Conflicts in Family Firms and how to deal with them May 2009 Bahrain .
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Transcript of 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