© International Institute for Family Enterprises Family Business Conference 2010 Factors causing...

© International Institute for Family Enterprises

Family Business Conference 2010

Factors causing Family Business Failure

Paul Dietze | Managing Director

International Institute for Family Enterprises

By kind invitation of theYemeni Businessmen Club

29 September 2010 | Sana'a, Yemen


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We are the premier advisor and knowledge-leader for

Middle Eastern and German family enterprises, delivering profound

improvement to our members for success across

generations.

We are the premier advisor and knowledge-leader for

Middle Eastern and German family enterprises, delivering profound

improvement to our members for success across

generations.

The International Institute for Family EnterprisesFactors causing Family Business Failure

What is the International Institute for Family Enterprises (IIFE)?



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IIFE Executive Summary

• Founded in 2007 at Witten/Herdecke University in Germany

• Academic non-profit organization

• Pioneering approach (First-Mover in the MENA Region)

• 100% privately-financed organization

• Developing a selective “By invitation only-membership” for

Middle Eastern and

German family businesses and value-adding third parties

• Integrated and global best-practice approach in the fields of

research, education,

networking and advisory services




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The International Institute for Family Enterprises

IIFE Global Experience

Factors causing Family Business Failure



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Joseph Astrachan, Ph.D., editor, Family Business Review & IIFE Board Member

“Family businesses are challenged.

Only 30% of all family-owned businesses survive into the second generation, 12% will still be viable into the third generation, and

only 3% of all family businesses will be operating at the fourth-generation level and

beyond.”

Family Businesses Dominate the Global Economy…




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Why Do Family Businesses Fail?

“Most family businesses do not fail because of high taxes, economic turbulences, or

technological revolutions. They fail because of family conflicts and the

inability of senior generations to let go.”Dr. Jürgen Hereaus, Chairman Hereaus Group & Patron of Arab-German Family Business Summit 2010

Poor Management, Insufficient Capital, Lack of Planning,

Overexpansion, Strategic Deficits, Competition,

Wrong Decisions,…




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Source: John A. Davis | Professor at Harvard Business School and IIFE Board Member

Family Members

Non-Family, Non-Manager Owners

Non-Family Employees

Family

Owners

Non-Family Owner

Employees

Family Owner

Employees

Family Employees

The Three Circle Model




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The Developmental Stages of the Ownership System

Controlling Owner

Sibling Partnership

Cousin Consortium

30%

12%

Source: Kelin Gersick, Ph.D. | Professor Yale University and Chairman of IIFE Academic Board




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Types of Family Business Ownership

Controlling Owner

Sibling Partnership

Cousin Consortium





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The Controlling Owner Stage

Owner - Manager





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Controlling Owner

Sibling Partnership

Cousin Consortium





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Sibling Partnership

Types of Sibling Partnership

First Among EqualsEgalitarian





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Controlling Owner

Sibling Partnership

Cousin Consortium





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Governance Structure for a Complex Family Enterprise

Family Governance Business Governance

Shareholders’ Assembly

Family Council

Education Committee

Redemption FundFamily Foundation

Family Office

Governance

CEO

Council of owners

Family Family AssemblyAssembly

Board of Directors

Venture CapitalFund

Family Reunion

Career Planning Committee

Management




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Ownership

BusinessFamily

Family Governance

Family Council

Family Family AssemblyAssembly

Governance Structure for a Complex Family Enterprise

Business Governance

Shareholders’ Assembly

Council of owners

Board of Directors




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Avoiding Failure | Family Constitutions• Family mission/vision for the family, business, owners and governance• Core family values• Family commitment to the business and other activities

Preamble

• Family employment and compensation policies• Selection of future business leaders• Retirement policy

EmploymentPolicies

• Ownership transfer policies• Stock buyout process and valuation method• Dividend policy• Shareholder responsibilities and rights• New venture support• Perquisites (perks) policy

Ownership and Financial Policies

• Family office and service• Education plan• Philanthropy, civic and other key family activities

Other Family Activities

• Family ground rules – how to treat each other and support the family• Agreement on how to arbitrate or mediate disputes• Family council and family assembly structure

Governance Regulations




Thank You!



© International Institute for Family Enterprises Family Business Conference 2010 Factors causing...

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