 | Derrick Nielsen specializes in helping clients manage the conflictual issues inherent in family businesses. He has worked with siblings and cousins to create structures, systems and policies that help them work together effectively as owners and managers. Derrick has assisted companies improve their governance systems through the formulation of strategic and operational plans, the creation of Owners' Charters and Family Constitutions, the facilitation of Family Council meetings and retreats, and the introduction or enhancement of Advisory Boards or legal Boards of Directors. In addition to his client work, Derrick coordinates Legasus Group's research and development efforts. He has shared the Legasus approach to the family business system in a number of public seminars, private workshops and published articles. Derrick's diverse background includes two years on Desmond Tutu's Truth and Reconciliation Commission, a year teaching in a South African high school, and a year tutoring American Politics at Oxford University in England. He has a B.A. from Georgetown University and is currently completing his Ph.D. dissertation for Oxford University. Derrick can be reached at (316) 681-0444 or by e-mail at dnielsen@legasusgroup.com |
Business Consulting
2004-05-01 17:17:00
Family business succession plans
Question: We have a family business. My grandfather started it and now my mother is getting ready to hand the business down to the kids. I have two siblings. I am the oldest. We have all been working in the business for several years. I am afraid there is a possibility of problems once things are complete. What do you think?
ANSWER: (continued from last month)Last month, we began answering this question with a discussion of the obstacles you might face as you consider joint leadership of your grandfather's company. This month we will take a look at three of the models family businesses have successfully used for shared leadership. What may work for you and your siblings might be a variation on one of these basic models.WINNER TAKES ALL PARTNERSHIPThis form of partnership most closely resembles a controlling owner organization as one partner - usually a long designated and carefully groomed heir - inherits a majority stake in the family business. Other siblings receive minority, non-controlling shares. In this scenario, the designated heir, who is often the only sibling active in the management of the business, exercises absolute legal control. This results in considerable decision-making freedom. To sustain legitimacy, however, the controlling partner has to bear in mind and balance the interests, aspirations and opinions of the other sibling partners. Successful leaders in this mold act as stewards of the collective interests of the partnership as well as the individual interests of the siblings. As a result, this form of partnership is often referred to in quasi-paternal terms. The designated heir assumes a role much like a parent in providing for the security and welfare of the other family members. This form of partnership is stable only as long as all the siblings willingly accept the leadership of the designated heir. If members of the sibling group seek more active roles in the business, they may come to resent their sibling's dominant position. Cousins in the next generation may similarly reject the exclusive power exercised by one branch of the family. Passive shareholders may also rebel if they feel that the designated leader is incapable of providing a fair return on their investment or is unresponsive to their needs. In winner takes all partnerships, the buck stops with the designated heir who is the appointed leader and majority shareholder.FIRST AMONG EQUALS PARTNERSHIPMany founders equally distribute shares in the family business to their children as part of their estate. While the children receive the same inheritance, they generally will not have the same interest in or aptitude for operating the company. Although the siblings will share ownership control, they will likely play different roles in managing the day-to-day affairs of the company. Some may not even work in the business at all. They must nevertheless decide how they will jointly direct the affairs of the company as business owners and stewards of the family legacy.Successful partnerships in this mold demonstrate a clear understanding of the various siblings' strengths and weaknesses and accord roles within the business and partnership accordingly. In many instances, siblings' jobs within the business reflect their very different personalities. The charismatic, committed sibling may be the natural and mutually agreed upon choice to serve as President/CEO. The organized, detail-oriented sibling may make an excellent COO, while the numerically astute CPA may be a superb CFO. Whatever the actual combination of personalities and positions, it is important that the siblings agree on the division of duties and titles, competently execute their respective roles, and find personal and collective reward in the process. First among equal partnerships are on shaky ground if siblings are unwilling or unable to fulfill the roles assigned to them. Without sufficient humility and self-awareness, these partnerships are prone to politicking and internal dissension, especially if siblings desire the same job. To avoid infighting and jealousy, siblings should also spell out how each partner will be compensated on the basis of his or her managerial responsibility, demonstrated competence and/or professional qualifications. Above all, partners must be able to distinguish between equal ownership and unequal executive powers. First among equal partners understand that equal is not necessarily fair and fair is not always equal.EGALITARIAN PARTNERSHIPIn egalitarian partnerships, siblings combine equal ownership with equal managerial responsibility. Rather than dividing executive power, these siblings share titles and responsibilities as Co-CEOs or through a rotating Presidency. Although considered unconventional and risky, such structures are attracting the interest of a growing number of family businesses. In the right conditions, the egalitarian sibling team is a solid foundation for a unified, energetic management team with an enviable range of skills. The dangers are equally apparent. Without a long history of mutual respect and natural cooperation, the lack of a final decision-making authority can paralyze the business, setting up unsolvable feuds that will ultimately scar the family as well. To avoid this, egalitarian partners must share a set of strong values, possess exceptional communication skills, and demonstrate an unusually high level of trust. They should also mutually agree upon a tie-breaking mechanism to use as a last resort to prevent decision-making inertia. To succeed, egalitarian partners must be able to live the motto: "All for one and one for all."
