Almost a quarter of business owners have employed relatives in recent months according to latest research – sparking a revival of traditional family businesses. The study of 500 small business owners found that of the 23 per cent who took on a family member, 46 per cent hired their partner, while 55 per cent recruited a sibling. And one in 10 even asked for help from their in-laws. Almost half (46 per cent) employed relatives during lockdown because they needed extra help, while 34 per cent felt their loved ones had the skills they were looking for. Other reasons included the family member wanting to gain work experience or because they were struggling to find work after finishing education during the pandemic. The research, commissioned by Funding Circle, found the family employment typically lasted seven weeks, but 68 per cent still have their relative working for them. And while 21 per cent are considering taking them on full time following this experience, 45 per cent would look at hiring more relatives in the future. It also emerged that as a result of this, more than a fifth would like to see more traditional family businesses making a comeback. Lisa Jacobs, Funding Circle’s UK managing director, said: “Family sits at the heart of many successful small businesses. One of the silver linings of this crisis might be a revival of the traditional family business, with relatives spending more time together as business colleagues and partners as well as at home.” The research also found more than a third of small business owners admitted their relative worked harder than they expected them to. More than a quarter said their relative’s working attitude was respectful and 22 per cent said they seemed enthusiastic. Similarly, 32 per cent of owners said working with their relation was fun and 30 per cent felt it was motivating, yet 12 per cent described it as difficult at times. And although 31 per cent of those polled said taking on their loved one was positive for their family relationship, three in 10 struggled to be ‘boss’ to them. When it came to family perks, 41 per cent of bosses admitted they gave their family member flexible hours, 24 per cent offered longer breaks and 30 per cent even gave them a free lunch. The findings come after a separate study of 1,500 relatives of small business owners found that of the 23 per cent who were taken on by their family, a third found it motivating. Popular family businesses were found to fall into the sectors of retail, business, consulting and management, and creative arts and design. And for 62 per cent of ‘employees’ the new role with their relative was something completely different to their usual job. For a fifth, their new ‘boss’ was their dad, while a tenth had their mum to answer to and 14 per cent were ‘hired’ by their uncle. More than a third even said the experience has made them want to be more involved with the family business and 31 per cent feel encouraged to start their own company. But 44 per cent admitted they now realise how much work goes into running a business, according to the OnePoll figures. More than a quarter found themselves helping out a relative because they were on furlough, while 28 per cent had always had an interest in it and now had the time. Positives of working for a family member included being able to act completely themselves (35 per cent), spending more time with family (40 per cent) and feeling less pressure (30 per cent). Professor Alfredo de Massis, a family business expert from the Free University of Bolzano and Lancaster University, added: “The results emphasise the crucial importance of family involvement in business during particularly challenging times.” “My own recent research into 3,500 firms from all over the world showed that family firms have been more resilient than their non-family counterparts during the pandemic and lockdown.” “The reasons behind this have to be found in their long-term orientation, family-centred non-economic goals and strong values handed over across generations.”

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I was recently asked to give a talk about family businesses, and the conference organiser told me not to even mention the “three generation rule.” As he put it: “Everyone already knows that family businesses don’t last.” He’s perfectly right. An oft-cited statistic is that only 30% of family businesses make it through the second generation, 10-15% through the third, and 3-5% through the fourth. These are disheartening numbers. But let’s put them in perspective. How many companies of any kind are still around after the equivalent of three or four generations? A study of 25,000 publicly traded companies from 1950 to 2009 found that, on average, they lasted around 15 years, or not even through one generation. In this context, family businesses look pretty enduring. And the numbers are only going to get more flattering. In the context of competition in the 21st century, family businesses have innate strengths over others forms of ownership, especially public companies. For most of the last century, companies confronted oceans of opportunities, which meant that winning strategies revolved primarily around size. Public companies had a clear advantage in the scale economy; they are especially suited to raising capital. But firms today are no longer looking out at endless opportunities. Instead, they have to struggle for their very survival in an intensely competitive world of slower growth, lower returns, and more frequent economic crises. In this brave new world, public companies are losing their dominance: their share of America’s GDP, workforce, and assets has fallen by 50% over the last quarter of the 20th century. For family-owned businesses, the story is rather different. The qualities often associated with family businesses that were a handicap in the previous century are turning out to be powerful sources of advantage, giving them the potential to be more adaptive to the increasingly intense competition that all businesses are facing. Specifically, family businesses have the opportunity to achieve sustainable advantages in five key areas: Talent: From Mass Employment to a Higher Calling For much of the 20th century, success depended on a company’s ability to hire, train, and retain ever-larger numbers of employees. This was the era of the company man, where employees exchanged long-term loyalty for a liveable wage and a pension plan. In today’s knowledge economy, success depends instead on finding, empowering, and retaining the most talented people. Businesses need to do more than offer competitive wages and benefits; they have to provide a “higher calling” that makes clear the intrinsic value of working for their companies. As a recent Bain & Company study put it: “Employees want to work hard because they believe in their company’s mission and values, not just because they hope for a large salary or a fast promotion.” Much has been written about values-based cultures, but families are the primary carrier of values, and business families can weave their values into the very fibre of the organisational culture. Our experience has shown that because employees work directly with the owners, there is often a pronounced loyalty effect, which augments the important sense of mission. Investment: From Other People’s Money to Captive Capital In the scale economy, capital was the lifeblood of success. And given the pace of growth, capital was always in demand. In today’s economy, however, the priority has shifted from the quantity to the quality of investment. Outside funds bring with them a pressure to achieve short-term results that trade-off with value creation. A study of leading public company CFO’s published in the Journal of Accounting and Economics (2005), found that 78% of these CFO’s would be willing to make decisions that destroy value in order to achieve their quarterly earnings targets. Family businesses don’t have these problems because they can obtain “captive capital” that will not easily migrate to other firms. Their owners often think in generational terms – in decades rather than quarters or years. Without external markets to please, they can take a long-term perspective and make decisions on the basis of sustainable economic value. As a result, family equity can come at a very low cost of capital, where businesses can meet the annual needs of their shareholders without having to worry about paying back the principal. What’s more, since the money at stake is their own, family businesses tend to be cautious in their spending, and the discipline that comes from frugality is a tremendous advantage when topline growth is harder to achieve. Reputation: From Profit Motive to Sustainable Footprint In the 20th century, there were relatively few channels (literally, in the case of TV) by which companies could build their reputations, which enabled the largest companies to control them. It was not unreasonable for Milton Friedman in 1970 to say that the “one and only one social responsibility” of businesses is to raise their profits. In the 21st century economy, the standard has risen considerably. As one client told me, “It used to be that unhappy customers would write a letter. Now, they snap a picture of a defective product, upload it to Facebook, and all of a sudden it’s gone viral. We have to stay out in front of our image.” Family businesses have a big head start in building a “sustainable footprint.” There is often a personal connection between the family and the communities in which it operates; reputations matter to families. Investments in the community are likely to have social rationale in addition to an economic one. One client built a hotel complex in an underdeveloped area. They could have flown in all the supplies that they needed, but instead they decided to invest in local farmers to supply the food for the resort. Over a three to five-year period it cost them money, but over a 20-year period this investment will pay off handsomely. With a longer time horizon, trade-offs between strengthening the community and making profits can simply disappear. Organisation: From Managing Complexity to Rapid Response The leading companies of the 20th century were behemoths. Henry Ford’s company covered the entire value chain from end-to-end, including owning the grazing land for the sheep whose wool was used in seat covers. But instead of managing highly complex structures, the greatest organisational challenge of the 21st century is dealing with change. Companies will need to build the capacity for flexibility, adaptability, and quick/decisive action in response to shifting market conditions. The new mantra is to shorten the distance between leaders and the frontlines. Family businesses are well-suited to dealing with this imperative of “rapid response.” They tend to have nimbler and flatter structures, where information flows quickly and easily in to the leaders and decisions come out. There is also often more of a direct connection from the ultimate decision-makers to their employees. While less adept at delegating, they can more quickly and decisively commit the organisation to action. The privacy that family ownership allows also helps executives stay focused on strategy rather than meeting market expectations. In Fortune’s last survey of leading CEO’s, 84% of CEO’s said it would be easier to manage their company if it were private. Governance: From Separation of Powers to Engaged Owners Decision-making in large public companies is primarily vested in management, which generally is not composed of majority owners. As a result, ownership of the business is split from day-to-day control, creating what economists call a “principal-agent” problem. The traditional priority for good corporate governance has been to align management incentives with the interests of shareholders, often through equity-linked compensation plans. But by the end of the 20 century it had became clear that this endeavour has failed. Efforts to make managers act like owners through stock options have backfired, leading to skyrocketing pay, and opening the door to numbers-rigging scandals such as Enron. The principal agent problem is far less severe in family businesses because they foster “engaged ownership.” The simple fact that there are fewer owners makes the oversight of decisions far easier; even family businesses with hundreds of owners are better positioned to provide effective oversight than public companies, whose owners can number in the hundreds of thousands. And when family members with large ownership stakes are also involved in managing the business, incentives are easily aligned. The public corporation has been the dominant model for business enterprise for most of the last century, and this reflected the fact it was the best solution to a particular set of economic circumstances. But those circumstances are changing and family businesses that manage the five sources of advantage described above are well placed to make the 21st century a family business century. First Published on 28 Mar, 2016 in the Harvard Business Review. Reproduced with permission of the author.

It’s a dilemma that faces family businesses all too frequently. We saw it recently when we worked with a $4 billion global manufacturing business in Hong Kong. The company was managed by the founder, who turned it over to his son when he retired. The two men had created distribution channels, built a supply chain, entered profitable new markets–and, just as importantly, held the family together, ensuring that family members were well taken care of and that family disagreements didn’t harm the business. Now with the passing of the founder’s son, the third generation–a collection of cousins who are geographically dispersed, prone to disagreements, and lacking the experience necessary to run such a large and complex business–are trying to figure out what to do. It’s a tough situation, and the third generation decided to look outside the family to find a successor CEO. They wanted someone who could reset the strategy; someone to grow the business again; someone who could broker an agreement between the factions of the family who favour reinvesting for growth versus those who favour high dividends. They called this idealised new CEO “Mr. Wonderful.” A worldwide search turned up two leading candidates–both of them superstars. But each person turned down the job. Neither thought the business was ready for a non-family CEO. These rejections were traumatic, but they have proven to be a tremendous gift. No one could have done everything the third-generation cousins wanted. The candidates most likely to accept such a role would either be incompetent in not understanding the complexity involved (thus dooming the business to failure), or, even worse, they would see an opportunity to assume control and push the family aside. The situation this family faces is all too common. They approached the problem of succession believing that what worked successfully in the past would work for their generation. It wasn’t until outsiders began rejecting the CEO position that the family realised that even the most wonderful person could not have managed a business that had now grown so complex. Certain systems and structures had to be put in place first. This was work that only the family owners could do. Businesses don’t need to have billions of dollars in revenue before hitting this point–we see it happen to family companies of various sizes. What should you do if you find yourself in the situation of wanting to bring in an outside CEO? First you’ve got to make some changes yourselves: Step up as owners. Even if you’re used to your parents running the show, it’s time to realise that you’re the owners now, and have the right–and the responsibility–to develop your identity as owners before an outside executive can come in. Part of the problem is that as members of the next generation, many of you have experienced “learned helplessness.” When, over years or decades, you’ve been shut out of decision making, you may not know how to call the shots, whether the patriarch or matriarch is still living–or not. So your first step is often the most difficult: assume psychological ownership. Choose your ownership path. Once you’ve taken on the mantle of being owners, then you’ve all got to get on the same page about where the next CEO should drive the business. Know your agenda. Whether your goal is growth, liquidity, a turnaround, or employing more family members, your desired path dramatically affects what kind of person that you’re looking for, and the background and experience needed. The new guy can’t hit the ground running unless you reach a consensus about where you expect the business to go. Fight the CEO’s fight. Clean up the messes that would hobble the new CEO. If there are family members all over the business that don’t belong there, get them out now. The worst thing that could happen is that Aunt Mary’s son Johnnie is high up in the business, and he’s incompetent. If you leave it to the new CEO to have to remove Johnnie, the leader will lose Aunt Mary’s 15 percent of the vote on the board. That’s a new CEO’s worst nightmare. You will also need to clean up the compensation system. One way patriarchs and matriarchs dominate family business systems for so long is that they buy people off. If someone has a special compensation deal, get rid of it. Change the power structure. When you have a dominant patriarch or matriarch, the power structure typically gets overly centralised with the strong man or woman in the centre sitting on the shareholders’ council, on the board, and running the business. It is impossible to have a successful non-family member CEO succession until this power dynamic changes. Appropriate checks and balances must be put in place. At the very least, you must clearly define and delineate roles for yourselves, the board, and the executive team. One client family reinvigorated their board in order to fill the gaps and correct the blind spots that they knew their CEO had. This strengthened the new guy and convinced the patriarch that it was safe to move aside. Editor’s Note: Some names, locations, and other identifying details in this post have been changed to protect client confidentiality. First Published on 6 December, 2013 in the Harvard Business Review. Reproduced with permission of the author.

Two years after her parents passed away, 63-year- old Alice Tazzi* found herself in a frustrating situation. As with several other recent efforts, she was unable to get her brothers to agree on a significant business investment. Alice had become president of her family business at the age of 61 after several decades watching from the proverbial wings as her parents ran the business. In the past, when she and her brothers had disagreed on anything, her parents mediated the disputes. But since Alice took over, she and her siblings — who now owned the business equally — found themselves increasingly unable to make decisions together. And the business, as a result, was suffering. In another family business, Ben Metter, a 25-year-old electrical engineer, was also frustrated, but for a different reason. It had been three months since his parents died unexpectedly, and two months since he decided to leave his venture capital job to return home to become CEO of the global condiments business that he and his sister now owned. Night after night, he found himself thinking about his parents and questioning whether he had made the right decision. At first glance, Alice’s and Ben’s stories may seem like they couldn’t be more different. But in fact, they are both cast from the same mold: the difficult aftermath of family business leadership transitions that happen outside of a conventional timeframe. In a perfect world, family businesses will transition leadership from one generation to the next along a predictable and well-planned process — whether that’s determined within the business, the ownership group, or the family itself — passing the baton after years of preparation. But more and more families are discovering that their transition experience doesn’t follow that path. Advances in modern medicine have increased human life expectancy and productivity, allowing some leaders to continue playing a central role into their 80s and 90s. And this, of course, can leave family members with a false sense of security — of course they will live a long life, they assume, so why even think about planning a leadership transition just yet? Meanwhile, natural disasters, accidents, and illness (as the COVID-19 pandemic has demonstrated so clearly) have the ability to claim many of our loved ones much earlier than we expect. Both scenarios can leave leaders utterly unprepared for the job. An unprepared next generation often defaults to backing away, either opting to leave employment in the business or treating it purely as a financial asset without engaging in leadership. Both options tend to lead to selling the business altogether — an outcome that the previous generation may not have anticipated or wanted. But such unplanned transitions don’t have to inevitably end in disaster. With some preparation and creative action, we’ve seen many business families get up to speed quickly in these less-than-ideal circumstances. Josh Baron from BanyanGlobal explores the issue in more detail below. Both Alice’s “delayed transition,” and Ben’s “surprise transition” ultimately created what we’ll call a generational hangover. Because Alice’s parents clung to their leadership positions for so long, they never really began the hard work of preparing successors. And Ben was too young to have learned from his parents’ example, or even to really decide if the family business was right for him. In both cases, absent their parents’ guidance, they were left with a unique set of challenges and only a limited understanding of how best to address them. Dealing With Delay Those like Alice, who find themselves in a delayed transition, face a common set of challenges. For example, people who have been waiting on the sidelines for a very, very long time may be battling damaged self-confidence because they have never had a chance to escape their parents’ shadow. Often, they have never learned to make decisions together or resolve disputes among themselves, since they could always go to mom or dad to fix it for them no matter how old they were. Even when they make the effort to step up, there is frequently a perception among non-family employees and advisors — who may still refer to those like Alice as “the kids” well into middle age — that they are not fit to lead, undermining their leadership before it’s even begun. And finally, the problems can be compounded because the next generation (“the kids’ kids”), now in their 20s or 30s, start knocking on the door. And if you aren’t ready to show them a path to leadership, they may lose interest in the business altogether, choosing instead to dedicate their time elsewhere, rather than wait years, even decades, for their turn at the tiller. If your family is in the midst of a delayed transition, there are four main options to consider: 1 - Get your house in order : Some find it best to fix the challenges in their generation before engaging their children. You should consider this approach if it feels like the conflict is so destructive that bringing the next generation into it might end up “poisoning the well.” The benefit of dealing with the transitions in sequence is that you can create and pressure test governance structures and processes that a larger group will need to rely on to make decisions. And you can present a united and aligned front when you are ready. The major risk of this approach is that by keeping out the next generation, you are further postponing an integration of them that is already overdue. 2 - Play catch-up : Another approach is to integrate the next generation into the transition process from the beginning. As soon as the transition (finally) happens, start working together. The senior generation will still have the formal authority, but can create space for the next generation to participate in a meaningful way and have a voice even if they don’t have a vote. Taking this approach requires everyone involved to learn “on the job” how to tackle the hard issues, to disagree productively, and to make decisions together. The complexity of addressing both generations requires significant effort, commitment, and coordination, but can drive lasting and sustainable results. The family will no longer be behind the eight ball. 3 - Work backwards : In some instances, the generation in control is simply not willing or able to tackle the difficult decisions that come with stepping back from the limelight and relinquishing control to their children, nieces, and nephews. This risks a stalemate that will likely replicate the current dynamic into the future. One way out is to essentially leave the current structure as it is and focus instead on designing how the next generation will work together. Not pushing for immediate change can open up space to work and help the next generation prepare for their turn, under the guidance of those currently in charge. In a number of instances, we have seen that the senior generation was willing to take incremental steps towards that agreed-upon future once it was in place. 4 - Skip a generation : We have also seen, in rare cases, families who decide to skip a generation entirely. In one case, a mother and father had three children who were equally qualified to run the business but, absent years of practice, found themselves unable to make decisions together. Rather than battle it out and further disrupt family harmony, those siblings chose to transfer leadership and control to the eldest of their own children, a credentialed, connected, and well-respected businesswoman. Surviving The Surprise Surprise transitions like Ben’s bring about their own distinct issues. Often, those thrust into leadership positions may not have developed the experience or skillsets traditionally required to lead, finding themselves wondering, “Am I even capable?” Others may feel pressure to step into the role of their deceased parents — mitigating disputes, hosting Christmas, maintaining family harmony — which can damage sibling relationships, especially at times of loss and change. Long-term, those like Ben who are thrust into these roles can experience intense resentment and can ultimately find themselves longing for a career or life that could have been. The net effect of these challenges can create a domino effect whereby that generation experiences fatigue and chooses early retirement, perhaps before their children are ready to become owners or lead the business. Families who have found themselves in Ben’s shoes have taken several successful approaches: All in : Some families choose a next generation leader whether that individual is ready or not. Recognizing this person is in a difficult position, they broadcast their faith in the individual to key stakeholders. These families often surround this individual with trusted advisors and also are more accepting when things don’t go exactly as planned early in the tenure. Pinch hitter : Other families hire an external trustee, board, or CEO to steward the business until the next generation is ready. Good pinch hitters are hard to find, because they need the right mix of low ego, a teaching mentality, and both interests and a timeframe that are aligned with the family, owners, and future leaders. Those who do find good pinch hitters will need to go to extraordinary lengths to ensure fit and align incentives with the broad range of family objectives. Non-family leaders : Still other families hire external leaders who plan to be there for the long-term. That can fill the leadership vacuum. But external executives bring about their own principal-agent problems, which require more structure to protect the family and owner interests. These families often build complementary governance forums like a board and a formal Owner Council to clarify how the owner priorities are communicated and protected, which helps steward the assets alongside the new leadership. As each family business is unique, there is no one right or wrong answer on how to overcome an unplanned transition. But understanding the issue you are up against and the potential paths you can take in such a transition are an important first step to casting a future for your family business that is free from the challenges that poorly planned hand-offs create. *Identifying details have been disguised. This article was first published on HBR.org on 11 May 2020 & has been reproduced with permission of the author.

Almost every employee must participate in at least one interview, if not multiple before being hired. However, in many cases, once employment starts, the interviews stop. The following article contemplates the value of completing one last interview, an exit interview, when an employee voluntarily leaves a company. An exit interview is exactly what it sounds like: an employer asks questions of an employee who is set to leave the company. However, unlike a standard interview, the conversation centres on the employer’s strengths and weaknesses, rather than the employee’s. It can act as a valuable tool for employers to grow and learn, and give departing employees a chance to share their own concerns with their employer. Benefits An exit interview is a valuable opportunity for an employer to learn how it compares to their competitors with respect to salaries, benefits, and other compensation it offers. When conducting an exit interview, employers should consider asking about these metrics, and whether they were a motivating factor for the employee’s departure. With this information, an employer may be able to readjust its payment structures to stay competitive. Employers should be mindful of local and state laws that may limit or restrict their ability to ask employees about salary and benefits information. While pay equity laws generally come into play at the start of employment, employers should remain mindful of asking questions that could cross the line. Furthermore, exit interviews are a chance for employers and employees to reflect on the positive aspects of their experience together. This helps to foster goodwill. Ending an employment relationship on a positive note may lead the exiting employee to refer customers and/or potential employees to the business or may provide an avenue for the departing employee to return down the road. However, perhaps the most valuable take-away from an exit interview is the employee’s feedback on the company itself. Employees who are set to leave the company are free to share their true thoughts and any observations that could be beneficial moving forward. This degree of candor is hard to replicate in other situations, making exit interviews particularly valuable. Best Practices The usefulness of an exit interview is greatly increased if the interviewer is someone who did not regularly supervise or work with the exiting employee. This distance between interviewer and interviewee helps preserve the honesty that is crucial to a useful exit interview. It is important to consider the timing of the exit interview. It’s advisable that employers not conduct the exit interview during the periods immediately before or immediately after the employee’s departure. The employee is most likely to be disengaged from the job during those times. If there is sufficient time between when the employee gives notice that they will be leaving and the time that they actually leave, doing the interview while the employee is still in-house can yield helpful results. Having a mix of structured and open-ended questions is more likely to produce useful criticisms and responses. Specific questions targeted at managerial styles, the type of work assigned, and deadline expectations can help an employer fine-tune the way the business is operated. Conversely, by asking open-ended questions, employers can access employee’s ideas on how to improve the business as well as gain any information related to potential concerns around discrimination and harassment in the workplace. Most employees either do not have the chance to share these kinds of ideas or are too timid to do so. Broad questions allow employers to tap into the creativity and unique perspectives of their employees and incorporate them into their broader strategy and vision. As is noted by Professor Everett Spain, “Standardised interview questions rarely deliver unexpected insights.” Simply put, exit interviews provide an opportunity for employers to receive honest, valuable feedback, and thus improve how they operate their businesses. This article was first published by Davis Wright Tremaine LLP & has been republished with their permission. Find out more here

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In this short video, family owned Butlers Farmhouse Cheeses wanted to celebrate the farmers behind their cheese and recognise all of their hard work. It was commissioned as part of Farm 24 back in 2017 and shows the dedication of goat farmers, Nicola and Matt. Without their commitment to raising a happy goat herd, Butlers wouldn’t have such a delicious goats cheese product. They deserve a gigantic pat on the back for the brilliant work they do and Butlers wanted to tell their story. So here it is, a day in the life of Nicola and Matt.

Succession planning is always on the family business agenda. However, it can be one of the hardest conversations to have because it involves people letting go and handing over responsibilities. As one of life’s inevitabilities, succession planning is always on the family business agenda. However, it can be one of the hardest conversations to have because it involves people letting go and handing over responsibilities. One of the most important things to remember is that ownership and management succession must be treated differently. Ownership succession is all about owning shares in the family firm whereas management succession raises questions about who should take over the helm. In this article, Natalie Wright, Head of Family Business at Mazars looks at the challenges around management succession and the family business and how to ensure the process is as smooth as possible. It’s important to exercise care right from the outset to select the management team that are fit for the future and not just today. Successful family firms are those that embrace change and innovate to remain relevant to their stakeholders. As a general rule, the sooner the process begins the better. Initially, the decision needs to be made whether the next generation of management should be a member of the family. If not what would be the impact on the underlying values and positioning of the family. A broad timetable also needs to be put in place, taking into account a period of transition. Ideally there will be a date to work towards that clearly states the change in leadership to all stakeholders. Each family is different, but whilst transition is a process and not always an easy one, it can, however, be broken down into a number of key steps. 1.Agree a timetable 2.Identify the skills required 3.Select the candidates 4.Provide necessary training and education 5.Select a successor 6.Engage with staff/management 7.Define performance indicators 8.Set clear governance guidelines 9.Monitor progress 10.Start again Once the timetable has been set and the business has identified the key skills required and any training needs, then the selection of candidates can begin. If you want to be keep management within the family, current leaders need to identify candidates from the next generation. This means choosing from their own children and potentially nieces and nephews, so the emotional dynamic of this selection process shouldn’t be under-estimated. In this case, independent input can be a great help. However, if non-family candidates are the preferred option then clear roles, responsibilities and incentive schemes need to be decided and put on the table to attract the right people for the roles. An advantage of having family members succeed management is that they most likely been involved in the business for a long time. In many cases though, family firms encourage their next generation to work elsewhere before returning to roles in the family firm, but problems can arise if they decide not to come back as they see their future outside the family business. Often open and honest conversations aren’t held until the succession process is formally put on the table, which can be too late. Inevitably, change at the top can lead to a period of uncertainty both internally with staff and management and externally with business partners. After the transition it is a good idea to put in place PR and relationship plans to smooth over any issues and to introduce the new leader to key customers, suppliers and contacts. It’s also important to make sure a clear set of rules for operation and interaction between the board and the family have been set. Family relationships are not always in sync with the needs of the business and these areas need to be managed appropriately. Planning helps, as does conversation, and it is always useful to get an external perspective too because many other family firms have been through similar processes and can provide a valuable source of ideas, examples and insights to ensure a successful transition. Once the transition has been implemented, regular reviews are needed and essentially the process starts all over again! Management succession is a key area for family firms to plan for and address. With people living longer, the gap between generations is increasing and the needs of businesses today are changing rapidly. With situations where the next generation is not mature enough to take on the challenges of the business there may be need to look outside the family for leaders and planning for different scenarios can help the business to plan for the future and address different scenarios too.

Morten Bennedsen, INSEAD Professor of Economics and Political Science shares some lessons from the UK’s oldest privately owned bank, which has been in the same family for more than 300 years. In family businesses, family assets are the unique and often intangible contributions that only families can bring to their firms and are essential to their identities. Long-lived family firms always need to identify and develop those unique family assets that have been sustained and enhanced by each generation of the family. These assets can take many different forms, such as the name of the firm, its reputation, the history of the family and the business, the mission and its unique business philosophy, the values that drive the family in their business dealings, and the rich network of business and political ties developed over multiple generations. A key feature of family firms – and a requirement for their sustainability – is that their contributions are linked to strategy-making. If assets are not present at the operational level, they cannot be efficiently leveraged to create a clear vision for the future. In addition, the unique assets that families deliver can enhance the identity and brand awareness of their firms in the eyes of next generation family members who may be interested in joining the family firm. Non-family employees are also motivated by the spirt of working for a firm that has a strong sense of identity and traditions. However, as these firms develop and grow over time, family assets can be lost on the growing number of family members and stakeholders, especially if no long-term planning of this special type of asset management has been initiated by the founders or developed by second- or third-generation owner-managers. More than anything, owner-managers should engage in a continuous process of re-defining their family assets in order to profitably include them at the level of firm strategy and vision. To develop long-term planning, owner-managers can focus on three key variables: Identify the critical family assets and how these can be exploited in the current business environment. Understand the extent to which family assets are transferable to the next generation, to outside managers or to new owners. Organise the leadership and management of the firm in such a way that family assets add value to the business strategy. A Rock-Solid Legacy One firm that exemplifies how these variables can work in practice is C. Hoare & Co, the oldest private bank in the United Kingdom (founded in 1672). From the day Sir Richard Hoare opened the unlimited-liability bank, depositors were attracted by the bank’s stability in a climate of uncertainty. Hundreds of similarly family-owned banks managed to survive until the turn of the 20th century, when larger limited-liability banks absorbed most of the smaller, unlimited-liability banks. Currently, eleventh generation Alexander S. Hoare is one of the bank’s eight partners. Alexander said the ambition of the Hoare family has always been to carry on doing what it does best, which is to act like ordinary employees in all areas of the bank, including credit, finance and investment. Hence, Alexander said the family have never had any desire to entertain buyout offers from more powerful companies. Family Members Are Staff Members At any given point in time, about 12 family members ranging in age from 20 to 80 are employed by the bank, but only a few of them are promoted to the level of the boardroom. At different times family members may act as employees, directors and owners. Usually, however, family members are ordinary members of staff. As the bank has provided services to many of its customers’ families for centuries, the family has never felt the need to advertise for more clients. Nevertheless the bank’s customer base has broadened over time, ranging from owners of landed estates to entrepreneurs and professional individuals, partnerships, owner-managed businesses, family offices and charities. With such a wide variety of customers, C. Hoare & Co. has developed a range of services that has evolved to keep up with changing needs: loans, foreign exchange and treasury services, wealth management, financial planning, investments, tax services and trust administration. Recently, the Hoare family moved towards professionalising the bank’s senior leadership. The current CEO is David Green, a non-family professional, who joined the firm in 2003. The current chairman of C. Hoare & Co is also a non-family professional, Sir Nicholas Macpherson. However, shares in the bank are all owned by the eight partners of the firm who are family members. With approximately 2,000 Hoare cousins in the extended family, the bank does not distribute dividends to all of them. Dividends are only distributed to the eight partners, and the dividend has not changed since 1928. As an unlimited-liability company, each of the eight partners carries unlimited liability for the bank’s business activities. “This influences our behaviour,” said Alexander. “It forces the eight partners to manage and mitigate any risks the bank could have.” By staying focused, families can optimise and enlarge the long-term value of their assets. Moreover, family control is most valuable when the family assets are strong. This article was first published on the INSEAD website and has been reproduced with their permission.

Founding and growing a business is one thing, but passing the baton is just as important. In private and family enterprises, it’s essential to think of the future first. Many small-to-medium enterprises and family businesses share a common risk – a lack of succession planning. It is easy for founders or chief executive officers to get so focused on day-to-day operations that they fail to consider future leadership. KPMG Partner Dominic Pelligana is adamant that a succession plan is vital for a sustainable business model. “Succession planning is about developing a pool of capable leaders - get people wrong and you put the business’s ability to perform at risk,” he said. In its simplest form, strategic planning involves setting a clear plan and then aligning an organisation to execute that plan. That is, it requires a plan and capability. It is also important to understand and align where the owners, the board and management believe the organisation is in its lifecycle, and the leadership style required. Only then can it have a meaningful conversation in relation to strategic planning and developing and/or acquiring the capabilities (succession planning) required to execute the plan at the board and/or management levels. What Good Strategy Looks Like Pelligana described succession as the orderly transfer of management (the CEO), control (the board) and equity (ownership) to the next generation. For company founders who have a business in their bones, he recognised that it can “take a bit of humility to step aside and let another CEO take over the business.” However, getting succession on track can actually help a founder grow their business without fear of losing control and suffering burn out. He said signs that a business is off track to succession include a lack of awareness of issues and challenges, a lack of goal alignment and trust, and inability to separate from a focus on operations to future management. In family business, another poor sign is blurring the best interests of the business with interests of the owners or family. Signs that a business is on track include awareness of the issues and challenges, having inside and outside perspectives, and strong alignment on the key issues and context. Clear plans for the transfer of management, control and ownership are essential, along with the trust and commitment to follow the plan. The key is to build a leadership team that complements the founder’s entrepreneurial strengths, along with professional management capabilities, Pelligana said. Boards need to be active in this process, helping to align activities to the future vision. An Inside Perspective Succession in family business can be unique due to the competing expectations of the founders and subsequent generations. “People say it’s the third generation [that lets a family business down], but I think the first generation hangs on too long,” he said. Pelligana said the first generation of family business is generally “all about survival,” the second is usually about establishing professional management systems, and the third is often about financial strategy. “How do we allocate capital - are we all in?” he said. Pellagina spoke to Claire Mackay and Tim Mackay, siblings who are Principals of Sydney-based family business, Qantum Financial. Their father, Bill Mackay, set it up in 1994 and is now the Chairman. Fortunately for succession purposes, Claire and Tim shared their father’s passion for financial management, but Bill did not immediately grant them a place in the company. “He [Bill] wouldn’t let us in the business until we had worked elsewhere – he wanted us to make our mistakes elsewhere,” said Tim Mackay. They said succession has been a key focus for the family and they have “everything in writing” in regard to future ownership. However, they regularly revisit the plan to ensure their goals remain aligned. The siblings commented that they didn’t want a succession plan that “relied on an 11 year old to run the company,” recognising that the third generation may not be inclined to take on the business. “It is about embracing the legacy – but taking it forward,” they agreed. About the Author - Dominic Pelligana is a Partner with KPMG Australia and a member of thefamily business team. This article was first published on their website and eproduced with their permission.

Giant Eagle supermarkets have proudly served their customers for more than 80 years. Find out more about the history of Giant Eagle and how their foundation of passion, hard work, innovative mindset and competitive spirit helped them become a grocery store that has continued to demonstrate the values of family and community for 4 generations. Giant Eagle serves more than five million customers annually through nearly 400 retail locations in Pennsylvania, Ohio, West Virginia and Maryland. Giant Eagle is based in Pittsburgh, PA. A great insight into a great family business.