1. www.thefbcg.com Copyright © All rights reserved. Family Business 101 Barbara Dartt October 25 th 2015

2. Agenda 1.Family Businesses are Special 2.Family Business Systems: Overlap & Uncertainty 3.High Priority Activities to Mitigate the Challenges 4.Wrap Up

3. www.thefbcg.com Copyright © All rights reserved. Family Business “Special-ness”

4. What do you think of when you hear Family Business?

6. Today’s Definition Generally, the definition of family business is very broad Today, a family business means: A business where two or more generations work together

7. Family Business Strengths Passion for the Purpose Flexibility in Decision Making Patience: Long Term Planning Community Based: Commitment to Jobs and the Community (Philanthropy) Strong Values Perform Better Financially PwC Family Business Survey October 2012

8. Family Firms Outperform Non-Family Though family-run companies slightly lag their peer group when the economy booms, they weather recessions far better. What you can learn from family business. HBR. Nov 2012

9. Family Business Challenges

10. The Emotional Context The consequences are great Rewards of success: stronger family & business Pain of failure: damage to family & business Family Business (FB) affects your: FAMILY WORK (for some) LIVELIHOOD and STANDARD of LIVING FB is inherently complex. But not impossible.

11. Family Business is Hard. Thus the expression … Shirtsleeves to shirtsleeves in three generations. “Generations pass while some trees stand, and old families last not three oaks.” - Sir Thomas Browne, Hydriatophia, 1658 Padre BodegueroPai Rico Hijo MillonarioFilho Nobre Nieto PordioçeroNeto Pobre - Spanish - Portuguese La première génération la crée La deuxième la developpe La troisième la tue - French Erwerben Vererben Verderben - German “Typically, the rapacity and acquisitive focus of the first generation gives way to the cautious, conservative ethos of the second and the spoiled and heedless frivolity of the third.” Adam Bellow In Praise of Nepotism, 2004 Source: John L. Ward, 2004, Perpetuating the Family Business.

12. www.thefbcg.com Copyright © All rights reserved. Family Business Systems: Overlap & Confusion

13. Family Business Systems

14. Family Ownership Three-Circle Model of Family Business Business John Davis and Renato Tagiuri

15. Systems Thinking On your handout, label the circles. Then, thinking of folks in your family and in the business, put some names within each of the 8 areas represented by the overlapping circles. In 10 years, how could the distribution of names change? HANDOUT!

16. www.thefbcg.com Copyright © All rights reserved. Systems Thinking At your table What decisions or issues have you faced within each circle…so far? Where did you find the overlap particularly challenging?

17. Family & Business Systems Working with Family Businesses, Bork, Jaffe, Lane, Dashew, Heisler BUSINESS SYSTEM Traits Fact Focus Outward orientation Much change Conditional acceptance Tasks To generate profits To develop skills FAMILY SYSTEM Traits Emotional Focus Inward Orientation Little Change Unconditional acceptance Tasks To nurture To develop self-esteem To grow adults Family Expectations Business Demands

18. Family Business System Evolution Controllin g Owner Sibling Partnershi p Cousin Collaborati on Enterprisi ng Family FAMILY BUSINESS FAMILY MANAGEMENT OWNERSHI P MANAGEMENT OWNERSHI P

19. Manager to manager Owner to owner Sibling to sibling Director to director Communication is easiest when all wear the same hat Adapted from: Lundberg, Craig C. Unraveling Communications Among Family Members. © Drew S. Mendoza, The Family Business Consulting Group

20. = Management Adapted from: Lundberg, Craig C. Unraveling Communications Among Family Members. © Drew S. Mendoza, The Family Business Consulting Group

21. Adapted from: Lundberg, Craig C. Unraveling Communications Among Family Members. © Drew S. Mendoza, The Family Business Consulting Group

22. A Growing Family Owner-Managed Family Partnership Sibling Partnership Cousin Collaboration Family Syndicate Adapted from John Ward

23. Critical Issue Paradox The most critical challenges are generally family based issues rather than business based issues. Being a “family-first” or “business-first” family business is not an issue to be solved but rather a source of tension to be managed.

24. OWNERSHIP (Shareholders) BUSINESS (Management) Board of Directors FAMILY Family Governance Meetings Family education committee Next Generation committee Family vacations / assemblies planning committee Family foundation committee Family employment policy committee Operation s Financ e HR Marketin g Balanced Systems

25. Dorey Boats & The Dorey Family Read through the case Draw a 3-circle model and place the family and key employees within their sections Thought questions…coming soon. HANDOUT!

26. When the systems are out of balance… John Davis and Renato Tagiuri FAMILY OWNERSHIP BUSINESS FAMILY OWNERSHIP BUSINESS FAMILY OWNERSHIP BUSINESS Business largest: inappropriate estate plans information vacuum lost family vision/values distant next generation Family largest: inappropriate hiring decisions family first at all costs little attention to business meddling Owner largest: likely a harvester sense of entitlement power struggles on control tax driven estate planning no exit/buyout strategy

27. www.thefbcg.com Copyright © All rights reserved. The Sibling Stage

28. Sibling Stage is Most Difficult Relationships are intimate and emotional due to growing up within the same household Emotional connections are with business, parents AND each other Each sibling has a high proportion of ownership, allowing the family business to be threatened by anger, disenchantment or lack of productivity of just one sibling Tremendous parental influence can still exist Must learn to communicate effectively and sensitively as a team with their parents Change from founder-led to sibling- led is a big difference Making Sibling Teams Work: The Next Generation. Aronoff, Astrachan, Mendoza and Ward. 2011.

29. Pitfalls that derail siblings Taking stands based on ego Being unaware that someone - a non-family employee, perhaps - is playing team members off one another Triangulation with parents and spouses Spouses who don’t feel part of the team or welcome in the family

30. Key Tasks for Sibling Stage Members 1. Alignment! Clarify WHY in business together 2.Become an autonomous, independent team who can resolve issues on your own. 3. All siblings must be willing to take the time to understand the business and participate in regular meetings to make decisions as needed. (MAKE EFFORT and SHARE RESPONSIBILITY) 4.Put in place policies and codes of conduct to clarify how you will make decisions and relate to one another 5.Take the initiative as successors Making Sibling Teams Work: The Next Generation. Aronoff, Astrachan, Mendoza and Ward. 2011.

31. Dorey Boats & The Dorey Family See thought questions handout. Take 5 minutes and answer #1-3 on your own. Take 3 minutes and discuss at your table. We’ll take 5-8 minutes to discuss as a large group. HANDOUT!

32. www.thefbcg.com Copyright © All rights reserved. High Priority Activities to Mitigate the Challenges

33. www.thefbcg.com Copyright © All rights reserved.

34. Three pillars of family business continuity Research shows: Strategy informed by values, vision and mission Appropriate and active governance Well run family meetings and shareholder education

35. www.thefbcg.com Copyright © All rights reserved. Strategy

36. Pyramid of Family Ownership Success WORK TOGETHER EFFECTIVELY Structure Processes & Systems, Roles, Decision Making Guiding Principles Values, Vision & Purpose

37. Keys to Success in Sibling Generation Shared sense of purpose Liquidity and exit plans clear Family code of conduct Proven success at conflict resolution Experience with open disclosure about money, gifts, compensation and parental support Remember: –Generosity builds trust –Secrecy destroys it

38. www.thefbcg.com Copyright © All rights reserved. Governance

39. www.thefbcg.com Copyright © All rights reserved. OWNERSHIP (Shareholders) BUSINESS (Management) Board of Directors FAMILY Family Governance Meetings Family education committee Next Generation committee Family vacations / assemblies planning committee Family foundation committee Family employment policy committee Operation s Financ e HR Marketin g Balanced Systems

40. Decide HOW you’re going to decide BEFORE you have to decide DECISION RIGHTS Who has the authority to make what decision? INFORMATION FLOW Do you want to be consulted BEFORE the decision is made? INFORMED AFTER the decision is made? On decisions that multiple family members/owners/managers: What criteria will you use to make the decision? What more information do you need? Will the decision be consensus or voting? When do you need to make the decision by?

41. Consensus Model 1 = I agree 2 = I don’t fully agree, but I can support the decision 3 = To support the decision, I need to see more ______________ 4 = I don’t agree, I block the decision and I need to see more ____________

42. www.thefbcg.com Copyright © All rights reserved. Common Early Family Business Policies Family employment policy Code of conduct Decision making Board membership criteria Family meeting policy Conflict resolution policy

43. www.thefbcg.com Copyright © All rights reserved. Family Meetings & Shareholder Education

44. www.thefbcg.com Copyright © All rights reserved. Family Business Responsibilities by Role OWNERSHIPMANAGEMENTFAMILY Determine PURPOSE for being in business together. DEVELOP and EXECUTE business strategy consistent with values, vision & goals of Owners & Family. Set the VISION for the family’s commitment to the business and the businesses’ support of the family. Set DIRECTION by making decisions on Growth, Risk, Profitability and Liquidity. Determine ownership and management SUCCESSION – who and how. COMMUNICATE with owners so they stay informed on progress. Uncover the VALUES by which the family and related enterprises will operate. Stay INFORMED and monitor progress. Help EDUCATE successors on the rights and responsibilities of ownership and family history and values.

45. Strategic Planning for the Family Business Randel Carlock & John Ward: Strategic Planning for the Family Business.

46. Ownership Stewardship Continuum Legacy Financial The reasons for owning a business together could be visualized as a continuum, with the cherished legacy at one end and the financial considerations at the other. (From Siblings to Cousins, Aronoff & Ward) Passive Active Steward Owners

47. Characteristics of Steward Owners They educate themselves – about financials, market forces, business strengths and challenges They grow their capabilities – to communicate, handle conflict and build relationships They make it a point to understand challenges faced by management They appreciate the burden that family managers carry on behalf of the family They contribute to family cohesiveness They understand that ownership is a privilege 47 2

48. SUGGESTED Family Business Education Topics Family History & Core Values Learning Business Fundamentals Business literacy Family Business 101 Financial literacy Understanding & Appreciating Our Business Defining Responsible Ownership Governance and Oversight Skill Development Personal Financial Fundamentals Philanthropy

49. www.thefbcg.com Copyright © All rights reserved. Dorey Boats & The Dorey Family See thought questions handout. Take 7 minutes and answer #4-7 on your own. Take 3 minutes and discuss at your table. We’ll take 5-8 minutes to discuss as a large group. HANDOUT!

50. www.thefbcg.com Copyright © All rights reserved. A few thoughts on succession

51. Strategic Alternatives for Succession Evolution Let Go Eagerly Never Really Let Go Death % POWER WITH NEXT GEN TIME Partnership Shared Source: Loyola University Chicago Family Business Center: John Ward and Moni Murdock Senior Executive Task Force

52. The successor must prepare for a job that doesn't yet exist, in an era no one can fully foresee.

53. Take Homes Family businesses are special! Good is GREAT. Bad can be a disaster. Governance mitigates the complexity. First work to do: 1.Alignment (strategy) 2.Governance (formality & structure) 3.Shareholder education (start early)

54. www.thefbcg.com Copyright © All rights reserved. Thank You The Family Business Consulting Group E info@thefbcg.com P 773.604.5005 W www.thefbcg.com Barbara Dartt dartt@thefbcg.com 269.382.0539

55. www.thefbcg.com Copyright © All rights reserved. Plus or minus 3% will be considered correct. Source: Family Owned Business Survey from the Family Owned Business Institute at Grand Valley State University, 2014 Quiz! (for prizes)

56. www.thefbcg.com Copyright © All rights reserved. 1.What was the average age of the responding family businesses? 50 years

57. www.thefbcg.com Copyright © All rights reserved. 2.In what percent of the businesses was the third generation employed in the business?26%

58. www.thefbcg.com Copyright © All rights reserved. 3.What percent indicated that the family business was meant to be handed down within the family?80%

59. www.thefbcg.com Copyright © All rights reserved. 4.What percent have a formal, written succession plan in place?19%