family business disputes
DESCRIPTION
Friday, October 11, 2013 10:30am - 12pm Transitions from one generation to the next have the power to paralyze or energize family enterprises facing family and enterprise challenges. The four presenters, an academic in the field of family business and three mediators experienced in the area will provide their perspectives and experiences in family conflict resolution based on real disputes. The discussion will provide the basis for an interactive analysis with the participants. Among other areas, the presenters will lead a discussion of successful tools and strategies used by the presenters in this complex area. By focusing on real life family business dilemmas, the speakers will discuss how the lack of open communication, understanding and clear family and business goals can jeopardize the survival of a family business.TRANSCRIPT
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(312) 549-1350 (o)
(312) 848-1350 (c)
191 N. Wacker Dr., Ste. 3700
Chicago, IL 60613
Phillips Academy Andover
1966
University of Pennsylvania
B.A. 1970
The John Marshall Law School
J.D. 1975
Warren has been counseling families and their enterprises as their primary counsel on
a wide variety of issues for over 35 years. Having substantial experience in complex
commercial litigation, arbitration and mediation, often involving family and privately
owned enterprises, Warren focuses his practice exclusively on conflict avoidance
and resolution for families and family owned businesses. Recognizing that family
cohesion is often a key component of enterprise health and generation-to-generation
sustainability, Warren uses a non-adversarial approach as a third party neutral
facilitator and mediator in finding solutions to family and family enterprise conflict. The
many families and enterprises Warren has worked with value his objectivity and ability
to resolve what are often emotionally charged issues.
Warren maintains many active charitable and civic commitments that have included
for many years serving as a Big Brother mentor with Big Brothers Big Sisters of
Metropolitan Chicago. Warren has also served on the Executive Committee of the
Capital Campaign for the Big Brothers Big Sisters of Metropolitan Chicago and the
Capital Campaign Committee for the Latin School of Chicago. Warren was a co-
founder of the Phillips Academy Andover Abbot Regional Association and remains
active as its President.
Warren and his wife, Deborah, live in Chicago and have two daughters who are
working in the not-for-profit field.
Professional A�liations
Member of The Family Firm Institute (FFI);
Chapter O�cer, FFI Midwest Chapter.
Member of the Association for Conflict
Resolution (ACR), active in the Family,
Commercial, Workplace and Elder
Sections.
Member of the Commercial Section
Advisory Council.
Founding member of the Family Owned
Business Group within the ACR’s
Commercial Section.
Routinely presents at industry conferences
as well as to family o�ces and trust
companies.
Facilitator and Certified Mediator
Avoiding & Resolving Conflicts
Received his Mediation Certification at
Northwestern University.
Leads the firm’s Alternative Dispute Resolution
(ADR) Task Force.
Has facilitated or mediated issues in innumerable
matters for families and family enterprises,
including those involving succession,
governance, sustainability, wealth transfer, exit
strategies, among many others.
Advises single and multi-family o�ces, bank
trust departments, trust companies and wealth
management firms on strategies to help their
clients avoid and resolve conflict.
Peer Review Rating
AV Preeminent - 5 out of 5 — The Highest level of
excellence as rated by his independent peers.
(Martindale-Hubbell)
Warren Baker Partner
WORKING WITH FAMILY 3 pathways that strengthen the family and the business.
A framework to understand health family enterprises.
Association for Conflict Resolution Conference
Working With Family…
• Is very common
• Incredibly rewarding • The returns can be much more than money • Socio-Emotional Wealth & Financial Wealth
• There are risks… • Values and work-styles can be at odds • Credibility can erode • Damage to family relationships • Financial loss
Three systems working together
Family
Business Ownership
Three systems working together
Family
Business Ownership
• Issues in one sphere impacts the others
• People Have Multiple roles
• Unconditional & merit based relationships present
The Research • Three Pathways to Evolutionary Survival: Best Practices
of Successful, Global, Multi-Generational Firms • Completed by Dennis Jaffe with support from Family
Business Network and Family Office Exchange• Surveyed 192 global family firms
• Average worth of $400mm • Age of the businesses ranged from 1st & 2nd generation to 7
generations.
• Asked… “what do you do to keep the family firm alive and thriving from generation to generation?”
The Research
Stewarding the
Enterprise
Developing the Next
Generation
Nurturing the Family
The Research Pathway 1: Nurturing the Family
• Clear compelling family purpose and direction • Regular family gatherings • Climate of openness, trust and communication • Sharing respect for family history and legacy • Shared family philanthropic and community service
The Research Pathway 2: Stewarding the Family Enterprise • Strategic plan for family wealth and / or enterprise
development • Active, diverse, empowered board guiding each enterprise • Transparency about financial information and business
decisions • Explicit and shared shareholder agreements about family
assets • Exit and distribution policies for individual shareholder
liquidity
The Research Pathway 3: Cultivate Human Capital for the Next Generation • Employment policies for family members working in the
family enterprise • Agreement on values about family money and wealth • Support for development of next generation leadership • Encouragement for all family members to seek personal
fulfillment and life purpose, regardless of personal or financial involvement in family enterprise
• Age-appropriate education to teach financial skills to young family members
Simply put…
• Pathway 1…. keeping family connected
• Pathway 2… business policies and structures
• Pathway 3… planning for the future
AssociaonforConflictResoluon2013AnnualConference
Workshop—October11at10:30am
FamilyBusinessDisputes:HowMediaonTechniquescanhelpPreventGeneraonalandSiblingConflictfromKillingtheProverbialGoose
MahewL.CarasLeadersLLCPortland,Maine(207)[email protected]
SmithCompany
DonSmith,CEOage70
20%wantstocashout
JoeJones,Presidentage67
20%wantslegacy
JaneSmithNotAnEmployee
age366%
cashout
FrankSmithSalesManager
age3412%career
AlSmithCOOage326%
legacy
JonJonesEngineeringManager
age3910.5%cashout
AnnJonesCFO
age4015%legacy
cousins
Don’schildren–30%total
6%totalto3children
4.5%totalto3children
Joe’schildren30%total
Al’schildren
Jon’schildren
TotalCompany41%Cashout(throughsaleorbuyout)47%Legacy(nosale;nodebtforbuyout)12%Career(needforputopon)
BySmithFamily52%Cashout24%Legacy24%Career
ByJonesFamily30%Cashout70%Legacy
SmithCompany,asecondgeneraonfamilyownedbusinessfoundedbyfirstcousinsDonSmithandJoeJones,isapetroleummarkengcompanywithannualrevenueof$600million.TheCompanyisprofitable,butitsworkingcapitalrequirementsarehigh.TheCompanyhassignificantmarket/enterprisevalueandwouldbeanaracveacquisionforastrategicbuyer.
Thefounders,DonSmithandJoeJones,areabout70yearsold.Donhasthreechildrenbetween32and36yearsold,twoofwhomworkinthebusiness.Joehastwochildren,age39and40,bothofwhomworkinthebusiness.Thereareatotalof10grandchildren,rangingfrom5to18yearsold,noneofwhomworkfullmeinthebusiness.
ForyearsDonandJoeeachowned50%oftheCompany.SeveralyearsagoDonandJoeagreedthateachwouldgive30%ofhisstocktohischildren.ThusDonandJoeeachcurrentlyowns20%oftheCompany.
DonandJoewanttorere.However,DonwouldliketocashoutatthemeofrerementandJoe’swishisforSmithCompanytoconnuetobeownedandoperatedbytheSmithandJonesfamiliesindefinitely.TheheirapparenttoruntheCompanyuponthererementofDonandJoeiseitherDon’sson,Al(whoisCOO),orJoe’sdaughter,Ann(whoisCFO).WhileAlandAnnwouldliketheCompanytobealegacyfamilybusiness,eachhasasiblingwhowantstocashoutnow.Thefihmemberofthesecondgeneraondoesn’tcarewhathappensaslongasheconnuestobeemployedandhasameanstoexitwhenhewantstorereinthefuture.
Thereisnoshareholderagreement,andvotesfollowshares.SaleoftheCompanywillsasfytheobjecve/demandofabouthalftheownershipthatwantstocashout,butwillnotachievetheobjecve/demandofthosewhowanttokeepthebusinessinthefamilies.ThosewhowanttoconnuetoownandoperatethebusinessarenotwillingtoconsiderabuyoutoftheothersbecausethedebttheCompanywouldincurinconneconwiththebuyoutwouldmaketheCompanyvulnerableandwithouttheworkingcapitalnecessarytoconnuegrowing.
Thereexistsadeadlock,withpotenalforligaon—theoutcomeofanyligaonisunpredictablebecausethereisnoapparentlegalbasisforanyaconbyonefaconorfamilyagainsttheother.ItappearsthataconsensualresoluonistheonlywaytoavoidaparalysisthatwouldcauseirreparableharmtotheCompany.Butwhatpossibleresoluonexistswheretheobjecves/demandsofallfamilymembersaresasfied?
Acreavetransacon,focusingontheinterestsofeachpartyinvolved,wastheresoluonthatallowedeachmemberoftheSmithandJonesfamiliestoaccomplishhisorherindividualobjecves.Useofaneutralnegoaonfacilitatorwithinvestmentbankingexperienceaswellasmediaonskillswascricalinnegoangandclosingthetransacon.A“mergerofequals”wasthetransaconthatresolvedthedeadlock.Themergertargetwasacompanythatlackedsuccessormanagement(astrengthofSmithCompany)andthatasaresultwaswillingtopermitMergeCotobecontrolledattheboardlevelandmanagedonadaytodaybasisbymembersoftheSmithandJonesfamilies,providedtheownersofthetargetretainedaroughly50%ownershipinterestinMergeCo.Thecombinedbalancesheetsandcashflowsofthetwocompaniesprovidedtheabilitytostructureputoponsforfamilymemberswhowantedtocashout.
“FAMILY BUSINESS DISPUTES : HOW MEDIATION TECHNIQUES CAN HELP PREVENT GENERATIONAL AND
SIBLING CONFLICT FROM KILLING THE PROVERBIAL GOOSE”
STAGE ONE RELATIONSHIP AND SUCCESSION ISSUES
ACR ANNUAL CONFERENCEOCTOBER 11, 2013
RICHARD LUTRINGER
MEDIATION OFFICES INNEW YORK CITY AND SOUTHERN CALIFORNIA
[email protected]/RLUTRINGER
I. FAMILY BUSINESS DISPUTES/ISSUES INCLUDE :
SUCCESSION [SELECTING, NURTURING, TIMING, RETIREMENT OF FOUNDER]
EMPLOYMENT EXPECTATIONS [HIRING STANDARDS, LEADERSHIP ROLES, RELATIONSHIP TO NON-FAMILY EMPLOYEES]
DISTRIBUTION OF PROFITS [BEFORE, DURING AND AFTER SUCCESSION]
ONGOING MANAGEMENT / SALARIES/ PERKS [OF SIBLINGS WITHIN BUSINESS]
II. THE “FOURTH CIRCLE” — LEGAL BACKGROUND
GENERALLY, 51% = ABSOLUTE CONTROL OVER ORDINARY BUSINESS DECISIONS [I.E. LIMITED DEMOCRACY]
“BUSINESS JUDGEMENT RULE” LIMITS COURT REVIEW OF MANAGEMENT DECISIONS
WITHOUT PRE-EXISTING BUY-SELL OR MANAGEMENT AGT, MINORITY MAY BE LIMITED TO THE “NUCLEAR OPTION”—SEEK DISSOLUTION[CORP :DUE TO OPPRESSION OF MINORITY,NY BCL SEC. 1104-A; LLC “NOT REASONABLY PRACTICAL TO CARRY ON THE BUSINESS IN CONFORMITY WITH THE…OPERATING AGREEMENT” NY LLCL SEC. 702]
III. ISSUES REALLY UNDERLYING FAMILY BUSINESS DISPUTES :
FAIRNESS
RESPECT
CONFUSION OF FAMILY AND BUSINESS ROLES
“CULTURAL” DIFFERENCES (GENERATIONAL, GENDER, BIRTH ORDER, ETC)
LACK OF COMMUNICATION [WITHHOLDING INTENTIONS OR CONFUSING MESSAGES]
SYSTEMIC DYSFUNCTION : SUBCONSCIOUS COLLABORATION OF FAMILY MEMBERS TO
PROTECT THE SYSTEM FROM UNDISCUSSED FEARS AND ISSUES [MORE THAN A MEDIATOR’S JOB-BUT AWARENESS OF ISSUE CRITICAL]
LAIUS COMPLEX
IV. FAMILY BUSINESS DISPUTE OUT –ORANGE COUNTY CHOPPERS (VIDEO CLIP)
GENERATIONAL CLASH OF FATHER (80%
OWNER/CEO) VS. SON (20% OWNER/ SR
EMPLOYEE)
CLIMATE OF OPENNESS, TRUST, RESPECT AND
COMMUNICATION ?
CLEAR EXIT POLICY ?
AFTERMATH
V. TOOLS OF THE FAMILY BUSINESS MEDIATOR
DETERMINE WHICH SYSTEM IS DOMINANT –FAMILY
OR BUSINESS [LOOK FOR SYSTEMIC CAUSES,
RATHER THAN FOCUSING ON THE IMMEDIATE
ISSUE]
WHAT IS THE REAL PROBLEM ? IS THE BUSINESS
ISSUE RELATED TO “UNFINISHED BUSINESS” IN THE
FAMILY SYSTEM ? DOES THE PROBLEM INVOLVE
“SCAPEGOATING” (E.G. WHO CAN WE BLAME ? )
ENGAGE ALL INFLUENCERS ( WHICHEVER CIRCLE
THEY FALL INTO)
DISTINGUISH ROLE AS MEDIATOR FROM FAMILY
BUSINESS ADVISOR
UNLIKE MEDIATION OUTSIDE OF A FAMILY
RELATIONSHIP, IF PARTIES “WALK”, FAMILY
PROBLEM NOT RESOLVED BY MONEY/COURT
[DIFFERENT BATNA]
UNDERLYING “INTERESTS” AMONG ALL PARTIES
OFTEN THE SHARED INTEREST OF KEEPING THE
FAMILY INTACT---RECOGNIZE THAT FAMILY
BUSINESS DISPUTES CAN SPAN GENERATIONS
AND ARE RECURRING DISPUTES [SEE MAYER,
STAYING WITH CONFLICT ]
REFERENCES :
DISTELBERG AND SORENSON”UPDATING SYSTEMS
CONCEPTS IN FAMILY BUSINESSES” (22 FAMILY
BUSINESS REVIEW, MARCH 2009,) PP. 65-81
HILBURT-DAVIS AND DYER, CONSULTING TO
FAMILY BUSINESSES ,
(JOSSEY-BASS/PFEIFFER, 2003)
KAYE , “PENETRATING THE CYCLE OF SUSTAINED
CONFLICT” (THE BEST OF FBR II, 1991), P. 283
LUTRINGER, MEDIATING BUSINESS DIVORCE
DISPUTES”, NEW YORK DISPUTE RESOLUTION
LAWYER, NEW YORK STATE BAR ASSOCIATION
(FALL 2009)
MAYER, STAYING WITH CONFLICT , JOSSEY-BASS
(SAN FRANCISCO 2009)
SPECTOR, THE FAMILY BUSINESS CONFLICT
RESOLUTION HANDBOOK, FAMILY BUSINESS
PUBLISHING CO. (PHILADELPHIA, 2003)
TEUTEL V. TEUTEL, 2010 NY SLIP OP 09248 (2D
DEPT DEC. 14, 2010)
Richard Lutringer is a private mediatorin New York City. He has been certified as a commercial mediator by the Centre for Effect- ive Dispute Resolution (CEDR), the American Arbitration Asssociation (AAA), and the Internat- ional Mediation Institute (IMI),as a community mediator by CMS, Queens, NY and is on the mediation panels of FINRA, NADN and federal district courts in New York and New Jersey. Disputes mediated by Mr. Lutringer include disputes among members of family owned businesses as well as domestic and international industrial, investment and financial companies. Mr Lutringer has been a member of the Board of Directors of ACR-GNY and is currently a member of the board of the New York State Dispute Resolution Association. He has been a regular competition judge and mediator for the International Chamber of Commerce Annual Mediation Advocacy Competition. Full bio available at mediate.com/rlutringer