Copyright © Carnegie Management Group. All rights reserved 2009 Family Dynamics The Role of the multi-disciplinary Adviser Team Family Dynamics The Role of the multi-disciplinary Adviser Team The Pride and Passion Presented by Paul Smith Carnegie Management Group

Copyright © Carnegie Management Group. All rights reserved 2009 What is a Family Business? ►70%+ of all registered businesses. ►25% of publicly listed companies. ►Employs over 50% of the Australian workforce. ►Generates over 50% of Australian GDP. ►1 st to ??? generation family members in business. Significant % ownership and control by one or more families (ie: private)

Copyright © Carnegie Management Group. All rights reserved 2009 ►Estimated wealth: $1.2 trillion ►Median Age of owner = 52 ►60% plan to retire <10 years ►Expected asset transfer $607Bn ►12% have real succession plans ►48% plan to sell their business ß $3.6 trillion (ASX $680Bn) ß 56 ß 68% ß $1.6 trillion asset transfer ß 24% ß 50% (10 yrs => $1.6Tn) Australian Family Business Surveys

Copyright © Carnegie Management Group. All rights reserved 2009 Survival Statistics ►70% of family businesses are lost to the family when their founders retire => 30% survival. ►30% of the balance survives the 2 nd generation => 10% survival. ►15% of the balance survives the 3 rd generation => 1.5% survival. 1 st generation makes it. 2 nd generation takes it. 3 rd generation breaks it.

Copyright © Carnegie Management Group. All rights reserved 2009 What makes a Family Business tick? It’s all in the Organisational Dynamics Ownership FO BO FBO FB Family Micro / Macro Macro / Micro Business

Copyright © Carnegie Management Group. All rights reserved 2009 FBO - family members who work in the business and own shares in it FB - family members who work in the business, but don’t own shares in it FO - family members who own part of the business, but don’t work in it BO - employees who also own part of the business How can you begin to unravel the complexity of your family client structure? First, you need to begin to differentiate the family from the business. If you are engaged with a family business, each person may hold membership in one, two, or three groups, each of which has a different perspective. In effect they are part of three overlapping, interlocking systems. Each of these systems contains a group of people, who have distinct interests, locations, needs and styles of operating.

Copyright © Carnegie Management Group. All rights reserved 2009 Family System - Membership: Personal family, children and spouses - Emotion-based, oriented toward security, nurture, fun, and growth. Inward focus on its members. Business System - Membership: Employees, managers and customers - Task-oriented, demands productivity from its members. Outward focus on its customers. Ownership System - Membership: All shareholders - family and non-family - Owns the business. Oversees and creates policy. Hires top management. Helps create and manage the plan for moving the business into the future as a vital institution.

Copyright © Carnegie Management Group. All rights reserved 2009 Why is Family Business Different? ►People (labour) ►Assets & know how ►Finance Labour Assets Finance Labour Assets Finance ►People (labour) ►Assets & know how ►Finance ♥ Emotion Ordinary Business DimensionsFamily Business Dimensions

Copyright © Carnegie Management Group. All rights reserved 2009 Top 5 Fambiz Challenges in Performance - maximise returns and inherent value. 2.Communication and Conflict Management: -Relationship issues – the Generational divide. -Need for shared visions, interests and needs. 3.Modernise and Professionalise the Business. 4.Returns vs Investment – the funding conundrum: -Drawings vs Growth vs Retirement. 5.Leadership Transition and Continuity Planning: -Management and Ownership transition / continuity. -Exit Options and Strategies. Challenges = Opportunities for Improvement

Copyright © Carnegie Management Group. All rights reserved 2009 Harnessing Family Dynamics ► 3 Organisational Dynamics and a 4 th Dimension - ownership / family / business + emotion - Identify individual, family and business strengths and weaknesses. - Respect, separate and respond to individual, family and business needs and interests. ► Develop shared visions and plans for the future: “Failing to plan is planning to fail”. ► Don’t be an island – respect, communicate, involve and trust. Teach, test, evaluate and decide - wisely. ► Work on the business, not just in the business; Work on the family, not just for the family. ► Encourage passion and don’t be blinded by it.

Copyright © Carnegie Management Group. All rights reserved 2009 Harnessing Family Dynamics ► Leaders must make many wise decisions, but they can’t all be right decisions. ► A leader is a steward, not an owner – their time must pass, but the business can pass on. ► Learn from the past; be honest in the present; be optimistic, realistic, and plan for the future. ► Treat others as you would wish to be treated in their place AND as they would like to be treated. ► Welcome feedback as a gift – even when it hurts.

Copyright © Carnegie Management Group. All rights reserved 2009 Harnessing Strategies (1) ► Separate Ownership from Management. ► Lead to inspire, manage for efficiency, teach for the future. ► Be a Proactive “doer”, rather than a Reactive “doee”. ► Develop, define and share your family’s Vision. ► Devise Strategies - the directions that help you achieve your Vision. ► Generate Plans – detailed operational road maps allocate the resources required to carry out strategies. ► Commit and Implement – get out and do it, AND measure performance against goals and expectations.

Copyright © Carnegie Management Group. All rights reserved 2009 Harnessing Strategies (2) ► Create responsibilities, accountabilities and timelines. Use them to measure and reward / respond to performance. ► Plan for leadership transition – it requires 7 years - but don’t hand over the reins unless you’re ready to get off the horse! ► Resolve conflicts, grievances and issues between family members through communication, mediation and family retreats. ► Formalise the relationship of family to business with a Family Constitution, Family Council and Family Forums. ► Is the family business ready for a Family Office?

Copyright © Carnegie Management Group. All rights reserved 2009 The Multi-disciplinary Adviser Team Different types of Advisers work in the three systems of family firms - often as if the systems were separate and distinct from one another – eg. Accountants, Therapists, Estate & Financial Planners. However “true” Family Business Advisers are distinguished from other types of Advisers in that they work on the boundaries of these systems, where there are overlaps between the family, the business and ownership/governance. So who is the client? Advisers need to work collaboratively and seamlessly – to the benefit of the client – the Family.

Copyright © Carnegie Management Group. All rights reserved 2009 So what is right for your Family Client? Trusted Advisers acting in close collaboration from all relevant disciplines Ownership Estate & Financial Planning Family Business Advisers Family Family Therapists Micro / Macro Macro / Micro Business Accounting & Business Advisory

Copyright © Carnegie Management Group. All rights reserved 2009 So where to from here for your Family Business client? The optimum outcome is for the selected specialist advisers, mentors & family business guides to act together in collaboration. What they believe is right for them. They are now clearer on what course of action they should take?

Copyright © Carnegie Management Group. All rights reserved 2009 Need more information? Carnegie Management Group Paul Smith – Chief Executive Visit: “Working together we have the minds and the means to get you where you want to be.”