conflicts in family firms and how to deal with them may 2009 bahrain

Conflicts in Family Firms and how to deal with them

May 2009 Bahrain

www.peter-leach.com

Famous family businesses

Family businesses around the world

AMERICA

“SHIRTSLEEVES TO SHIRTSLEEVES IN THREE GENERATIONS”

AMERICA

Family businesses around the world

“FATHER-MERCHANT SON-PLAYBOY

GRANDSON-PEASANT”

MEXICO

Family businesses around the world

“PEASANT SHOES TO PEASANT SHOES IN THREE GENERATIONS”

CHINA

Family businesses around the world

ITALY

“FROM THE STABLES TO THE STARS AND BACK TO THE STABLES IN THREE GENERATIONS”

ITALY

Family businesses around the world

“ERWERBEN, VERERBEN, VERDERBEN”

GERMANY

Succession

Around 70% of firms have a life expectancy of 24 years

Only 30% of family businesses reach the second generation

Only 13% of family businesses survive through the third generation

60%-70% of family companies have no succession plan

Family companies employ 54% of the private sector

The average tenure of a CEO in a non family business is 4 years, whereas in a family business this is 24 years

A thought…..

'We do not inherit the business from our parents but we borrow it from our children'

Hermes Family

Centurians

Solvay

Cargill

Gerdau

George Weston

Todd Corporation

SC Johnson

Kohler

Henkel

Lhorst

Agnelli

Hartwell

Ahlstrom

J M Huber

Jose de Mello

Peugeot

Bertelsmann

C & A

levi Strauss

Bacardi

Milliken

Schindler

Bekaert

Wrigley

Firmenich

Roche

Timken

More Centurians

AP Moller- Maersk

Michelin

Haniel

Bonnier

Swire Pacific

Jardine Matheson

Murugappa Group

Hillenbrand Industries

Wendel

RPG Enterprises

Timpsons

Berry Brothers & Rudd

Flemmings

YBA Kanoo

To come together as a family to preserve family relationships and to preserve the family business

...because it is inevitable that the business or the money will erode family relationships

...it is just a matter of time.

Family Unity Family Unity

Entanglements are normal to all of our families.

If there is turmoil in the family, the business becomes even more vulnerable.

It is important that the family is good to itself and takes care of itself.

…but also, because it is good for business.

Conflicts

PRINCIPLES FOR MANAGING DIFFERENCES

Differences are inevitable .Therefore it is important to accept and commit to manage and sort out differences quickly.

Family and business values must be kept in mind while resolving differences .A win-win situation must consistently be aimed for.

Members must be committed to promoting honesty, fairness and mutual respect.

Differences must be resolved quickly and face to face.

Triangular communication should be avoided.However third party expert facilitation/advice/mediation can be used if necessary.

Trust and understanding must always be promoted.Either individually or in a group setting.

A. Face to Face: Within 72 hours of the incidence

B. Facilitation: If not resolved face to face within 72 hours, a mutually acceptable internal/external facilitator should be tried for next 3 days.The facilitator is expected to influence only the process of communication and content must be neutral.

C. Mediation: If the resolution is not achieved in step b) the Family Council will appoint a mediator acceptable to both parties for 3 days. The mediator is expected to get involved in the merits of the issue, in addition to the process of communication.

D. Final Say: If the dispute still remains unresolved even after mediation, a final binding decision will be given by the Family Leader for the family issues and Business Leader for business issues.

PRINCIPLES FOR MANAGING DIFFERENCES

Difficulties in Family Businesses

•Personalities

•Business Issues

•Structural Issues

Governance requirements for the mature family business

• Balanced and Professional Board

• Strong Executive Team

• Aligned Leadership

• One Family Voice

• Enlightened Ownership

Institutional Effectiveness

Five People;Five People;

10 Relationships 10 Relationships

Complexity

Nine People; Nine People;

36 Relationships!36 Relationships!

Complexity!

“ The test of a first-rate intelligence is the ability to hold two opposing ideas on mind at the same time and still retain the ability to function.”

F. Scott Fitzgerald

Paradox

3 Organisations- 3 Structuresin one System

• Family organisation

• Business organisation

• Shareholder organisation

Family•To help family professionalise its

•culture, activities and values

Business•To help build and continue the

•enterprise

Shareholders

• To recognise and resolve shareholder issues

• To prepare family for business

Purpose

The Three Circle Model

Ownership

BusinessFamily

Ownership

Family Business

Shareholders Assembly

Boards of Directors Holding

Boards of Operating Companies

Career Development Committee

Family Management Team

Family Council & Committees

Family Assembly

Family Office

Governing the Network of Families

Case Example

Remuneration Committee

Shareholder Committee

Audit Committee

Board of Directors

Family Council

Charity Committee

Education Committee

Family Assembly

Shareholder General Meeting

Family Business Syndromes

• Procrastination

• Selective amnesia

• Paranoia/ fear

• Conflicts of interest

• Sibling or Cousin Rivalry

Typical Conflicts of Interest

• Trustees of settlements v Directors

• Minority shareholders v Directors

• Mum / Dad v Boss

Understanding Family Systems

• An approach to working in complex systems

• The cause and effect are not obvious

• The whole family is the system

• All actions are both a cause and effect

Sheetal Mafatlal's Family SagaSheetal Mafatlal's Family Saga

Managing Conflict from the Company's point of view

Separation of ownership and management

Overlapping systems

FRICTION ANDCONFLICT

FAMILY

Emotion basedSubconscious behaviourInward lookingMinimising change

BUSINESS

Task basedConscious behaviourOutward lookingExploiting change

Client example

Group Board

Family Council

Family Assembly

Case Example

Family Non Business Forum Family Office

Holdings Company

Business 1 Business 2 Business 4Business 3

Family Fund

Family Charitable Foundation

Family Business Board

Family Council

• Addressing the issues and assumptions

• Create a family “governance” structure

• Draw up a Family Constitution

• Establish a Family Council

• Maintain regular communication – retreats and accept differences...

• Spend quality time together

• Monitor progress

Connecting the Family – The Planning Process

owner

managed

sibling

partnership

cousin

syndicate

C.John Ward PhD

Types of Family Business

OMB

SP

CS

C. John Ward PhD

Types of Family Business

OMB

SP

CS

Golf

Tennis

Football

c.John Ward PhD

Types of Family Business

• It articulates our Mission, Vision and Values

• It prescribes a process for managing differences in the family

• It provides a Family Code of Conduct

• It records the rules for entry of family members into business

Constitution

• Harmony

• Clarity

• Avoids conflicts

• Gives a clear message to family & staff

• Sets expectations at an appropriate level

• Solve tomorrow’s predictable problems today ........

Why Have a Constitution

Creating Family Unity: The Traditional Way

© Tom Hubler

You must agree how to agree!

Winston Churchill

“IF WE OPEN A QUARREL BETWEEN THE PAST AND THE PRESENT, WE SHALL

FIND THAT WE SHALL HAVE NO FUTURE”

• Family Mission and Values

• "Family" job specifications and remuneration

• Performance appraisal

• Non - family managers

• Role of women and in-laws

• Leadership

• Voting & share ownership

• Buy - sell agreements

• Board of Directors and their power

• Code of Conduct

A Family Constitution

• Family Mission and Values

• "Family" job specifications and remuneration

• Performance appraisal

• Non - family managers

• Role of women and in-laws

• Leadership

• Voting & share ownership

• Buy - sell agreements

• Board of Directors and their power

• Code of Conduct

A Family Constitution

• Establishment of family council if appropriate

• Establishment of family office if appropriate

• Communication

• Ethical guidelines

• Education and development

• Charitable policies

• Requirements before joining

• Procedure for amendment of Constitution

A Family Constitution (cont)

Personal Issues

Some Fundamental Dilemmas

• Love all children equally

• Need to work harder than anyone to lead by example

• Work from the bottom up

• Parents live longer, healthier, smarter

• Each is not equally talented

• Need more time away for variety, to release stress, for family

• Attract most competent into challenging jobs

• Kids are better prepared, sooner, eager to take over

Family Process Family Process The Core of CultureThe Core of Culture

The Adaptive The Adaptive familyfamily

Authoritative parenting Authoritative parenting

Flexible roles and Flexible roles and stylesstyles

Open communicationsOpen communications

Love and cohesionLove and cohesion

The The Malfunctioning Malfunctioning familyfamily

Parent-child conflicts Parent-child conflicts

Triangulation & Triangulation & scapegoatingscapegoating

Sibling rivalrySibling rivalry

Spouse splitsSpouse splits

Source : London Business School research Source : London Business School research

Family Firm Cultural WeaknessesFamily Firm Cultural WeaknessesResearch resultsResearch results

Type 1: EnmeshedType 1: Enmeshed. . In-grown, over-involved, In-grown, over-involved, overloaded cut-off & non-overloaded cut-off & non-family locked outfamily locked out

  Type 2: Deficient. Type 2: Deficient. Short-sighted, bad Short-sighted, bad judgements, amateurish, judgements, amateurish, lack management skills & lack management skills & leadership talentleadership talent

  Type 3: Cautious. Type 3: Cautious. Risk-averse, excessively Risk-averse, excessively consultative & polite, slow, consultative & polite, slow, un-ambitious un-ambitious

Type 4: Uncontrolled. Type 4: Uncontrolled. Too loyal, informal, soft, Too loyal, informal, soft,

personal, honest, with personal, honest, with emotional overspillemotional overspill

  Type 5: Over-controlled. Type 5: Over-controlled. Authoritarian, command & Authoritarian, command &

control, tough, low control, tough, low delegation, inflexible delegation, inflexible

  Type 6: Adrift. Type 6: Adrift. Uncertain, dislocated Uncertain, dislocated

systems, fragmented systems, fragmented culture & strategy, absence culture & strategy, absence of planningof planning

Source : London Business School research Source : London Business School research

Addressing Conflict

• Understanding/ empathy

• Separating myself from other person and from problem

• Putting “meat on the table” – “I” statements

“I” Statements

• Used to communicate our feelings, thoughts and needs – what you own

• An “I” statement starts with “I” and then stated a feeling or a thought and a need.

• Example, “I” feel anxious and a little scared about what will happen when we move forward.

Scenario

You are working for your father and he dismisses an idea that you have and tells your employee to do something a different way.

• One possible path is a “you” statement.- “ Dad, you make me so mad when you override my

decisions”

• Another possible path is the “I” statement- “Dad, I really felt undervalued and sabotaged when

you told my employee to do things your way. I need my employees to respect me ”

“I” statements continued

• The first statement has judgement and blame attached to it, the latter, or “I” statement simply states your feelings and needs.

• All “I” statements generally follow this form:

- “I really feel...”

- “I need...”

Importance of Culture

According to Stephen Covey, the only sustainable competitive advantage is….

“An organizational culture of common people aligned to a common vision”

What keeps culture in place?

• Leaders set the tone

• Structures and systems establish the patterns

FamilyTeamwork

CommitmentWisdom

Emotional bonds

StakeholdersReputation

Customer care & continuityLoyalty

Shared rewards Employee training & development

Culture & ValuesEthics & integrity

Openness & consultation Empowerment & delegationPersonal and informal stylePassion about the business

Management & GovernanceLean management structures

Effective governance Fast decision-makingHands-on leadership

Good use of non-family

Performance & LongevityQuality

EntrepreneurshipStability & continuity

Flexibility & adaptabilityMotivation and skills

Distinctive Cultural Strengths – Distinctive Cultural Strengths – Research findingsResearch findings

Great family businesses create financial, social and emotional capital for their stakeholders

Cargill

• Largest global agribusiness corporation

• 124,000 employees

• Sales over $ 70 billion

• Owned by over 100 Cargill and MacMillan descendants and an employee trust

Cargill treats the business like a family

• Developing employees for a lifetime career at Cargill• Strong culture based family values• Global business network• Developing qualified non family executives for top management• Organisation built on innovation and managing risk• Maintaining family liquidity and control• Effective governance system with three types of directors• Employee commitment based on ownership• Committed family ownership• Family Council for aligning family demands• Family representation on board of directors• Internal family stock market for liquidity• Family education and seminars• Family Foundation to express values• Waycrosse Family Office

The principles we hold and stand by when making decisions

ValuesValues

• Values are the rules for living….

• Create a code of behaviour that builds and supports the vision and mission

• Create common way of behaving

• Create a legacy

• Build knowledge and trust in the Business and the Family

• Values “talk” Behaviours “walk”…….

Values - Why Are They Important in a Family Business?

An example of a Family Business’ Values