Family Business Basics

Andrew Pitcairn, Pitcairn

Steve Walker, National Association for Corporate Directors

Wendy Sage-Hayward, Family Business Consulting Group

Peter Begalla, Family Business Magazine

Why Do Families Come to

Transitions?

• Learn about family governance

– Getting a Family Council organized

– Develop a plan of action for family meetings.

– Hear about how to develop a family constitution

• Develop Communication Strategies

– family dynamics

– separating business & family issues.

– Promoting cooperation and building consensus

• Learn about how to develop the next generation to be

responsible business owners and family leaders

Important Topics

Most important Important Least Important

Navigating Shareholder

Dynamics: Relationships,

Policies and Process

51.2% 35.8% 13.0%

Uniting Siblings and

Cousins47.8% 34.8% 17.4%

Engaging the Next Gen with

the Family Enterprise51.9% 39.9% 8.2%

Successful Successor

Development64.2% 26.5% 9.3%

Secrets of the Oldest Family

Businesses30.0% 49.4% 20.6%

Family Business Basics19.0% 45.6% 35.4%

Why did you come to

Transitions?

Profile of Transitions FamiliesData from Transitions East 2016 attendees

•How many generations old is your family enterprise?– Average: 3.9 generations

•How many generations are currently actively involved in management of the family business?

– Average: 2 generations actively involved in management

•What are your family business’s approximate annual revenues?

18% under $25 million49.6% between $26 and $300 million34.6% above $300 million

Key Family Business Concepts

What is a Family Enterprise?

Family Enterprise

Operating Business

Assets

(Family Business(es))

Financial Assets

Real Estate Assets

Family Heirloom Assets

Philanthropic Assets

What assets does your Family need to manage and share?

Fast Facts about Family Enterprise

percent of leaders of family businesses who will retire in coming 5 years

Account for percent of all new

jobs in the US

approximate percentage of all public companies in the US are family controlled

percent of all businesses world wide are owned by families

percent of family businesses have NOT established a process for selecting a successor

percent of Fortune 500 companies that are family controlled

percent of entrepreneurs in their 60s or 70s have NO exit strategy

percent of total US

employmentAccount for percent

of all wages paid in the US

percent of US GDP

Performance of Family Enterprise

ROA= Return on assets; TSR= Total shareholder returns

Source: Miller, D. & Le Breton-Miller, I. (2005). Managing for the long run. Boston: Harvard Business School Press.

Family Enterprise Complexity3 Integrated Systems

OwnershipManagementMarketabilityInformation

Profit

BusinessPublic

CompetitiveObjectiveChanging

FamilyPrivate

Supportive Emotional Traditional

Source: Tagiuri, R., & Davis, J. A. (1996). Bivalent attributes of

the family firm. Family Business Review, 9, 199-208.

Cornerstones of Continuity

1. NURTURING FAMILY:• Climate of openness, trust & communication

• Clear, compelling family purpose & direction

• Strong family governance that evolves flexibly with family

2. STEWARDING BUSINESS:• Strategic plan for wealth & enterprise development

• Exit & distribution policies for individual shareholders

3. DEVELOPING THE NEXT GENERATION:• Support development of next generation leaders

Communication & decision-making:

The intersection between family and wealth

Business

WealthFamily

Governance

Leadership

Succession

Decision Making

Communication

Conflict

Management

The evolution of a family

The Pitcairn Family

14

Growing and preserving family resources

A family council…

• Can have a variety of goals including:

– Family unity: Cohesion or connection

– Communication among family members

– Communication between the family and the other elements of the family enterprise

– Education about the family enterprise

– Leadership development

– Fostering entrepreneurship

• Clearly defines its purpose, membership, decision-making processes, and structure through a charter

16

A family council…

• Is a part of a family governance structure

• Serves as a Board of Directors for the family in its relationship to all aspects of the enterprise (businesses, philanthropy, liquid wealth, family office)

• Helps family members navigate their relationships in light of the variety of roles they may play (family member, owner, trustee, beneficiary, director, manager, etc.)

• Can include all family members (smaller families) or be a representative body (larger families)

17

7 Pillars of Healthy Families

• Don’t be a statistic

• Identify problems before they go viral

• Mission and principle

• Engage multiple

• Be open and transparent

• Take advantage of family gatherings

• Have fun!

A sample of family councils

19

Jones Smith Green Park Brown

Generations3

G1, G23

G1, G24

G3, G46

G4, G56

G4, G5

Operating business One One None; sold Multiple One; original sold

Membership No spouses Includes spouses Includes spouses Includes spouses Includes spouses

Frequency of meetings

Quarterly Semi-annually Quarterly Quarterly Quarterly

Mission and goals

Education about the business, family

cohesion, leadership development

Leadership development,

succession planning, family cohesion,

education

Fostering entrepreneurship,

leadership development

Education, leadership development,

communication,passing down the

family legacy

Identifying potential employees, directors

and co- trustees, family history, family

engagement, education

Charter No Yes Yes Yes Yes

Family Corporate

Governance Issues

Importance of Independent Board Leadership

The “family-only” attitude may prevent family business from

gaining the many benefits an independent board member

can offer, including:

–Outside perspectives

–New complementary skill sets

–A more formal governance structure

–Constructive tension

–A re-thinking of the strategic and risk oversight process

• Identifying potential competitive and innovative disruptors

• A new lens on risk

Top priorities as identified by respondents in the 2015-2016

NACD Private Company Governance Survey: Family

Business Boards

Source: NACD’s 2015-2016 Private Company Governance Survey: Family Business Boards

Family-Owned Overall Private Companies

Strategic planning and oversight 51.1% Strategic planning and oversight 50.5%

Corporate performance and valuation

34.7%Corporate performance and valuation

41.8%

Executive talent management and leadership development

23.2%Corporate growth/restructuring(e.g. M&A)

22.0%

Board effectiveness 22.6%Executive talent management and leadership development

21.9%

Corporate growth/restructuring(e.g M&A)

19.0% Board effectiveness 18.6%