1. Family business in Italy Moscow, February 7, 2013 Dott. Francesco D ’ Aprile, Italy Transferring the Control of Business to the relatives in the Family business: how to make it effectively

2. 35% = Family Business Scenario: World

3. 50% of total US employers  Family Business 80% = Family Business Scenario: USA Represent 50% of the US GDP

4. 25% of the first 100 EU co.  Family Business 66% = Family Business Scenario: Europe Represent 40%-60% of the EU GDP 17 M. companies with 100 M. employers

5. 43%  Boss older then 60s (Founder) 93% = Family Business 42%  2nd Generation involved in the company 25-30%  dies at starting the 2nd Generation 4,9%  survives after 3rd Generation Scenario: Italy

6. Structure of Italian companies (year 2010) Size of Italian Companies (n. employers) N. Companies %N. Employers %Revenue € /Mil. % 1-9 (Micro)5.024.65795,248.133.57347,00780.35126,84 10-49 (Little)221.5224,23.512.55520,29672.03123,11 50-249 (Medium)25.3590,52.110.52512,20572.51716,69 ≥ 250 (Big)3.9770,063.549.08120,51882.99630.36 Total5.275.515100,017.305.734100,002.907.895100,00 Source: ISTAT Scenario: Structure of Italian companies (year 2010) 80.000 Italian entrepreneurs are yearly involved in family business transfer CompaniesEmployersRevenues

7. Focus to: Family Business and Succession Planning

8.  USA : “Shirtsleeves to shirtsleeves in three generations”.  Mexico : “Padre bodeguero, hijo caballero, nieto pordiosero”. (Father merchant, son gentleman, grandson beggar).  Brazil : “Pai rico, filho nobre, neto pobre”. (Rich father, noble son, poor granson).  China : “Fu bu guo san dai”. (Wealth survives three generations).  Italy : “La prima generazione crea, la seconda conserva, la terza distrugge”. (The first generation creates, the second preserves, the third destroys).  Russia : … A challenge everywhere

9. Succession Planning in Family Business Succession is not only a merely leadership replacement, but it is a learning and regeneration process; Several researches show how Succession Planning in Family Business is the key time to re-think and re-design the –ownership –strategic model –operational model –management of the company T i m e f o r c h a n g e s

10. Individual and Psychological level Family dimensionCorporate culture and managerial style Father – sense of loss – afraid to leave out – lack of objectivity in the evaluation of the Heir – difficulties in sharing knowledge – paternalistic – poorly delegation oriented Heirs – continuous confrontation with the father figure – Entrepreneurship is something that you can not inherit – It is quite impossible to play a real leadership – opposing risks: risky and not so rational management – management under the shadow of the father, inability to self-manage Management/staff – familiar with the charismatic style, difficult to change. – resistance to change Succession Planning in Family Business: Main Issues

11. 11 SUCCESSION WITHOUT ABDICATION The founder manifests a reluctance to delegate gradually his powers, which means, as a result, a sudden entry of the heir in the company. The success of the process is subject to the capacity of the emerging generation to manage the impact with the responsibilities of corporate governance. SUCCESSION WITH ABDICATION The founder has an high inclination to the delegation and a remarkable ability of adaptation, with an orientation to long term. The training of heirs is accurately programmed and they are gradually involved in management activities, until there is the succession from the father to the son/daughter. ELUDED SUCCESSION Low propensity to delegation, and collaboration, together with a poor orientation to the future. This attitude leads fathers to evade the issue of succession and to send it back to the future, keeping the decision-making system strongly concentrated in their hands. DEFERRED SUCCESSION The founder has a collaborative attitude a present - oriented mindset. The new generation is gradually involved in the company and acquires managerial responsibilities step by step. The two generations coexist for a long period and the problem of succession is postponed in time, with an evident priority assigned to the results of short-term. L H L H COLLABORATIVE BEHAVIOUR LONG TERM ORIENTATION Succession Planning in Family Business: Main Issues

12. Succession Planning in Family Business: 1.The Family Act; 2.3 traps e solutions; 3.Balancing Family and Business; 4.The Succession Planning Solutions

13. The Family Act A list of clear and accepted principles, guidelines and rules, useful to manage the relationships between family and business, designed in order to guarantee a long term perspective to the business. What the Family Act is:

14. The Family Act How it works: - It is a Self Regulation Process; - It Acts in advance; - It is Approved by consensus; - It is the starting point of the process, not the final goal. - Actual shareholders members of the family; - Future shareholders members of the family. - Without existing problems; - 10 years before the real need; - when there is the need to manage a succession planning. Actors Timing

15. Values and guide principles of the family (ex. mission, philosophy,…); Rules that make those principles concrete (es. Transfer of shares policy, profit sharing policy, family members entering rules, family members salaries policy,…); Governance: activities on how to manage the above rules (ex. Estate plans, Family plans, Succession plans,…) The Family Act The content In Italy, since 2006, recognized by the Law !

16. 3 Traps that can destroy the family business 1.“There’s always a place for you here!” Working in the family company is not a right ! How to avoid: preparing an appropriate training and recruiting plan. (Stalk & Foley, 2012)

17. 2.“The company can not grow so fast as to satisfy the needs of all family members” Families grow faster then the companies ! How to avoid: managing the entrance of the family members. Opening the doors only to the Talented family members. (Stalk & Foley, 2012) 3 Traps that can destroy the family business The Ford Family 1909

18. 3.“Family members remain in silos according to bloodline”. Family members often use to specialise themselves on the same skills of their older relatives (Finance, MKT,…). How to avoid: assigning a mentor out of the family (Stalk & Foley, 2012) 3 Traps that can destroy the family business

19. Balancing Family and Business ISSUESBUSINESS FIRSTFAMILY FIRST FAMILY EMPLOYMENT Qualification-Based Employment Open-Door Policy for all family members COMPENSATIONMerit-Based payEqual pay for all LEADERSHIP Leadership granted to the right person (family or non-family) Leadership based on Seniority in Family RESOURCE ALLOCATION Business resources only used for business purposes – separate family reserve fund utilized for family needs. Business Resources used for personal needs (e.g., loans, grants) DECISION - MAKING Mulit-lateral, based on Defined Governance Structure (e.g., Executive Committee) Unilateral & Concentrated with Senior Family Member (e.g., Chairman/CEO)

20. The Succession Planning Starting Early; Create Career Development systems; Seeking advice: (external independent directors or senior non-family members); Building Consensus; Clarifying the transition process The main steps

21. Francesco D’Aprile Partner Mobile: +39 393 4142258 Mail: fdaprile@pedconsulting.itfdaprile@pedconsulting.it Web: http://www.pedconsulting.it Contacts