DECISION MAKING IN A FAMILY ENTERPRISE

David C. Bentall, Next Step Advisors Ruth E Steverlynck, RES Consulting

Family Enterprise Decision Making

AGENDA 1. Why and how it is different 2. Common assumptions 3. Different stages of ownership 4. Types of decision making 5. Dealing with conflicts 6. Process versus Outcome 7. Policy Development 8. Creative tools

Success Why Decision Making in Family

Enterprise May Be Different

Ownership Management Marketability Information

Profit

Business Public

Competitive Changing

Data-based

Family Private

Traditional Emotional Accepting

Source: Tagiuri R., & Davis J.A. (1982), Bivalent attributes of the family firm. Working paper, Harvard Business School, Cambridge, MA

Success Overarching Goals 1. Preserve relationships 2. Build cohesion 3. Manage conflicts 4. Freedom from political warfare 5. Efficiency 6. Avoid third party intervention in

decision making

Poor Decision Making

1. Conflicts and Tension 2. Legal challenges 3. Stakeholder battles and

defections

What Are We Talking About Today?

How we decide? What we decide? When we decide? Where we decide? Who decides? Not talked about… just assumed…

Common Assumptions (regarding decision making)

1. Voting is the democratic way 2. Voting is fair and efficient 3. Voting is the “right way” to do things 4. Consensus isn’t realistic 5. Business must not be held back by those who don’t “get it” Copyright: Ruth Steverlynck and David C Bentall

Common Assumptions Contd.

BUSINESS “There must be one leader” “Successful companies are led by successful individuals” “The CEO has the most knowledge and experience, and should have the final say”

FAMILY “My brother is a flake; he should not have a voice in decision making” “Making decisions together doesn’t work”

Copyright: Ruth Steverlynck and David C Bentall

Different Stages of Ownership

Owner/ founder Sibling partnership Cousin consortium Dynastic family

Different Stages/ Different Rules

Ownership stage Game Players

Owner / founder Tennis 1

Sibling partnership Basketball 5

Cousin consortium Soccer 11

Dynastic family Football 56

Copyright: Ruth Steverlynck and David C Bentall

Different Stages/ Different Approaches

• Owner / founder Autocratic? • Sibling partnership Collaboration? • Cousin consortium Compromise? • Dynastic family Democracy?

Success WARNING

“One of the biggest challenges in family enterprise today, is for family owners, at the G2 stage ( sibling partnership ) to learn how to compromise and collaborate.”

Copyright: Ruth Steverlynck and David C Bentall

Participatory Management

Leader Decides Follower Decide

Autocratic Consultative Group Decides Delegation

Decide and Tell Decide after receiving input

Followers share in decision

Followers decide

Style #1: Autocratic Style #2: Consultative Style #4: Democratic Style #6: Delegation

Style#3: Recommend Style #5: Consensus

Different Options for Decision Making

Source: www.primarygoals.org (revised)

Decision Making

Where should we hold the Family Retreat?

#1 Autocratic

• Definition: DECIDE AND TELL • Advantage: EXPEDIENCY • Disadvantage: NO GROUP COMMITMENT • Most appropriate when: LEADER IS AN EXPERT Dad decides to hold meeting at Board Room in Business.

#2 Consultative

• Definition: One person decides, after consultation

• Advantage: Creates buy-in • Disadvantage: Slower • Appropriate when: Group lacks education

or experience to make high quality decisions

Family members are young; Dad consults but makes ultimate decision: vacation home.

#3 Recommend

• Definition: Solicit recommendation from group before deciding

• Advantage: Leader and group both have a key role in decision • Disadvantage: Leader may not agree • Appropriate when: Healthy relationship exists

between leader and group A committee of family members is formed and recommends going away somewhere where can have fun together as a family.

#4 Democratic

• Definition: voting • Advantage: clear decision, expedient • Disadvantage: no group commitment • Appropriate when: Distinct options exist,

and a choice must be made The family votes: some want to go where there is water sports; some want to go where there are mountains for hiking.

#5 Consensus

• Definition: All agree after discussion. • Advantage: group commitment and responsibility

for outcome • Disadvantage: time consuming; desire for unanimity

gives veto to dissenter • Appropriate when: relationships matter, quality of

decision matters Family brainstorms together; all ideas are listened to and considered; decide on location where water and mountains that meet budget restrictions and has meeting room facilities.

#6 Delegation • Definition: Group decides, within clear parameters • Advantage: Frees up leader • Disadvantage: Leader loses control • Appropriate when: Risk of failure is manageable, and group is capable Dad delegates decision to next generation with a clear budget. They choose a resort in Hawaii. Dad would have preferred something more local.

Accommodate I Lose,

You Win Compromise We both Win, We Both Lose Avoid

I Lose, You Lose

Compete I Win,

You Lose

Which Style Should I Use? Collaborate I Win, You Win

Impo

rtanc

e of

rela

tions

hip

Importance of outcome

Source: Alexander Hiam, Dealing with conflict instrument

Family Enterprise

• Helpful to not habitually ACCOMMODATE • Important to not regularly AVOID • Essential to resist temptation to COMPETE • Valuable to learn to COMPROMISE • Vital to regularly seek to COLLABORATE

Copyright: Ruth Steverlynck and David C Bentall

Why Process Trumps Outcome

• Reduces conflicts • Builds trust • Generates commitment • Creates harmony • Improves implementation When you invest in fair process – it works

Russo and Schoemaeker Model

1. Framing 2. Gathering 3. Intelligence 4. Coming to conclusions 5. Learning from experience

Criteria: for High Quality Decisions

1. Communication and voice 2. Clarification 3. Consistency 4. Changeability 5. Commitment to fairness Source: Christine Blondel Insead

Qualifications to Earn Voice in Decision Making 1. Can disagree without being personal 2. Group needs before self 3. Contributor 4. Values excellence 5. Flexible 6. Informed 7. Prepared 8. Capacity to trust

1. Personal work 2. Address Past Issues 3. Create Rules of

Engagement

Attitudes and Skills for High Quality Decisions

Why Policy Development?

1. Eliminates tension 2. Help solve current and future

problems 3. Process of creation strengthens

relationships 4. Turns implicit to explicit and

deliberate

Creative Tools for Consideration

1. Martha’s rules 2. The Amulet 3. The Wise Swiss Gentleman

(Arbitration) 4. Mediation 5. Auction 6. Other

Martha’s Rules:

• Ordinary decisions determined by a vote. • “UNLESS YOU ARE GOING TO DIE” • If you can’t “Live” with the decision, you

may veto a decision. • However, if you veto, you are obliged to

come back to the group, in a timely fashion, with a formal recommendation for what to do.

The Amulet Four brothers inherited a business ( 25% each) Their father gave the eldest a bolo tie, with a silver and turquoise amulet, and said: “In those instances when you cannot reach consensus, the one who has the amulet will have the last word”. However, once this prerogative is exercised, the amulet would be passed to the next brother. Ivan Lansberg ( Succeeding Generations)

The Wise Swiss Gentleman

• Two Chilean brothers inherited a business equally.

• On those few occasions when the brothers could not agree, they were to call their father’s friend in Switzerland to mediate.

• The brothers called him only 3 times in 30 years of working together

Ivan Lansberg (Succeeding Generations)

Success Auction • If one party wants to end the co-ownership, they may

do so by offering to buy the other(s)

• The other party then may accept, or counter offer, with a price at least 5% higher

• This “private auction” continues until one party receives a price at which they are “happy to sell”

• Each bid must be 5% higher than the previous, and each bid must be countered or accepted within 5 days ( except the first offer, which allows 60 days)

Copyright: Ruth Steverlynck and David C Bentall

Concluding Comments

1. Family Cohesion is the goal 2. How we decide and Who decides can have huge impact on family relationships 1. When in doubt: reach for consensus 2. If not possible: seek compromise 3. If not possible: have an agreed back up plan to resolve Copyright: Ruth Steverlynck and David C Bentall

Jay Hughes “Successful long term wealth preservation requires the creation and maintenance of a system of governance or joint decision making, to the end of making slightly more positive decisions than negative ones over a period of at least one hundred years”

THANK YOU

Success APPENDIX:

8 Keys to Policy Development 1. Create positive environment 2. Involve all who are needed 3. Focus on the future; let past go 4. Get outside input 5. Don’t get frozen into a position 6. Look at big picture: avoid self interest. 7. Let policies grow out of shared values,

and beliefs 8. Decide in advance how policies will be

approved/ enacted