1. Elaborating a Family Business Succession Guide Ph.D. Annika Hall M.Sc. (Econ) Stiina Lehti

2. Presenting ourselves… Ph.D., Docent Annika Hall –Doctoral thesis: ”Strategizing in the context of genuine relations. An interpretative study of strategic renewal through family interaction.” (2003) Jönköping International Business School. –Research focus in family business, strategic management, qualitative approach. M.Sc. (Econ) Stiina Lehti –Assistant in Family Business Master’s Degree Programme at JYU. –Doctoral student ”Dimensions of Ownership in Family Business: View of Founder and Successors”.

3. Name Major Faculty/ university Experiences about family business – previous courses and other. Expectations about the course Presenting yourselves

4. Aim of the course The aim of the course is to offer basics on the family business succession planning process. During the course the students will complete a Family Business Succession Guide. Course content Focus of the course is on issues like: Family, management and ownership systems (overlapping and developing) as context for family business planning process. Strategic renewal of a family business Financing of business transfers (succession within family or possible transfer/sale).Visiting lecturer. Family business succession planning Course format Lectures (visiting expert from a financing institution + family business representative). Analyzing case studies individually. Preparing a Family Business Succession Guide. Course completion Pre-course assignment (individual) 25% Family Business Succession Guide (individual) 75% Course literature Different articles/ cases given by the instructors. Separate list of references! Prerequisites Intermediate studies in Entrepreneurship. YRIS141 Elaborating a Family Business Succession Plan, 8 ECTS

5. Monday March 12th (16:15-20:00) 16:15-17:30Welcome & presentation Video “Fair vs. Equal” + discussion 17:30-17:45Break 17:50-18:50What is a family business? What is a family? 18:50-19:00Break 19:00-20:00What is succession? –Ownership –Management –Process –Stakeholders Why plan succession? (mindmap based on pre- course) Agenda: day 1

6. Tuesday March 13th (8:30-16:00) 08:30-09:50Feedback/recap of day 1 What are the issues to include in the succession plan? (mindmap) Different ways of conceptualizing succession planning, models, checklists. 09:50-10:20Coffee break 10:20-11:20Live case: Managing Director Nanna Isosaari, Junkkari Oy 11:20-11:30Legstretcher 11:30-12:30Human side of succession 1.Roles/ identity 2.Emotions 3.Relations 4.Rationalities Case Indiska 12:30-13:30Lunch 13:30-14:45Financial issues of business transfers/ succession, Mr Pentti Kokkinen, Finnvera. Legstretcher 15:00-16:00Final Assignment: Family Business Succession Guide Closing (feedback) Agenda: day 2

7. Video: Fair vs. Equal Group discussion: Part I What kind of issues, problems, possilibities? Part II Solution?

8. Coffee break!!!

9. Content What is a family business? What is family? What is succession? –Ownership –Management –Process –Stakeholders Different ways of conceptualizing succession, model, checklists. The human side of succession –Roles/ identity –Emotions –Relations –Rationalities Wrap up – make your own plan

10. A family business is… … a business in which “one family group controls the company through a clear majority of the ordinary voting shares, this family is represented in the management team, and the leading representatives of the family perceive the business to be a family business” (Westhead et al. 1996)

11. What is a family business? Family Business Ownership Tagiuri & Davis

12. Family system vs. business system Source: Carlock & Ward 2001

13. Change dynamics in a family business system Gersick et al., 1997

14. What makes FB special? “One of the distinguishing characteristics of the family firm is that within the context of the business environment relationships within the family will differ from those among non family members. It does not mean that they will be better or worse, just more complex. A family’s long term relationship and history, extending beyond the work environment serve to intensify emotions and may burden them with previous baggage. In addition, people in the firm may multiple roles with respect to each other. Multiple role relationships can be confusing, but also enriching and very gratifying”. (Whiteside and Brown, 1991:387)

15. Family businesses: size & scope Family firms make up two-thirds of total businesses around the globe. EU –75% of businesses family firms (appr 17 million businesses employing 100 million people). –25 of the 100 largest businesses in the EU are family firms. –Estimated two-thirds of Europe’s private sector employment. USA –37% of Fortune 500 companies family owned –60% of all public companies in the USA are family controlled. –Family firms comprise 80-90% of all business enterprises in North America. –60% of total employment, 78% of all new jobs, more than 50% of GCP and 65% of all wages paid. Finland –over 80 % of businesses family controlled (majority SMEs). –100 family companies in the TOP 500 list. Not only SMEs; Bechtell, Mars, Ford, Toyota and Wal-Mart are family controlled. In Finland: Fazer, Ahlström, Paulig, Hesburger, Tulikivi…. Source: The Family Enterprise Institute, FBN International

16. Challenge is to find successors for the companies founded by the ”baby boomers” generation. In Finland estimated 60.000-80.000 companies will face retirement of the founder in coming years. Ca. 4/5 of successions fail > creates risk for employment and economy! Value of a family business career has improved due to downsizing wave, entrepreneurial activity recognized. When planned and executed well the family busines can become a dream job for those who participate in it and a chance to better careers and lives! Future challenge of FB

17. Content What is a family business? What is family? What is succession? –Ownership –Management –Process –Stakeholders Different ways of conceptualizing succession, model, checklists. The human side of succession –Roles/ identity –Emotions –Relations –Rationalities Wrap up – make your own plan

18. Different approaches to FB The dual approachThe integrated systems approach BFB F

19. The dual systems approach F and B as overlapping systems with incompatible logics –F:relation-based, emotional, caring –B:performance oriented, rational, competitive F as intruding on B FB as irrational, unprofessional, inflexible Critique: - stereotyping of subsystems functioning - exaggerated notion of subsystem boundaries - inadequate analysis of interpersonal dynamics - under-analysis of whole system characteristics BF

20. The integrated systems approach F and B as synthezised system with its own logic (FB) F as integral to B F as both advantage and disadvantage, interest in understanding the dynamics and mutual influence of F and B in the FB BF

21. Family Conducting different tasks Process (river) System Genuine relations Institution

22. Family Childcare Regulation of sexuality Establishing a sense of identity and boundary as an individual Patterns of intimacy as a couple and as a family unit Negotiating roles in terms of division of duties and decision making Defining rules about the patterns of mutual obligations or duties. The negotiations and completion of these tasks, and the resulting joint building of a shared reality = The family

23. Family as a system “The family is a complex integrated whole, wherein individual family members and family relationships are necessarily interdependent, exerting a continuous and reciprocal effect on one another” “Thus, a relationship like that between a parent and a child is inextricably embedded in the larger family system and can never be fully understood independent of the content of that system” (Cox et al, 2004:202) Business as family member! Implications for family?

24. Family as an institution Institution –A human mental construct for a coherent system of shared (enforced) norms that regulate individual interactions in recurrent situations (Sjöstrand, 1992:1011) Different sources of institutionalisation with own logic of action and bases of evaluation – Family: logic based on community and motivation of activity by loyalty to members

25. Family as a process Complex Continually changing Context dependent Collaborative engagement Construction of reality “Certain ways of talking about, assigning meaning to, and make sense of relations with others” (Fletcher, 2000) Family as a river (Conger et al. 2004:3)

26. Family as genuine relations Close relations with particularly well known others (friends, family) Individuals not easily replaceable Relations frequently reoccurring and durable Relations emotional and seek establishment of confidence and trust –Interaction has meaning beyond the actual transaction Genuinely related individuals benefit from the interactions as part of a well- defined group, ultimately shaping their identity “The “glue” holding families together is “the emotional bondings and affectionate ties that develop between and among its members as well as a sense of responsibility and loyalty to the family as a system” (Kepner, 1994:448)

27. Relationship forms Genuine Contractual Coercive (pseudo-genuine) Different family relationships –Marital –Parent - child –Siblings Family business dynamics: Interplay of relationship forms among different constellations of family members And of family and non-family members…..

28. Functions of the family Primary socialisation –Values, norms, ways-of-thinking Belonging –Social identity Separation –Individual identity

29. Primary socialisation The family’s explanation of the world to their children - objectification of reality Serves as primary organisers of internal and external experience Guides the process of sense making (meaning) Cognitive learning and emotional relations “It is the family who determines the shape and the balance of the iceberg of the mind” (Wetherell, 1997:263)

30. The power of primary socialisation “What the family tells us has a force and power that we never quite leave behind. What they tell us is our first syntax, our first grammar, the foundation onto which we later add our perceptions and modifications. We are not entirely free to challenge the family’s beliefs as we might challenge any other system of belief. And even when we do challenge, we half disbelieve ourselves”. (Stone, 1988:101)

31. Belonging A feeling of similarity with others Manifested by norms of equality, trust, altruism and loyalty

32. Separation Differentiation from the family “The degree to which one is able to have control over one’s own thoughts and emotions (…) A differentiated person is able to function optimally around significant others without feeling responsible for them, controlled by them, or impaired by them”. (Williamson and Bray, 1995:359) Development of a personal/individual identity (self) - Individuation “A peculiar set of opinions, judgements, evaluations, attitudes, manifested by a person towards him-or herself”. (Doise, 1998:13) “It is through separation we find out who we are: Our identity is a process of distinguishing ourselves from everyone else”. (Kepner, 1991:449) Secondary socialisation

33. Individuation: A lifelong inter-individual process Secondary socialisation –The internalised norms, values, beliefs etc. are conveniences that can be challenged/ignored –But primary socialisation always there “in the background” No “final self”! Individuation is a continuous process –More difficult/more easy in the family firm? Individuation is inter-individual “All persons exist in relationships and (…) the self is interpersonally established, maintained, developmentally modified, and recognised through transactions in family relationships throughout the family life cycle” (Sharpio, 1995:160). (Business) roles provides identity –Succession: role transition (role entry/role exit, affects family hierarchy?!)

34. Individuation in the family system Individuation of single family members requires the family system to be adaptable and flexible.

35. Interrelated family functions Primary socialisation Belonging Separation

36. The paradox of identity The balancing of the simultaneous needs of belonging and individuation –The enmeshed family: Too much unity and merging The individuals suffer –The split family: Too much individuality The family system suffers – The healthy family: Handles the balancing A true challenge for the business family!!

37. The borders of the family Nuclear family Extended family In-laws Who is family? Inclusion and exclusion The role of business in the family

38. …and handle post transfer challenges “Running a business is not a way of earning money. I don’t go around with the balance sheet in my back pocket. I love being here. I can’t imagine anything better than being here. And of course I am proud of the fact that I was involved in building it up. It has been enormously enjoyable. This is a life style and losing it would in some ways be like dying. It would be like losing my personality”.

39. Coffee break!!!

40. Content What is a family business? What is family? What is succession? –Ownership –Management –Process –Stakeholders Different ways of conceptualizing succession, model, checklists. The human side of succession –Roles/ identity –Emotions –Relations –Rationalities Wrap up – make your own plan

41. ”Passing the baton!”

42. Succession The acquisition of shares and/or company positions Process of role transition Formal and actual succession

43. Succession of OwnershipManagement Interrelated but not always simultaneous processes

44. Ownership can be Legal/economic –Legally protected possession (of shares) Psychological –The feeling of something as mine Socio-symbolic –Internalised meanings (c.f. business as heirloom)

45. Implications of ownership Use-related –Power, rights, responsibilities Self-expressive –Individual & social identity Emotional –Joy, pride, strain, worries Behavioural –Motivation, responsibility, active imposition

46. “As people get older, many of the usual markers of adult identity may be lost, through retirement from one’s occupation, shrinkage of social networks and social roles or physical deterioration. They may, therefore, develop a stronger emphasis on the past to reaffirm who they are - their identity - and in order to maintain a sense of self-continuity they might particularly need those possessions, which are concrete reminders of past experiences and events. In this way, possessions do not only symbolise future goals and tell us who we are to become, but also they tell us who we have been” (Dittmar, 1992:110)

47. Management “A process of working with and through others to achieve organisational objects efficiently and ethically”. (Managers can be psychological owners)

48. Succession StructureProcess Formal succession

49. Succession stakeholders Succession Predecessor Successor Family Employees Customers

50. See you tomorrow at 8:30 MaC102

51. Tuesday March 13th (8:30-16:00) 08:30-09:50Reflections of day 1 Final assignment What are the issues to include in the succession plan? (mindmap) Different ways of conceptualizing succession planning, models, checklists. 09:50-10:30Coffee break 10:30-11:20Live case: Managing Director Nanna Isosaari, Junkkari Oy 11:20-11:30Legstretcher 11:30-12:30Human side of succession 1.Roles/ identity 2.Emotions 3.Relations 4.Rationalities Case Indiska 12:30-13:30Lunch 13:30-14:45Financial issues of business transfers/ succession, Mr Pentti Kokkinen, Finnvera. Legstretcher 15:00-16:00Closing discussion Agenda: day 2

52. YRIS141 Elaborating a Family Business Succession Plan Final Assignment ”A guide to successful succession” In this assignment you should make sense of succession in by making your own guide to successful succession. The guide could be a model, checklist or the like of the succession process. Please make it in such as way that a company facing succession could use if for planning (reflecting over, structuring, and making choices among options etc.) their own succession. This means that the issues/steps etc. that you include in your guide have to be clearly formulated and well motivated. Why is this issue/step necessary to take into consideration. It is also important that you give some examples on how to ”in practice” deal with every suggested issue/step so that family members/owners using the guide get some input in how to work with it (a guide could only give the issues/steps and some examples – the exact content has be be uniqe for each family firm, adapted to their specific family and business situation). Further, it is very important that the issues/steps are theoretically discussed and motivated. What is the issue/step all about (explain it more in depth) and why is this issue/step important (give a theoretically based insight in why the step/issue is included in the plan). For this part you should make use of literature. Here the course literature is only a starting point. You have to find literature that is especially relevant to your plan and use it to develop and motivate your guide. This means you have to search for literature in the library etc. 1/3

53. Having finalised the guide you should use the case ”Succession in City Life” and apply it to your plan. How would City Life benefit (have benefitted) from using your guide. By applying the case of City Life to your guide you will ”demonstrate” the pracitical relevance of the guide. Please make the application of the case to your guide as detailed as possible. This assignmet gives you a lot of freedom to use your own creativity. There are no absolut right or wrong ways to do a guide – as the course has shown there are a lof of ways to conceptualise succession. The many possibilities of constructing a guide means we will not give you ”musts” regarding what to include. A recommendation is to rethink the content of the two intense course days and use that as an input. Among other things we have been talking about succession as including both management and ownership, both structure and process, the business, the family, but also single individuals and their interactions. But! Do also feel encouraged to think ”outside of the box”. Perhaps we missed out on some important aspect during the course days that is important to include in the guide. 2/3

54. When evaluating your succession guides we will use the following criteria: Relevance & motivation of steps/issues etc, in the succession guide Examplification of how to ”in practice” work with the issues Theoretical discussion and motivation for the included steps/issues Applications of the case ”City Life” to the case (demonstration of pratical usefulness) Degree of creativity The deadline of handing in the guide is May 5th 16:00 o’clock. Please note that late work will not be accepted! Please return the guide as a paper copy (do not e-mail) to following address: Stiina Lehti PL 35 (MaE) FI-40014 Jyväskylän yliopistoor bring it to the mailing room (MaE219 In case of any questions please e-mail to stiina.lehti@econ.jyu.fi.stiina.lehti@econ.jyu.fi Good luck! 3/3

55. Succession planning: Reference list Allered, R. C. & Allered, R. S. (1997) The family business: Power tools for survival, success and succession. Berekely Books, New York. Aronoff, C. E. & Ward, J. (1992) Family business succession: The final test of greatness. Family Business Leadership Series, No. 1. Georgia, USA. Aronoff, C. E. & Ward, J. (1992) Family meetings: How to build a stronger family and a stronger business. Family Business Leadership Series, No. 2. Georgia, USA. Aronoff, C. E. & Ward, J. (1996) Family business governance: Maximizing family and business potential. Family Business Leadership Series, No. 8. Georgia, USA. Aronoff, C. E. & Ward, J. (2000) More than family: Non-family executives in the family business. Family Business Leadership Series, No. 13. Georgia, USA. Carlock, R.S. & Ward, J. L. (2001) Strategic planning for the family business. Parallell planning to unify the family and the business. Palgrave, USA. Fischetti, M. (ed) (1997) The family business succession handbook: A practical guide to transferring leadership and ownership to the next generation. Family Business Publishing Company. Philadelphia. Hall, A. (2003) Strategising in the context of genuine relations. An interpretative study of strategic renewal through family interactions. JIBS Dissertation Series, No. 18. Jönköping, Sweden. Spector, B. (ed). (2003) The family business conflict resolution handbook: The guide for achieving consensus in your family and your company. Family Business Publishing Company. Philadelphia. Spector, B. (ed). (2004) The family business mentoring handbook: A practical guide to training and grooming successors and other stakeholders in your family company. Family Business Publishing Company. Philadelphia. Voeller, M., Fairburn, L. & Thompson, W. (2001) Exit right: A guided tour of succession planning for families-in- business-together. Summit Rin, Toronto.

56. Pre-course assignment 1.Succession in family firms is considered to be one of the biggest challenges of management. Do you think this is true? Why or why not? Central challenge in family business –Several failures –Lack of planning –Start the process early enough –Communication between founder and successor/s –How to transfer the “legacy” (vision, goals, knowledge etc) –Uniqueness of each case –Psychological and emotional i.e. the “human” issues caused by family members’ different goals regarding business and family. –Struggle of trust and power with the ones you love –Stakeholders’ position Founder –Difficulty of letting go (lifework, started from scratch, sweat equity) –Founder centrality –Resistance to changes –Jealousy to successors –Role after succession Successors –Difficulty of finding the right successor/s –Motivation/ commitment Positive (new ways of thinking, innovations etc) and negative implications (how to transfer the legacy between generations).

57. Pre-course assignment 2.What does a good succession look like? A process, result of long-term careful planning consisting of Business strategic plan Family strategic plan Financial plan Estate plan Successor’s training plan Communication and open discussion within the family Continuity of the business and maintenance of family harmony. Seems to take place “naturally” and smoothly. Use of outside expertise If a successor is not found from the family > transfer of business.

58. Content What is a family business? What is family? What is succession? –Ownership –Management –Process –Stakeholders Different ways of conceptualizing succession, model, checklists. The human side of succession –Roles/ identity –Emotions –Relations –Rationalities Wrap up – make your own plan

59. Pre-course assignment (1/2) 4.What should be the steps in succession planning process? Depends on the unique circumstances (size of the company, business, family, future prospects). Involve everyone in the process! Communication among all parties Decide whether to “be or not to be” a family business. Successor/s Finding the right successor/s Preparing the successor/s (education, outside work experience, work experience in the family business in different areas). Founder Retirement plan Set a target date as the last day in the company Should not leave the company before successor is ready to take over.

60. Family Commitment/vision Participation of family members in the business Meetings (Family Council) Exit possibility Employees Offer stock to retain key employees Financial plan Taxes, stocks, assets Use of outside expertise in deciding on issues like ownership. Time schedule for the process Implementation of the succession plan Pre-course assignment (2/2)

61. Four phases of succession I: Bring the question up II: Acquire knowledge and reflect III: Decide on a solution IV: Implement solution … and handle post-transfer challenges!!!

62. Bring the question up Why wait ? - much to be gained by getting going!! “Ownership” of transfer process

63. II: Acquire knowledge and reflect To whom? How much? Role(s) of the owner after the transfer Analyse the consequences!

64. III: Decide on a solution What is the meaning of the business? Involve stakeholders Take advice Make own decision

65. IV: Implement solution Governance structure – board –owners’ policy, –family council New roles: Define –Content –Rights –Responsibilities Transfer of not only shares, but also –Knowledge (tacit) –Network –Culture Communication –Internal –External

66. …and handle post-transfer challenges! “Running a business is not a way of earning money. I don’t go around with the balance sheet in my back pocket. I love being here. I can’t imagine anything better than being here. And of course I am proud of the fact that I was involved in building it up. It has been enormously enjoyable. This is a life style and losing it would in some ways be like dying. It would be like losing my personality”.

67. Succession planning is a step-by- step process 1.Define broad ownership and management goals (strategic position of the company). 2.Organize a succession task group. 3.Set criteria for selecting the successor. 4.Develop the successor. 5.Time the event (set a firm date!) 6.Re-orient the retired incumbent. Chrisman, Shua & Sharma

68. The parallel planning process Source: Carlock & Ward 2001

69. Coffee break!!!

70. Nanna Isosaari, Junkkari Oy Name: Nanna Isosaari Title: Managing Director (Junkkari Oy) Age: 32 years Education: MSc in Economics and Business Administration, Jyväskylä University, BBA Helsinki School of Economics, Mikkeli Generation in family business: 3rd Company name: MSK Group Oy. The companies in MSK Group are Junkkari Oy, Junkkari Muovi Oy, Juncar Oy, Maaseudun Kone Oy, Junkkari Polska Sp.. Maaseudun Kone Oy produces the cabins to Valtra tractors and Junkkari has 1/3 share of the Finnish agricultural machinery markets Founded in: 1950 Located in: Ylihärmä Industry: Metal and plastic Turnover: ca 100 million € Personnel: 530 Main market areas: Finland and other Nordic countries, Baltic states, Europe, Japan.

71. Lunch

72. Content What is a family business? What is family? What is succession? –Ownership –Management –Process –Stakeholders Different ways of conceptualizing succession, model, checklists. The human side of succession –Roles/ identity –Emotions –Relations –Rationalities Wrap up – make your own plan

73. Genuine relations + Positive working climate Confidence and trust - freedom!! Efficiency Development (individual & business)

74. Genuine relations - Competition Conflict Obligations - OBS! Be aware of coercive but seemingly genuine relations ”Like one big happy family” is not always positive! Genuine relations have potentially dark sides! Restricted development (but can also be triggering…)

75. Business roles shape identity We create, express and manifest our identity thorugh the roles we enact Role identification - ”I am…”- if –The role is socially appreciated –The role is visible –The role is permanent –Sacrifices have been made to achieve/keep/develop the role Owner/CEO/Entrepreneurrole identification Role identificationstrive for role enactment Transition of roles when role identification = change of identity

76. Identity A peculiar set of opinions, judgements, evaluations, attitudes, manifested by a person towards him-or herself; ”This is me” Always in the process of becoming -no “final” identity A basic human need

77. Succession - process of role transition Exiting/Entering a role means to - Understand the role as separate (Not as part of any other role; CEO-Owner) - Understand the content of the role (responsibilities and authorities) - Enact the role; create an identity through the enactment of the role Role separationRole definition Role identification

78. Succession as role transitions Key words: - Awareness - Knowledge - Sensitivity - Communication SUPR ! ? SU och PR

79. Values decide what is Good-bad Forbidden - allowed Moral-immoral Ugly-beautiful Natural-unnatural Normal-not normal Rational-irrational Expressions of vales might seem “objective” but are not! (Test: Why?)

80. Why values? Create identity Create belonging “Steer” interpretations and actions (values as”filter”) Reduces complexity and insecurity Reduces conflict Provide motivation Function as control mechanism Competitive advantage?! Especially for family firms?!

81. Values exist through interactions Values are not objective Values are often unconsciously held - made explicit when they are challenged or threatened Values are learned through interaction Primary socialisation makes strong values Values can change - but not very easily, and often not without resistance ValuesAction

82. Family business management Formal competence –Education –Training –Experience Cultural competence –Understanding of the values, goals and meaning the owner family ascribes to being in business

83. Succession issues Legal Economical Organisational Socio-psychological (the human side of succession) Taxes, insurances, finance etc.

84. Succession: Beyond figures Succession is emotional Succession challenges identity Succession is multirational –Instrumental –Expressive –Relational Succession is complex Succession processes are all unique –same questions but different answers!

85. Coffee break!!!

86. University of Jyväskylä Elaborating a Family Business Succession Plan 13.3.2007 Pentti Kokkinen Regional Director Finnvera, Jyväskylä Regional Office Financial Issues

87. Coffee break!!!

88. Content What is a family business? What is family? What is succession? –Ownership –Management –Process –Stakeholders Different ways of conceptualizing succession, model, checklists. The human side of succession –Roles/ identity –Emotions –Relations –Rationalities Wrap up – make your own plan

89. Thank you for your participation and attention!