The Essentials

April 27-28, 2006

Instructors: Jane Hilburt-DavisW. Gibb Dyer Jr.

Introduction, Chemistry Meeting, andContracting with Family Firms

Introductions/Ground Rules

• One minute statement!One minute statement!

• Who you areWho you are

• Where you’re fromWhere you’re from

• Profession of originProfession of origin

• What your expectations areWhat your expectations are

• Ground rulesGround rules

• ConfidentialityConfidentiality

• Breaks, cell phones, participationBreaks, cell phones, participation

Consulting Process

Chemistry Meeting

Letter of Engagement

Assessment

Feedback/PlanningImplementation

Follow-up

Exit

Reentry First Contact

From Hilburt-Davis & Dyer (2003) Consulting to Family Businesses

Overview of the Consulting ProcessOverview of the Consulting Process

First Contact

Chemistry Meeting

Chemistry Meeting

• Participants divide into small multidisciplinary groups to form Participants divide into small multidisciplinary groups to form questions/goals/concerns/plans for chemistry meeting: questions/goals/concerns/plans for chemistry meeting:

• What’s your strategy? What’s your strategy?

• What are your goals for the meeting? What are your goals for the meeting?

• What to look for? Look out for? Are we/am I the right fit?What to look for? Look out for? Are we/am I the right fit?

Letter of Engagement/Contract

Engagement Letter/Contract

• Outline main pointsOutline main points

• Scope of workScope of work

• FeesFees

• TimeTime

• Who’s the client/who signsWho’s the client/who signs

• Discussion of pros and cons of eachDiscussion of pros and cons of each

Assessment and Giving Feedback

Assessment

Assessment Framework

• FacultyFaculty

• ParticipantsParticipants

• What’s the diagnostic framework you use?What’s the diagnostic framework you use?

• How do you gather data? (Interviews, surveys, etc.)How do you gather data? (Interviews, surveys, etc.)

• How did you decide on the questions to ask?How did you decide on the questions to ask?

• What are the ground rules for the interviews?What are the ground rules for the interviews?

Feedback/Action Planning

Feedback/Action Planning

• What data will you feedback? In what format?What data will you feedback? In what format?

• What are your goals for the feedback meeting?What are your goals for the feedback meeting?

• What do you do with the various responses?What do you do with the various responses?

• What responses are you most/least prepared/equipped for?What responses are you most/least prepared/equipped for?

Action Plan

• Specific steps and goals.Specific steps and goals.

• What is the level of intervention? Pp.100-101)What is the level of intervention? Pp.100-101)

• What is the target for change?What is the target for change?

• How will you manage the change?How will you manage the change?

• What to look out for?What to look out for?

• Where will resistance come from and how will you deal with it?Where will resistance come from and how will you deal with it?

• What structures/architecture is needed?What structures/architecture is needed?

• Liaison with family, costs and billingLiaison with family, costs and billing

Barriers to Growth

1)1) Failing to Plan for GrowthFailing to Plan for Growth

2)2) Ineffective Leadership and Management StyleIneffective Leadership and Management Style

3)3) Ill Defined Organizational StructureIll Defined Organizational Structure

4)4) Lack of Information SystemsLack of Information Systems

5)5) Unqualified Personnel and a Lack of HR SystemsUnqualified Personnel and a Lack of HR Systems

6)6) An Organizational Culture that Fails to Foster GrowthAn Organizational Culture that Fails to Foster Growth

7)7) Poor Partner Relations and an Ineffective Board of DirectorsPoor Partner Relations and an Ineffective Board of Directors

Family Factors Contributing to High Family Factors Contributing to High PerformancePerformance

Family Factors Contributing to Low Family Factors Contributing to Low PerformancePerformance

Agency BenefitsAgency Benefits Lower agency costs due to the alignment Lower agency costs due to the alignment

of principal-agent goalsof principal-agent goals Lower agency costs due to high trust Lower agency costs due to high trust

and shared values among family and shared values among family membersmembers

Agency CostsAgency Costs Higher agency costs due to conflicting Higher agency costs due to conflicting

goals in the familygoals in the family Higher agency costs from opportunism, Higher agency costs from opportunism,

shirking, and adverse selection because shirking, and adverse selection because of altruism (i.e., family members fail to of altruism (i.e., family members fail to monitor each other)monitor each other)

Family AssetsFamily Assets Human capital: the family has unique Human capital: the family has unique

training, skills, flexibility, and motivationtraining, skills, flexibility, and motivation

Family LiabilitiesFamily Liabilities Family lacks necessary skills and Family lacks necessary skills and

abilities due to small labor pool, lack of abilities due to small labor pool, lack of talent, or inadequate trainingtalent, or inadequate training

Social capital: the family develops Social capital: the family develops relationships outside the family with relationships outside the family with employees, customers, suppliers, and employees, customers, suppliers, and other stakeholders that generate other stakeholders that generate goodwill goodwill

Family “branding” of the firm or of the Family “branding” of the firm or of the firm’s goods and services may generate firm’s goods and services may generate goodwill and a positive image with goodwill and a positive image with stakeholdersstakeholders

Family fails to develop social capital Family fails to develop social capital with key stakeholders due to distrust of with key stakeholders due to distrust of outsiders (i. e. “amoral familism”)outsiders (i. e. “amoral familism”)

Family relationships lead to Family relationships lead to complex conflicts among familycomplex conflicts among family that may undermine image and that may undermine image and goodwill with stakeholdersgoodwill with stakeholders

Physical/financial capital: the family may Physical/financial capital: the family may have physical or financial assets that can have physical or financial assets that can be used to support the firm be used to support the firm

Family uses firm assets for personal Family uses firm assets for personal use, thus draining the firm of financial use, thus draining the firm of financial and other resourcesand other resources

Table 2“Family Factors” Affecting Firm Performance

AGENCY COSTS

FAMILYASSETS

Figure 3Typology of Family Firms

Quadrant IIQuadrant I

Quadrant IVQuadrant III

HIGH

LOW HIGH

HIGH

ProfessionalFamilyFirm

ClanFamilyFirm

Self-Interested FamilyFirm

Mom & Pop FamilyFirm

LOW

LOW

FAMILYLIABILITIES