conducive to helping the business thrive.
• How will shares in the family business be apportioned between your named successor and other family members – will this provide a source of conflict between them?
• How do you plan to mitigate any potential conflict? Making use of a neutral family business consultant can help ease the transfer from one generation to the next.

Manage your tax responsibilites

Choosing an exit strategy also involves considering tax; what would be the most efficient approach for your particular circumstances. Talk to your tax advisor about:

• Your own liquidity needs – how much you need/want to get out of your business when you depart and whether you would prefer a lump sum or ongoing monthly payments
• Any inheritance tax or estate duty which may become payable if you pass on the business to a family member
• Whether disposing of your company makes you liable for Capital Gains tax
• Whether gifting company shares or creating a trust will have any tax benefits for you and/or you successors
• Whether selling the company or going public is preferable from a tax perspective than transferring ownership to a nominated successor.

by Christophe Bernard (KPMGFamilyBusiness.com)

The post Why Family Businesses Owners should always have Exit Strategies appeared first on Mosaic Global Ltd..

The succession of any family business is as unique as the family itself. That said, moving a family business from the ownership and control of one generation to the next is always a seminal event for both the business and family concerned. Indeed, it’s this generational transition that distinguishes a true ‘family business’ from one that’s merely owned and managed by a single family.

The majority of family businesses fail to succeed past the third generation. The factors that determine the success or failure of intergenerational transition of a business are complex, yet overwhelmingly the outcomes depend upon the attitudes and attributes of the individuals involved.

Understanding this next generation (or ‘Next Gen’) of family business is becoming increasingly more critical to ensuring successful transitions as well as helping those transitions be executed with as little disruption as possible.

Transition to the next generation

In an effort to better understand the dynamics of generational succession in family businesses, in 2010, Family Business Australia and KPMG’s Australian member firm surveyed 60 members of the next generation currently working in family businesses, either as owners and managers in their own right or preparing to take on that role.

Below we discuss the four key findings that emerged from their survey:

1. Preparing for succession
2. Forging new directions
3. Governance as a priority
4. Measuring performance

The focus group participants held robust discussions on the role education plays in a family business today. It was generally agreed that further education is essential for the ongoing development of an existing business, and that the increasing complexities of business these days add to this prerequisite. Sixty percent had an undergraduate or postgraduate degree under their belts.

Preparing for succession

The value of external business experience was generally thought to provide a broader and more balanced perspective on business matters. As one Next Gen participant put it,

“working outside the family business taught me how people were prepared to rip off a company if an opportunity arose and how blasé they could be in dealing with other people’s money”.

All focus group participants agreed that working in a family business makes you much more cost conscious because the money you are spending is “more or less your own”. Overall our focus group participants agreed that entry rules into the family business regarding education and experience should be encouraged and even written up formally for future generations.

More than a third of respondents said that when taking over the position of leadership from their incumbent, business strategy would be their priority for change. Each of the focus group sessions held a colourful conversation about whether the focus on changing business strategy was due to the life stage of the business or a function of the environment.  However, in both cases it was agreed that diversification and growth cannot be achieved without a more comprehensive strategy, and a solid foundation.

Forging new directions

“Our business has grown organically over time and is still quite informal,” said one participant. “I am hoping to professionalise it and bring it up to the next level.”

It was also agreed that many Next Gens are likely to become more conservative managers than their parents. According to one participant, “businesses are becoming more risk averse and will be less entrepreneurial than in the past because the business climate no longer supports those behaviours. Things such as reporting requirements have destroyed this and in the future entrepreneurship will be more conservative.”

Others see their role in the family business to be more of a custodian of their respective businesses. “When I go to work,” explained one, “I’m building a business for the future of my family. I’m sure that’s not the way my father thought.” They agree that this has also affected their adversity to risk. “When you’re a custodian, you do have to play by more rules. Our business has a reputation and brand to uphold now.”

Governance as a priority

Yet, to many, the same role as a custodian means they are expected to continue progression and keep the business strategy moving forward through necessity. An overwhelming 96 percent of survey respondents believe governance is an important element in the future of the family business. When asked whether they plan to embrace the existing governance structure, more than 60 percent said they would be implementing changes (major or minor).

The increased prioritisation of governance reflects the evolving business structures that are unavoidably becoming more complex and uncertain, not to mention litigious. Family business will most often have the added dimension of how to accommodate new family members into the business such as the next generation and new in-laws.

Additionally, there are complexities surrounding ownership and management structures and how these interact or overlap with appointments to the board. One thing that became clear from the focus groups was that governance concerns extend beyond the business to the family itself.

Measuring performance

Because the interests of individual family members are not always well aligned with the needs of the business, the development of formal mechanisms to discuss and resolve internal family difference vis-à-vis the business can head off a lot of intra-family disputation and animosity. These mechanisms can take various forms, including family councils and/or family constitutions. Sometimes these structures involve external moderators or facilitators.

Of interest is the fact that only 15 percent of family businesses have a formal process in place for dealing with conflict. In a business where relationships are central to its operations, this is a concerning figure. The survey found that the remuneration and performance assessment of family members working in the business often lacks the transparency of this process in a non-family business.

Fifty five percent of respondents said they were not satisfied with their performance review process and a further 50 percent said their salaries were not benchmarked with similar roles outside the family business. When asked about performance assessments, one focus group participant said that “being performance assessed by my dad seems like a realty strange way of doing things”.

Formula for a successful transition

There are no simple answers here. An across-the-board policy of openness and honesty in workplace communications is a good starting point. Where possible, avoid a family member being directly assessed by another family member, and if this isn’t possible, perhaps consider the inclusion of an independent third party in the process.

Assessing performance on the basis of hard, numeric key performance indicators (KPIs) can also help to keep reviews as impersonal as is possible. And of course both the performance assessment and the remuneration of family members ought as a general rule to adhere to the same standards as those that apply to non-family employees.

At the end of the day, all participants agreed that their greatest competitive advantage was the fact that they are a family business. The survey has shown that going forward this advantage will be augmented by a Next Gen of more educated and experienced leaders. Professional management structures will be enhanced by a greater appreciation of the role of governance, and business strategy will be challenged from a solid foundation.

by Christophe Bernard (KPMGFamilyBusiness.com)

The post The Next Generation’s formula for a successful transition appeared first on Mosaic Global Ltd..

Family business leaders are generally patriarchs (or matriarchs) and as such they care about achieving business success as well as fostering overall family success. The two kinds of success are clearly intertwined, and below are seven tips on how family business leaders can ensure their actions within the workplace help them to achieve both ends…

Identify individual passions. One of the biggest concerns for the younger generation when considering entering their family business is whether or not their individual talents and passions will have the appropriate outlet.

A smart family business leader bears this in mind, finding ways within the business to allow younger family members to run with their strengths. In so doing individual assets become company assets while at the same time the emotional well-being and commercial value of younger family members is secured.

Investing in the family’s future

Prioritise training and education. Family companies generally place greater emphasis on long-term goals and longevity than do non-family companies. In keeping with such perspective, almost all family business leaders recognize the importance of training the younger generations in industry and leadership skills. Most will also acknowledge that this training should be on-going.

What sometimes falls by the way side is the importance of continually developing the skills of the older generation. Family business owners and CEOs, remember that in everything you are always setting an example, so when you show an interest in your own up-skilling you are sending a message to the younger generations about the importance of remaining current and relevant. Such example-setting benefits them as business partners as well as individuals.

Fostering family success

Encourage change and innovation. Instilling a sense of heritage is important to morale and vision. However, if there is an excessive emphasis on the past, successive generations may feel too tied to the old ways, and their thinking could end up crippled in terms of finding new ways to move the company forward.

They need to know and feel that change is okay, oftentimes even good and necessary. The structures and policies that make one generation succeed in an industry may not carry over into the next. Family business leaders therefore need to create a culture of adaptability, where change is embraced as necessary and important to the future success of the company.

Be a strong but fair decision-maker. Leaders of family businesses sometimes have to make hard business decisions, whether in responding to a crisis or making a tough call in some other area. Leaders can struggle with this, worrying if the ramifications of a tough business call will negatively impact one or more of their very close personal relationships.

Investing in the business’ future

For the business to do well the leader needs to be up to this task, but to make the family work the leader also needs to not be a cut-throat. It’s finding the balance – and the person who can best execute this balance – that will help you invest in both your family’s and your business’s future. When decisions are felt by all to have been arrived at fairly, then personal relationships are less likely to suffer. Transparency helps here.

Engender a culture of listening. In all relationships – whether personal or professional – people want the chance to voice their views and concerns, and they want to feel that they have been heard. Sometimes in family business those in the younger generations can feel that they are overlooked, and their opinions and ideas are not valued.

Leadership skills for long-term success

The good business leader understands that he or she doesn’t necessarily have to agree with and accept everything that’s said or suggested, but that younger staff should be afforded the dignity and consideration of being heard. Having open channels of communication helps to ensure good working and personal relationships, as everyone feels they are a valued part of the team. It will also enhance the decision-making processes within the business, as there will be more pooling of insights and ideas.

Share decision-making power. Sometimes the leaders in family business can hold on tightly to all control and decision-making powers until their exit from the company, or their death. This is far from ideal. Younger members of the firm need to gain the confidence and experience that comes from executing a degree of decision-making power over time.

This is best learned in increments, while still enjoying the security of older-generation guidance and fall-back. By holding on to all control, older generation leaders do not fully prepare the next generation as leaders and confidently capable successors. Take the analogy of the father teaching his child to ride a bike: you don’t put the child on the bike and tell them to go ahead on their own.

Family business leaders and the younger generation

Rather, to start with, you keep your hand on the saddle to help guide the bike, while the child learns to steer and peddle. In this way when you finally let go the child has the confidence and skill to ride on his or her own.

Transfer vision and values. Family business leaders want younger firm members to succeed as people as well as business successors. Your values and vision will permeate the manner in which you conduct yourself and do business. Make sure you are transferring these concepts and ideals (while actions speak loudly, also discuss them), as this will ensure the enduring quality of your company as well as the integrity and import of their lives in general.

Family firms generally outperform their competitors, their solidarity offering a powerful advantage. In order to keep that solidarity, family business owners and CEOs need to be mindful of how their business actions impact the work and personal mentalities and realities of younger generation family members.

by Christophe Bernard (KPMGFamilyBusiness.com)

The post Investing in the family and family business’s future appeared first on Mosaic Global Ltd..

Complexity in investment often goes with a lack of transparency. The highly engineered and multi-layered financial derivatives that contributed to the global financial crisis five years ago are a case in point.

For many investors, these products were problematic because their complexity was such that it was very difficult to understand how they were designed, how they were priced and whether the proposed payoffs were right for their own needs.

Of course, there is an incentive for many players in the financial services industry and media to make investing seem complicated. For some investment banks, for instance, complexity provided a cover for over-pricing.

In contrast, there are far fewer mysteries about the underlying stocks and bonds traded each day on public capital markets, where prices are constantly in flux due to news and the ebb and flow of supply and demand.

The virtue of these highly competitive markets for most investors is that prices quickly incorporate new information and provide rich information on risk and return. From these millions of securities, diverse portfolios can be built around known dimensions of return according to the appetites and needs of each individual.

The competitive nature of public capital markets, the efficiency of pricing and the difficulty of getting an edge are what underpin the ‘efficient markets hypothesis’ of Professor Eugene Fama, who recently was awarded the Nobel Prize in economics.

Essentially, the practical takeaway from Fama’s work is that you are better off letting the market work for you rather than beating yourself up adopting complex, expensive and ultimately futile strategies to “beat” the market.

Writing in The Financial Times on the Nobel, economist and columnist Tim Harford said Fama had helped millions of people by showing them the futility of picking stocks, finding value-adding managers or timing the market to their advantage.

“If more investors had taken efficient market theory seriously, they would have been highly suspicious of subprime assets that were somehow rated as very safe yet yielded high returns,” Harford wrote.¹

In The Sydney Morning Herald, journalist and economist Peter Martin said the world owes a great debt to Fama, who “demonstrated rigorously that if the supermarket crowd is big enough or if there are enough cars on the highway, you will get no advantage from changing lanes. Anyone who could have been helped will have already helped themselves.”²

This might be a counter-intuitive idea to many people. After all, in other areas of our lives, like business, the secret to success is to study hard, compete aggressively and constantly look for an edge over our competitors.

One of the other two academics that Fama shared the Nobel with this year – Robert Shiller – takes the view that markets can be irrational and subject to human error. In this, he is frequently cited as a philosophical opponent of Fama.

In practical terms, though, both men agree that it is very, very difficult for the average investor to get rich in the markets by trading on publicly available information. Most people trade too much or underestimate the unpredictability of prices.³

For example, many investors bought into supposedly sophisticated trading strategies during the financial crisis which left them on the sidelines in the subsequent rebound that has driven prices in many markets to multi-year or record highs.

The “simpler” approach is to adhere to three core principles – that markets reflect the aggregate expectations of investors about risk and return, that diversification reduces uncertainty and that you can add value by structuring a portfolio focused on known market premiums. For the individual investor, the essential add-ons to this are staying disciplined and keeping a lid on fees and costs.

Yes, these are simple ideas, but to quote another philosopher (Leonardo da Vinci), simplicity is the ultimate sophistication.

1. Tim Harford, ‘Why the Efficient Markets Hypothesis Merited a Nobel’, Financial Times, Oct 14, 2013

2. Peter Martin, ‘Pitfalls of Looking for Life in the Fast Lane’, Sydney Morning Herald, Oct 16, 2013

3. Robert Shiller, ‘Sharing Nobel Honours and Agreeing to Disagree’, New York Times, Oct 26, 2013

by Jim Parker, Vice-President, DFA

The post Simplicity and Sophistication appeared first on Mosaic Global Ltd..

Almost all family business owners have a desire to see the life of their business sustained through continued family involvement. The reality is that it isn’t as easy as it may sound to achieve continual generational succession. It requires a high level of planning and preparation, and is far from effortless to secure. Just as you have undoubtedly spent countless hours managing and growing your business, you need to spend equally considerable time ensuring a well thought out and widely accepted succession plan.

Pre-empting a strategy and plan for exiting the business is one of the most valuable exercises a family business owner can undertake, and is critical to creating sustainable success for the organisation. Steve Parrish, a business expert and contributor on Forbes.com, recently shared some insight on family business and the notion of creating or preserving a family legacy. He notes: “making a family business a family legacy takes planning and preparation.”

It’s important not to fall into the trap of lone leadership within a family business. Human tendency encourages one to retain sole ownership or control, particularly of projects in which one spearheaded much of the early set-up and development activity. If, however, you want to adequately equip and up-skill fellow family members to play an active role in the business post your exit, you need to take a more team-player approach.

Exiting the business

“Sometimes what the owner perceives as a family legacy is really just a personal legacy. The value of the business is merely blue sky that vanishes when the owner is gone,” states Parrish.

Creating a work environment in which shared knowledge, goals, and a common vision is fostered is an important part of creating a team ethos. Training and development programmes can serve as valuable incentive schemes for employees interested in growing within the ranks of the family business. Creating a space where all members of the business can meet, collaborate, and engage can foster a positive sense of participation, and can instill the required skills for sustaining the business into the future.

One of the more interesting insights, shared by Parrish, concerned creating and driving interest in the business for various family members. He explains that if family members do not feel any degree of interest or affinity toward the business, then it’s unlikely that they will choose to become or remain involved.

A family business – a family legacy

“An owner needs to motivate the family to participate. Is there enough profit potential to attract and retain family members? Are the successors sufficiently comfortable about running the business in the owner’s absence? Have they been given the freedom to feel like they are part of the business’s success – not merely employees of the owner’s personal empire? If the business is to stay in the family, it’s important to move from an iron fist to a velvet glove management approach.” – Steve Parrish (2014)

Enterprise IG reiterates this, proposing that employee emotional buy-in and intellectual connection is paramount to securing long-term viability and success in business. It’s critical that family members understand the future goals and vision of the business, and are motivated and interested enough to feel that they can play an important role. Creating meaningful channels for engagement, reducing hierarchal barriers to participation, and creating collaborative type environments will assist in bringing family employees into an active and engaged role within the business.

Leading by example and creating a desirable work culture will go a long way in insuring that the next generation want to stay on. One cannot discuss succession and family business without emphasizing the importance of the actual plan. All too often, succession planning is left to the last minute, frequently with less than desirable outcomes. Parrish suggests: “even in a family business, there is a compelling reason to have a legally binding succession plan.”

Succession planning – for the future

Family business owners, wanting family-successors to assume leadership roles, owe it to the involved parties to prepare and execute a thorough documentation of the succession plan. It’s important that the documentation is discussed at-length with all affected parties. The value of continued, family-wide communication and engagement around issues of succession is evident. It’s critical that family business owners take a proactive approach to planning for the future.

By creating an environment that fosters shared vision and a sense of commitment to the business, it is more likely that your business will enjoy a long-standing family legacy.

By Cristophe Bernard (KPMGFamilyBusiness.com)

The post Preserving the legacy of the family business appeared first on Mosaic Global Ltd..

We delude ourselves for a number of reasons, but one of the principal causes is a need to protect our own egos. So we look for external evidence that supports the myths we hold about ourselves and we dismiss those facts that are incompatible.

Psychologists call this tendency to select facts which suit our own internal beliefs as “confirmation bias”. A related ingrained tendency, known as “hindsight bias”, involves seeing everything as obvious and predictable after the fact.

These biases, or ways of protecting our egos from reality, are evident among many investors everyday and are often encouraged by the media.

Here are seven common manifestations of how investors fool themselves:

1. “Everyone could see that market crash coming“. Have you noticed how people become experts after the fact? But if “everyone” could see a correction coming, why wasn’t “everyone” profiting from it? You don’t need forecasts.
2. “I only invest in ‘blue-chip’ companies.” People often gravitate to the familiar and to shares they see as ‘solid’. But a company’s profile and whether or not it is a good investment are not necessarily correlated. Better to diversify.
3. “I’m waiting for more certainty.” The emotions triggered by volatility are understandable. But acting on those emotions can be counter-productive. Uncertainty goes with investing. In the long term, discipline is rewarded.
4. “I know about this industry, so I’m going to buy the stock.” People often assume that success in investment requires specialist knowledge of a sector. But that information is usually already in the price. Trust the market instead.
5. “It was still a good call, but no-one saw this coming.” Isn’t that the point? You can rationalise a stock-specific bet as much as you like, but events or external influences can conspire against you. Spread your risk instead.
6. “I’m going to restrict my portfolio to the strongest economies.” If an economy performs strongly, that will no doubt be reflected in stock prices. What moves prices is news. And news relates to the unexpected. So work with the market.
7. “OK, it was a bad idea, but I don’t want to sell at a loss.” We can put too much faith in individual stocks. And holding onto a losing bet can mean missing opportunities elsewhere. Portfolio structure is what determines performance.

This is by no means an exhaustive list. In fact, the capacity for us as human beings to delude ourselves in the world of investment is never ending.

But overcoming self-deception is not impossible. It just starts with the idea of recognising that as humans we are not wired for disciplined investing. We will always find one way or another of rationalising an emotional reaction to market events.

But that’s why even experienced investors engage advisors who know them, and who understand their circumstances, risk appetites and long-term goals. The role of that advisor is to listen to and acknowledge our very human fears, while keeping us in the plans we committed to at our most lucid and logical.

We will always try to fool ourselves. But to quote another great philosopher, the essence of self-discipline is to do the important thing rather than the urgent thing.

by Jim Parker, Vice-President, DFA

The post Seven Ways to Fool Yourself appeared first on Mosaic Global Ltd..

When growing a family business, family business owners often find themselves at a crossroads – on one hand, there’s the wish to keep things ‘in the family’, and on the other, there are outside business coaches and consultants urging them to ‘professionalise’.

What does it actually mean to professionalise a business? And is keeping the business in family hands and professionalising it mutually exclusive goals?

The casual nature of family business

Family businesses – particularly first or second-generation businesses where the founding force is still active – can generally be distinguished from corporations by the following characteristics:

• A commitment to family values
• An entrepreneurial spirit
• A casual attitude to business processes and procedures
• Informal recruitment and employment policies
• Less defined business strategies and plans
• Less conventional management practices
• A ‘do-it-yourself’ attitude, which may lead to multi-tasking and the exclusion of outsiders, even those with specialist knowledge.

This casual working space can be very conducive to entrepreneurial activities – allowing employees to thrive and grow in a way that big business doesn’t allow. Often, it’s the very reason entrepreneurial types leave the corporate sphere and strike out on their own – and also why family business owners recoil at suggestions that their enterprise should professionalise. After all, a more casual business operation has been sufficient to achieve business, financial and personal objectives thus far – so why change?

‘Professionalising’ versus ‘corporatising’

A clear distinction should be made between ‘professionalising’ and ‘corporatising’ a family business. To professionalise is merely to impose a professional structure to an entity and its processes and procedures. Corporatisation, however, is what fly-by-the-seat-of-your-pants entrepreneurs fear most – to develop or turn a small business into a large corporation, or as they may see it, the morphing of an innovative, inspired family enterprise into a staid corporation overly focused on processes and procedures.

Whilst some family business owners may indeed strive to turn a small business into a booming multinational, others may prefer to keep it straight and simple. That’s where professionalising comes in – a few well-considered tweaks here and there can benefit any family business, without detracting from its firm family roots and core values.

Professionalising can promote:

• More sound financial management
• Better allocation of resources
• Better research and development and hence a wider range of products and services
• More effective service delivery
• Better branding and greater brand awareness
• All of which leads to increased efficiency, profitability and, ultimately, business growth.

When should a family business professionalise?

Professionalisation is associated with taking a business to the ‘next level’. Consider embarking on a process of professionalising your family business when:

• You are experiencing rapid growth
• A co-investor or partner comes on board
• The business entity changes format, for example from a sole proprietorship to a private company or when a company lists on the stock exchange
• New (outside) managers are recruited to work in the business
• There is a hand-over from the founder to a next-generation family member.

How is professionalisation achieved?

Professionalising is about enhancing the family business rather than making it into something overly complicated which doesn’t suit the family’s objectives. Some of the key points on how you can achieve professionalisation within your family business, include:

• If you haven’t already, formalise the business’s legal structure
• Develop a formal business plan outlining a strategy plan and an operational plan
• Formalise business leadership bodies – for example, establish a Board of Directors and an Executive Management Team
• If you don’t like the thought of non-family members sitting on a Board of Directors at this stage of the game, consider an Advisory Board – a body of appropriately skilled and experienced individuals who can provide advice and guidance on business matters but who don’t have the power to vote on such matters
• Create and distribute a Company Policies and Procedures File in which all business policies and procedures are clearly defined.

Professionalising your family business is a key step towards ensuring its longevity.

by Christopher Bernard (KPMGFamilyBusiness.com)

The post ‘Professionalising’ the Family Business appeared first on Mosaic Global Ltd..

Stage 1: Founding Fathers (or Mothers…)

The first stage of growth is known as The Founder Stage. A family firm generally begins by being owned and managed by its founders. While these individuals might seek some advice from specialists in certain fields (e.g. banking or product development), they will make most of the decisions themselves.

This stage is often characterised by high levels of commitment and passion by the owners who are involved at every level of the business, and are driven by a need to succeed. This can be essential to getting a business off the ground in a competitive economy.

This also means a fairly simple governance structure as all decisions will go through one key individual or a very small group who are in constant contact. Perhaps the most important issue to be considered at this stage of a business is succession planning.

While the business might be in its infancy, if it’s to succeed, it’s never too early to start planning for the future. This means putting in place a succession plan and grooming future leaders within the business to one day take charge. This will ease a necessary transition in leadership at a later stage as the business grows and the founders’ needs and aims change.

Stage 2: The next generation

The second stage is known as the Sibling Partnership. This refers to the transfer of the ownership and management of the business to the founder’s children (rather than their own brothers or sisters). This form of succession is quite common in family-owned businesses where there is an expectation that the business will stay in family hands.

This stage allows the business to expand its market share, the introduction of new ideas and products, and expansion into new fields. Fresh leadership can usher in an exciting time of growth, led by individuals with a personal stake in the business’ success.

At the same time, governance issues tend to become more complex than they were at Founder Stage. There are more people in charge now and, if the business is doing well, business activities tend to be more varied. Therefore, it’s natural that there will be greater scope for conflict and disagreement amongst leaders within the business.

Favouritism and familiarity can also lead to discord and businesses run the risk of operating in a ‘causal’ manner, without formal business processes that are necessary for long-term business survival. Implementing these processes, developing an effective communications strategy, and looking to expand succession plans for management positions beyond the family base are all key considerations during this growth stage.

Stage 3: The family legacy

Stage 3 is known as The Cousin Confederation or Cousin Consortium. At this stage, the business is well-established and various family members beyond the immediate family are involved, including cousins and in-laws.

With owner-members coming from different generations, the business will benefit from the introduction of new ideas and the tackling of previous areas of concern. Of course, this also means potential conflict when it comes to agreeing on the business’ strategy moving forward.

At times, historical conflicts can make new growth difficult as family governance issues such as shareholding rights, member roles, and mission resolution, truly come to the fore at this stage.

While these stages suggest that business growth is a clear and linear process, not all businesses will necessarily go through all three stage of development. Some businesses will never grow past being owner-managed while others might be bought up by competitors. It’s important to understand how a business can grow and whether you want your business to do so…

Extracted from www.kpmgfamilybusiness.com

The post Stages of growth in family business appeared first on Mosaic Global Ltd..

Here are some of the ways in which a leader can risk the very future of the business they created…

Staying at the top too long

Whilst the average tenure for a non-family business CEO is six years, for family businesses this is 25 years. The upside is stability; the downside, stagnation. In a stagnant business environment, new ideas cannot flourish (in fact, they may be actively discouraged) and new opportunities are often ignored.

De-motivation and frustration sets in, particularly amongst intelligent and ambitious younger members of the family, when they realise that opportunities for personal and career growth are limited. In worst case scenarios, where a leader is reluctant to pass on the baton, these bright young stars will quickly move on, leaving a dearth of talent in the family gene pool behind.

Not dealing with family disputes effectively

Every business has its politics, but family businesses get a double helping – both work-related and family politics. When family politics spills over into the workplace, it can impact on business decisions, with disastrous consequences.

History is littered with stories of family feuds which have sunk family businesses – don’t let it happen to yours. Have firm conflict resolution procedures in place, including bringing in neutral outside mediators, if needs be.

Not making succession plans

The failure of family businesses can nearly always be traced back to the lack of succession planning. For a business to remain viable once the founder has left the building, due attention must be given to:

• Leadership succession – who will be given the responsibility of defining the business direction and leading the team?
• Management succession – who is going to take on the day-to-day chores involved with managing the business?
• Ownership succession – who will actually be named as owner(s) of the business, for example, will the business pass to the spouse, the child(ren) or both?

Not doing replacement planning

Illness, injury, and incapacity can happen to the best of us, particularly as we grow older. When Steve Jobs fell ill with cancer, he was forced to step back from his leadership role at Apple. Fortunately, there was an appropriately qualified and experienced replacement to step up to the plate.

Realising that we’re fallible beings and that anything can happen is not only sensible, but smart. In the event that you have to take an extended leave from the company, replacement planning will ensure that business proceeds smoothly until your return or until permanent succession plans kick in.

Forcing children to join the business

Many family business owners dream of their children (and grandchildren) one day joining the business. But what happens when a child (or grandchild) shows no interest and wishes to pursue a different career path? Then there’s another all-too-common scenario – passing over another child who shows promise, or being oblivious to his or her interests in the business.

Rather than dictate which roles will go to whom, encourage the younger generations to get involved in family business activities and allow them the space to find their own particular nîches and fortés. Whilst you foster their sense of involvement and entrepreneurial spirit, however, do be mindful to define formal human resources practices and procedures so that you can evaluate their skills, assess performances, and review their behaviour, just as you would any non-family employee.

Remember, a satisfied and happy employee is a productive one, and more likely to invest emotionally in and make a commitment to the business – and that goes for family members, too.

Extracted from www.kpmgfamilybusiness.com

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