Best Practices for the Family Firm

1
Best Practices for the Family Firm

• Developing Governance Structures that Promote
  Longevity
• Presentation by
• Sarah M. Schmidt, Psy.D.
• Sarah Schmidt Consulting, LLC
• Walsh Family Business Center
• March 17, 2005

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Agenda

• The Odds are Against Us
• Determinants for Success
• Governance What and How
• Questions

3
What are the odds?

• 30 of all family owned businesses survive into
  the 2nd generation.
• 12 will still be viable into the 3rd generation.
• 3 of all family businesses will be operating at
  the 4th generation and beyond.
• (Joe Astrachan, Ph.D., Ed. Family Business Review)

4
Why are we likely to fail?

• Beyond typical pitfalls that all businesses face,
  those family businesses that fail . . .
• Lack financial capabilities or skills.
• Lack a clear conceptual framework for
  thinking
• about the future of the business.
• The family itself becomes a stumbling block.
• . . . They lack a PLAN to guide BOTH the COMPANY
  and the FAMILY.
• (John Ward, Ph. D., Keeping the Family Business
  Healthy)

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Systems in the Mix

Ownership
Family
Management
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System Dynamics

• Family defines emotional ties, mutual
  identification, family roles and culture
• Business defines employment and management roles
  and decision-making
• Ownership defines financial expectations,
  governance roles, and economic succession

7
Different Values and Logic

• Family Business Ownership
• Mutual Cooperation Competition Value Creation
• Loyalty/Unity Performance ROI
• Mutual Respect Rewards based Liquidity
  Income
• Esteem on Profit
• Permanence/ Impermanent/ Security Growth
• Stability Adapting
• Emotion Based Task Based Wealth Based

8
Growth Stages of the Family Business
9
Evolution of Roles over Time

• Increasing separation of family, business, and
  ownership roles at each stage
• Increasing differentiation of individual roles
• Some individuals manage overlapping roles, and
  wear multiple hats

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Determinants for Success

• Appropriate Governance
• Clear and Achievable Strategy
• Common Vision
• Role Clarity
• Conflict Management
• Retention of Competent Non-Family Managers
• Effective Management and Ownership Succession
• Educated and Cohesive Owners
• Explicit and Current Family Policies

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Governance

• Integrates systems, structures and processes to
  help manage relationships and interactions in the
  family business and business family.
• Establishes productive, procedural engagement
  across the system.
• Promotes simultaneous consultations among owners,
  directors, and managers.
• Encourages the free flow of ideas and results in
  speedier decision making.
• Contributes to the alignment of interests and
  objectives over time.

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Family Business Governance Structures

• Boards of Directors
• Family Councils
• Family Meetings

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Family Business Boards

• Advisory (Informal) vs. Fiduciary (Formal)
• Role of Committees
• Family Participation
• Role of Outside Directors
• Communication

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Family Governance

Family as Family
Family as Employees
The Family Council
Family as Owners (From Alden Lank and John
Ward Governing the Business Owning Family)
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Governance Bodies and Roles

• Family as Family Family as Employees Family as
  Owners
• Develop Relationships Develop Professionally Def
  ine Business Governance
• Structure
• Family History Nurture Family Interest Guide
  Director Selection Process
• Manage Shared Services Handle Grievances Define
  Owners Goals, Values, and Vision
• Education Manage Information System
• Communication Oversee Stock Transfers
• Conflict Resolution Shareholder Relations
• Identify Family Leaders Define and Oversee
  Charitable Endeavors
• Educate and Prepare for Wealth,
  Ownership, and Governance Transfer

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The Family Council

• Family Committees
• Owners Council
• Family Office Board
• Family Foundation Board
• Council of Elders

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Family MeetingsBenefits of Regularly Scheduled
Communication

• Builds trust, family cohesion, and unified family
  vision
• Improves communication
• Allows for coordination of efforts
• Enables clarity of expectations and roles
• Insurance for crisis communication
• Encourages thoughtful decision-making
• Orderly conflict resolution
• Leadership skill development
• Builds sense of security for employees
• Transfer of values, preservation of family
  tradition and history
• Education of family members

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Best Practices for Family Meetings

• Set ground rules
• Clarify roles
• Schedule fun
• Have tangible results
• Set a realistic agenda with balances content
• Take advantage of appropriate resources
• Use a facilitator with appropriate skills and
  qualities for your family
• Realize that youll never be done

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Contact Information

• Sarah M. Schmidt, Psy.D.
• Sarah Schmidt Consulting, LLC
• Consultation and Coaching for the Family Firm
• 2528 Marcy Avenue
• Evanston, Illinois 60201
• Phone [phone]
• Fax [phone]
• E-Mail sarah_at_sarahschmidt.com
• www.sarahschmidt.com