To the members of the Propeller Club of Istanbul “and your Guests, I say: Good Evening!
I am honored to have this opportunity to speak with you about succession in family business. I have been advising family owned businesses since 1968. What a wonderful career I have had. It has been a career beyond my wildest imagination and taken me to the far corners of the earth. It is very humbling when a family comes for advice.
It is never too soon to begin succession.
- Your attitude about your family business is very important and will be absorbed by your successors.
- There must be some semblance of a family life that is not completely dominated by the family business.
- I urge you to focus on profits, drive the top line and aggressively control costs.
It should be obvious that if the business does not prosper, then the family will not be prosperous. (Teach this concept early as family evolves.)
- Another way to look at it: If the business does not prosper the family members will not see it as an attractive place to work.
- Having well-defined boundaries within the family will set the stage for well-defined boundaries in the business. Boundaries are the #1 issue in family business. Boundaries need constant maintenance. Watch out for the “oozing” of boundaries.
Boundaries, Boundaries, Boundaries.
- Parents: teach children Problem Solving skills, then get out of the way and let them use those skills. If children do not learn to solve their problems, then they will have challenges working together. Start to teach problem solving skills as early as possible. Do Not set children up to be adversaries. Make collaboration and working together as the norm for your children. This carries over to play among your children.
(Take care NOT TO set them up as adversaries!)
- Family members must not meddle in areas where they are not assigned. (Boundary)
- Do not try to control your children with the purse strings. It keeps them in an adolescent position and they never grow.
One Model: 1/3 save, 1/3 spend, 1/3 share
- Competence – No business will be successful if the leadership is not competent.
- if a person is smart, they can pretend to be dumb; but a person who is not smart cannot fake it. (What happens if you violate this principle?)
Cain and Abel – Bible; Qur’an. Cain was jealous, killed Abel.
- Pay fair market salaries to everyone in your business. This is the way a person comes to understand their real value to the business and in the marketplace.
- Make a family constitution that reflects the family values and carries a provision to resolve an impasse if/when it develops. (give example of constitution- p 40-43). We could do an entire workshop on building your family business constitution.
- “No two hats”. You should not be head of a division of the company and on the board of directors. Violate this and the “two hats” person will always get caught in the middle.
- There is no substitute for competence, whether family members or non-family member. No business will be successful if the leadership is not competent.
- “If you employ family members who are less than competent, they will not be able to perform at an acceptable level. The won’t be asked to give input nor will they be given interesting things to do. Now you have created a business problem: you have an employee who is in the way and you have an unhappy family member. What a mess! Who is responsible for this mess? Who will clean it up? It is probably better not to make this mess in the first place.
- Never carry a message to another family member.
- Task of Family:
- raise responsible adults
- who have high self-esteem and
- can function independently.
- Task of Business– Profit
- It is OK to have an opinion; it is not OK to think that your opinion should always prevail. Encourage family members to have an opinion…
- The ability to give and/or receive feedback is essential to a well-run family business.
- Teaching a child to work, to carry a job to completion and know they have done the best they can do, are among the most important lessons of life. (!)
- For a family member to enter the family business and be successful in it, there must be a real job for him or her, and the skills to match the job. Avoid creating a “make up” job for a family member.
- Opportunity in the family business is not a birthright. It may be presented but the right to seize it must be earned. Demonstrated success gives you the right to seize the job.
- Create a family business employment policy. (Use the policy to evaluate performance.)
- I like to see family members work 3 – 5 years outside family company BEFORE entering the family owned enterprise. Jobs in the family business are earned and are NOT a birthright. Criteria – budget responsibility; performance evaluated.
- “Back benchers.” English parliament – Most members of parliament start their parliamentary career as a backbencher. It is a place to learn. A promotion to the frontbench means not only a change in role but a change of seat.
- Money is a tool but it should never be used as a hammer. (See section 17 on Money)
- It is important for children to learn the relationship between effort and reward. Those who do not learn this lesson will have money problems at some point in life and will say there is never enough.
- Money is complicated. If you “live large,” and are thinking about giving your children enough to live the same way, you are playing with matches and gasoline. Let them learn to live within their means, on what they earn, plus maybe the “family factor.”
- Children must learn to “make do” with what they have. Those who do not learn this, make doo doo. It smells.
- Money should never be a disincentive to have a productive life.
- Every business needs “dry powder,” or cash reserves.
- In the early days of building a business it is hard to build a cash reserve, but if you are successful, there will come a time when building these reserves is possible.
Don’t miss the chance to do it!
- Succession – when one individual or group of individuals passes complete control to someone else.
- “Are we clean?” – how two brothers created a system by which they never got cross-ways with each other. There were two possible answers to the question: “Yes,” and “No.”
- Involve the entire family in making the succession plan, making clear that the collective goal is for the business to survive, grow and prosper if the family is to benefit.
- Succession is about continuity of the business as a viable economic unit, it is not about who sits in the corner office.
- Advisory boards provide third party perspective on the business, and can play an important role in vetting and implementing succession plans.
- Succession begins long before the retirement party has been scheduled. Successors are taught to take responsibility at an early age, they are given more and more responsibility as they demonstrate proficiency in handling it. (responsibility).
It starts with a job, then running a department, then a division and so on, until they are ultimately in charge of the entire business.
- Successors must learn to watch the money. Failure of successors to really understand the financial aspects of keeping the business fiscally sound is a common cause of failure in family business.
38 . The successor who is focused on “living well,” and forgets about minding the store or feeding the goose that lays the “golden eggs will ultimately dine on roast goose.
- Trust among family members is the single most important element in mutually satisfying relationships. Without trust there is no mutual respect, and there will be no safety in the relationships for anyone.
- Character is built one decision after another. It is important that each decision carry its own integrity.
- Trust is built by doing what you say you will do, each and every time. A promise made is a debt unpaid.
- When trust has been breached, it is very difficult, sometimes impossible, to reconstruct the relationship. Don’t risk it!
- Boundaries, governance and “The Family Deal” are all grounded in trust and designed to define expectations, reduce areas of potential conflict and increase the level of trust in the relationship.
