Dr. Joseph H. Astrachan, Executive Director of the Cox Family Enterprise Center at Kennesaw State University, speaks on on the topic of Building a Family Business That Lasts and provides viewers with four key points to walk away with.

Family business practitioners see the investigation of differentness family to family and detail to detail as the heart of today’s practice. When it comes to family business there is no “identikit.” No off the shelf package will sort out the identikit governance and succession problems of your family business clients. Each family differs down to your last incisive question that uncovers the particularity at the root of its challenges. David Harvey explains more. Family business practitioners see the investigation of differentness family to family and detail to detail as the heart of today’s practice and this requires new techniques and competencies. Your practice needs not just core accounting but also access to coaching, psychological, management, family law, wealth management, mediation and counselling skills to provide a tailored governance solution focused on the dynamic of each family. There is an alternative; you may be the adviser whose prognoses required the engagement of a more expensive adviser to undo the damage. The Family Dynamic A client review for a new family client seldom goes beyond the business fundamentals. Yet in family businesses there is no decision untouched by the chemistry of family – the big things in life – the family ethos, myths and history, passions, duties, friendships, values, convictions and personalities. Family businesses are shaped by families and so should that new client review be. The best of the men (and women) of affairs at the shoulder of business patriarchs and matriarchs have always known that the feud between two arms of the family may be about business outside but childhood jealousies and rivalries inside. “Our parents sent you to INSEAD and brought you back to run half the business – I learned top to bottom”, as a second son put it to me, will perhaps shape family dynamics for 50 years. Taken this way contract terms and discounted cash flows can become lesser considerations than narcissism and ego. Do you feel capable of discovering and negotiating with these issues? Can You Enlist Someone Who Can? Over the last 25 years family owners and advisers are more willing to face, discuss and learn from family truths and to consider family and business together to shape their responsibilities and responses to both. Yet even in economies such as India where the importance of family business is recognised, the recognition of family/business interaction is merely dawning. The right answers, competencies and networks are still a question mark for many advisers. A Little Knowledge Is Dangerous And so is the temptation to offer packaged solutions, where family or advisers read an article like this, or pick up a book and call for an off the shelf family constitution, family office or family Council as a magic bullet to solve problems. This misses the point. Without deep family introspection, discussion and the building of trust and communication empty structures achieve nothing. Yes, handling issues of family business governance and succession does require a tool kit of structures. It needs good knowledge of the application of trusts, international law, family law, foundations and tax. Most of all it requires knowledge of the interaction of the technical and the personal; the latter being the trained capacity to coach and mentor family business members by asking the right questions that bring families to communicate honestly and constructively about the future. The Indian Family Business Environment Worldwide the picture is partial, but “in Asia in general, no comprehensive picture is still clear on most aspects of family business” (K. Ramachandran – Indian Family Business: Their survival beyond three generations – Indian School of Business Working paper series 2005). Yet some 71% of listed Indian capital is family owned and that suggests that an even larger proportions of private business is too (S. Chakrawertti, Families aren’t such a bad deal, Commentators worldwide agree that family commitment to the long term, to family members and to community is a great strength often building greater profitability. Equally whilst little is known about survival rates for Indian family business, commentators agree that, everywhere they carry the seeds of their own destruction. The old saying “shirt sleeves to shirt sleeves in 3 generations” has much truth to it, perhaps 5% survive to the 4th generation. Crises of succession terminate many enterprises; the wrong heir; fighting heirs; unprepared heirs; heirs who did not want to inherit but wanted to be anything else; founders who die without any plan and leave heirs clueless about the business; founders who retire in name and within 18 months come back. In today’s India, with a more open and competitive economy even a shared decision between the generations can be fatal as markets change. Equally, validly many families decide rationally that the business is no longer for them and sell to everyone’s benefit. The worldwide GLOBE model study of societies (GLOBE Study of 62 Societies, Sage, 2004) was applied to south Asia as one of ten family business cultures. This work assesses the nature of family involvement in the business, provides pointers for the adviser and owner assessing their situation and so suggests culture specific issues and methods for structuring, managing and advancing family involvement (Culturally Sensitive Models of Family Business in Southern Asia – Gupta, Levenberg, Moore, Motwani and Schwarz, ICFAI University Press, Hyderabad 2008). The GLOBE data highlight particular governance and succession circumstances in India. A foremost feature is the joint concern for the wealth and welfare of the family, often expressed in the Karta system. As yet, though, there is little formalisation of this characteristic in governance save in the larger Indian dynasties. Jay Hughes’s book Family Wealth: Keeping It in the Family” is a useful introduction to that formality (Bloomberg 2004) as an inspiring tool kit for the advancement of family business and wealth. For Hughes wealth is not money but the developing aims of the family and the emotional and intellectual capital shared between them over decades, which will include stewarding and building wealth but also the personal aspirations of individuals and the family. If families can use their human and intellectual capital to their fuller potential, then the business has a vastly better chance of surviving – and growing. Hughes’s proposed and other governance structures are gaining familiarity: family meetings, facilitated for the honest discussion of difficult and substantial issues•a family constitution of rules governing how business and family interact, including a framework for employment and recruitment into the business, the role of outsiders and the structure of ownership and succession succession plans to structure the change in generation creating a family’s mission statement structure for reporting the family’s human and intellectual capital on the Family Balance Sheet and a Family Income Statement – for instance accounted for in a family balanced scorecard clear definitions of roles and responsibilities the development of a family office as a centre of management for the family rules covering marriage, nuptial agreements and divorce and the impact on ownership; increasingly significant as families globalise These structures are only a means to and end; it is the work that families do together to create them through effective communication, mutual understanding and respectful agreement on the future that matters. Have family members worked hard? Are family members just signing a piece of paper or will they really commit? If the former then the family will need one lawyer to design a structure and a more expensive one to get them out of it. The second major feature of the GLOBE study points to the better educated next generation Indian family members offering challenges as well as opportunities. They want faster change, will draw in many more experiences and influences, will have often worked elsewhere and are unlikely to want to wait. They may drive profitability and expansion. Equally, tensions between generations may cause severe damage. Ramachandran suggests that the success of the few 4th generation Indian families is founded on focus on long term family wealth that averts green field risk, but diversifies and experiments with caution. The process of bringing the next generation into the business should take years, with a careful education emphasising responsibility and choices for the next generation and respect and recognition for the older one. Research by Professor John Van Reenan (Keeping family-owned firms family-run from one generation to the next can be bad for business, Bloom, Nick and Sadun, Raffaella and Van Reenen, John LSE2011) demonstrates that succession selection should be on merit, not primogeniture otherwise poorer performance is a norm. Today India’s business families have a greater global presence. To best support them as families short courses, articles and books (for instance Ivan Lansberg’s Succeeding Generations or Randel Carlock’s Strategic Planning for the Family Business) are a useful introduction. There is now a much wider access to family business professional development. Advising families in business on governance and succession is as specialist as taxation, treasury or forensic accounting. Gaining the necessary competencies should be taken as seriously by any firm wishing to increase the wealth of family clients. Skills gained, in the family business advisory discipline, nothing beats practice to analyse and support the individual circumstances of each family. Remember where we came in, no family business is identikit. Reproduced with permission of the Society of Trust and Estate Practitioners

Family business practitioners see the investigation of differentness family to family and detail to detail as the heart of today’s practice. When it comes to family business there is no “identikit.” No off the shelf package will sort out the identikit governance and succession problems of your family business clients. Each family differs down to your last incisive question that uncovers the particularity at the root of its challenges. David Harvey explains more. Family business practitioners see the investigation of differentness family to family and detail to detail as the heart of today’s practice and this requires new techniques and competencies. Your practice needs not just core accounting but also access to coaching, psychological, management, family law, wealth management, mediation and counselling skills to provide a tailored governance solution focused on the dynamic of each family. There is an alternative; you may be the adviser whose prognoses required the engagement of a more expensive adviser to undo the damage. The Family Dynamic A client review for a new family client seldom goes beyond the business fundamentals. Yet in family businesses there is no decision untouched by the chemistry of family – the big things in life – the family ethos, myths and history, passions, duties, friendships, values, convictions and personalities. Family businesses are shaped by families and so should that new client review be. The best of the men (and women) of affairs at the shoulder of business patriarchs and matriarchs have always known that the feud between two arms of the family may be about business outside but childhood jealousies and rivalries inside. “Our parents sent you to INSEAD and brought you back to run half the business – I learned top to bottom”, as a second son put it to me, will perhaps shape family dynamics for 50 years. Taken this way contract terms and discounted cash flows can become lesser considerations than narcissism and ego. Do you feel capable of discovering and negotiating with these issues? Can You Enlist Someone Who Can? Over the last 25 years family owners and advisers are more willing to face, discuss and learn from family truths and to consider family and business together to shape their responsibilities and responses to both. Yet even in economies such as India where the importance of family business is recognised, the recognition of family/business interaction is merely dawning. The right answers, competencies and networks are still a question mark for many advisers. A Little Knowledge Is Dangerous And so is the temptation to offer packaged solutions, where family or advisers read an article like this, or pick up a book and call for an off the shelf family constitution, family office or family Council as a magic bullet to solve problems. This misses the point. Without deep family introspection, discussion and the building of trust and communication empty structures achieve nothing. Yes, handling issues of family business governance and succession does require a tool kit of structures. It needs good knowledge of the application of trusts, international law, family law, foundations and tax. Most of all it requires knowledge of the interaction of the technical and the personal; the latter being the trained capacity to coach and mentor family business members by asking the right questions that bring families to communicate honestly and constructively about the future. The Indian Family Business Environment Worldwide the picture is partial, but “in Asia in general, no comprehensive picture is still clear on most aspects of family business” (K. Ramachandran – Indian Family Business: Their survival beyond three generations – Indian School of Business Working paper series 2005). Yet some 71% of listed Indian capital is family owned and that suggests that an even larger proportions of private business is too (S. Chakrawertti, Families aren’t such a bad deal, Commentators worldwide agree that family commitment to the long term, to family members and to community is a great strength often building greater profitability. Equally whilst little is known about survival rates for Indian family business, commentators agree that, everywhere they carry the seeds of their own destruction. The old saying “shirt sleeves to shirt sleeves in 3 generations” has much truth to it, perhaps 5% survive to the 4th generation. Crises of succession terminate many enterprises; the wrong heir; fighting heirs; unprepared heirs; heirs who did not want to inherit but wanted to be anything else; founders who die without any plan and leave heirs clueless about the business; founders who retire in name and within 18 months come back. In today’s India, with a more open and competitive economy even a shared decision between the generations can be fatal as markets change. Equally, validly many families decide rationally that the business is no longer for them and sell to everyone’s benefit. The worldwide GLOBE model study of societies (GLOBE Study of 62 Societies, Sage, 2004) was applied to south Asia as one of ten family business cultures. This work assesses the nature of family involvement in the business, provides pointers for the adviser and owner assessing their situation and so suggests culture specific issues and methods for structuring, managing and advancing family involvement (Culturally Sensitive Models of Family Business in Southern Asia – Gupta, Levenberg, Moore, Motwani and Schwarz, ICFAI University Press, Hyderabad 2008). The GLOBE data highlight particular governance and succession circumstances in India. A foremost feature is the joint concern for the wealth and welfare of the family, often expressed in the Karta system. As yet, though, there is little formalisation of this characteristic in governance save in the larger Indian dynasties. Jay Hughes’s book Family Wealth: Keeping It in the Family” is a useful introduction to that formality (Bloomberg 2004) as an inspiring tool kit for the advancement of family business and wealth. For Hughes wealth is not money but the developing aims of the family and the emotional and intellectual capital shared between them over decades, which will include stewarding and building wealth but also the personal aspirations of individuals and the family. If families can use their human and intellectual capital to their fuller potential, then the business has a vastly better chance of surviving – and growing. Hughes’s proposed and other governance structures are gaining familiarity: family meetings, facilitated for the honest discussion of difficult and substantial issues a family constitution of rules governing how business and family interact, including a framework for employment and recruitment into the business, the role of outsiders and the structure of ownership and succession succession plans to structure the change in generation creating a family’s mission statement structure for reporting the family’s human and intellectual capital on the Family Balance Sheet and a Family Income Statement – for instance accounted for in a family balanced scorecard clear definitions of roles and responsibilities the development of a family office as a centre of management for the family rules covering marriage, nuptial agreements and divorce and the impact on ownership; increasingly significant as families globalise These structures are only a means to and end; it is the work that families do together to create them through effective communication, mutual understanding and respectful agreement on the future that matters. Have family members worked hard? Are family members just signing a piece of paper or will they really commit? If the former then the family will need one lawyer to design a structure and a more expensive one to get them out of it. The second major feature of the GLOBE study points to the better educated next generation Indian family members offering challenges as well as opportunities. They want faster change, will draw in many more experiences and influences, will have often worked elsewhere and are unlikely to want to wait. They may drive profitability and expansion. Equally, tensions between generations may cause severe damage. Ramachandran suggests that the success of the few 4th generation Indian families is founded on focus on long term family wealth that averts green field risk, but diversifies and experiments with caution. The process of bringing the next generation into the business should take years, with a careful education emphasising responsibility and choices for the next generation and respect and recognition for the older one. Research by Professor John Van Reenan (Keeping family-owned firms family-run from one generation to the next can be bad for business, Bloom, Nick and Sadun, Raffaella and Van Reenen, John LSE2011) demonstrates that succession selection should be on merit, not primogeniture otherwise poorer performance is a norm. Today India’s business families have a greater global presence. To best support them as families short courses, articles and books (for instance Ivan Lansberg’s Succeeding Generations or Randel Carlock’s Strategic Planning for the Family Business) are a useful introduction. There is now a much wider access to family business professional development. Advising families in business on governance and succession is as specialist as taxation, treasury or forensic accounting. Gaining the necessary competencies should be taken as seriously by any firm wishing to increase the wealth of family clients. Skills gained, in the family business advisory discipline, nothing beats practice to analyse and support the individual circumstances of each family. Remember where we came in, no family business is identical. Reproduced with permission of the Society of Trust and Estate Practitioners www.step.org

Martin and Tracy Hamilton are the owners of Mash Direct, a family-owned farming and food production enterprise launched in 2004 in County Down, Northern Ireland. With six generations of farming expertise, Mash Direct provides quick-serve vegetable and potato dishes to local and UK markets. In this video they discuss how they run their family business along with their sons Lance and Jack, sharing their insights into how they combine their individual skills to create an award-winning business.

Cavanagh Free Range Eggs is a friendly family run business established since March 2012 and based in the beautiful lakelands of County Fermanagh. They are dedicated to providing the best possible environment for their hens and ultimately produce great quality free range eggs. John and Eileen Hall, owners of Cavanagh Free Range Eggs, explain how they successfully diversified their farm to create and grow a business.

At Fluffetts Farm, they are passionate about great food and have been supplying the finest eggs without compromising on the welfare of their chickens for the past 20 years. They believe genuine free range eggs should be produced the traditional way; by small carefully managed flocks. Being true to their values means a commitment exclusively to the free range sector. Their hens live on two independent family run farms on the edge of the New Forest and on Cranborne Chase. The girls lay their eggs, take shelter and roost in airy well-ventilated mobile houses and every day are free to explore acres of grassland on free draining gravel and chalk soils. Eggs are hand collected twice a day and batch graded by date of lay to ensure customers always get the freshest eggs available. Over the years they have developed close relationships with other local independent producers which makes them uniquely placed to offer a variety of wholesale ranges including free range duck eggs, organic eggs, cold pressed rapeseed oil and a growing range of other exciting produce. With Fluffetts, you can be assured of the origin, freshness and authenticity of your eggs and as a reflection of the level of dedication that goes into their produce, they have established a reputation as number one choice for those who expect the best. They really are a family business producing ‘clucking good eggs!’ Find our more at www.fluffettsfarm.co.uk

There comes a time when most families seek to sell their business, whether it be five years after its creation or two hundred years. The main reasons for the sale of a family business are usually retirement and/or lack of succession, but sometimes a strategic buyer makes an approach and the family is simply tempted to cash in. So, even if there is no immediate plan to sell, it’s usually in the family’s best interest to have the business in a sale-ready state at all times. How the family operates the business has a major impact on its saleability and ultimately its value of sale. Here, Natalie Wright , Head of Family Business at Mazars shares ten tips that will help achieve maximum value as well as a smoother process: Keep your customer base as broad as you can. Concentration amongst only a few customers increases risk and damages value. Consider your customers and customer relationships carefully and lock them in contractually. Long terms relationships with customers, enhanced further by forward visibility through contractual tie-in, gives buyers confidence that they will continue to buy from you. This adds to value. A churning customer base or a need to continually win new customers is a devaluing factor. Ensure that there are others in the business that are involved in the key customer relationships and general activity within the business. A buyer will want to see a sustainable business that can continue to operate once the family exits. If not, they are likely to tie you to the business longer term and will want to pay for the business over time rather than in cash up front. Lock your key people into the business. Whether you sell or not, these are of high value to you. Share schemes are a great way of doing this and incentivises the employee to help you grow the business. An EMI (Enterprise Management Incentive) share scheme is HMRC approved, is attractive to employees and is very tax efficient for the employee and the business. Manage your working capital carefully. Too much cash tied up in stock and debtors can be unattractive to a buyer and seldom adds to value. Cash sat in the bank definitely adds to the value. Take tax advice on the ownership structure of the business. Although rules changed recently, Entrepreneurs Relief still exists. Better to be taxed at 10% on the sale than 20% if you are able to. Leave it too late and you miss the opportunity. There is also pre-sale planning that may only be available to you if you action it before the transaction and where you have a sizeable legacy, it is important to protect it. Ensure that you prepare good quality financial information at all times. A buyer will expect to see this. Make it easy for them and keep it updated. Speak to others that have gone through a sale process to understand how the process worked for them and what they would have done differently with their business if they had the opportunity. It’s important to go into this with your eyes open and to maximise the opportunities and limit the risk. Think through the cash needs for you and your family for the future – get a personal cashflow forecast. Can you afford to sell now? What price would you need to get for the business to make it work for you and is your business worth that? Knowing your number can help once you get into negotiations as you can have peace of mind in knowing what you need to meet all of your objectives. Keep your premises clean and tidy. First impressions count. It is amazing what difference a coat of paint can make to the appeal of a business to a buyer. So, even if a sale is not on your agenda right now, it pays to be ready and to know the options. The above are good business practices anyway and you never know when someone will come knocking on your door. It is usually when you least expect it.

Could a Management Buy-Out (‘MBO’) be right for you, your family and your business? Having built up a successful family business, you may now be thinking about succession and how to realise the value you have created. There are many routes to realising the company’s value, which usually is sale to a competitor. However, is a sale to a competitor the right approach for you and your business? To determine this, the question you should ask is ‘What do you want your personal, family and business future to look like?’ An alternative option to realising value is a MBO. A MBO is where the business is sold to the Management team, primarily funded through a combination of debt raised against the business, equity rollover and loan notes or preference shares. MBO’s enable shareholders to extract equity value and de-risk in a controlled manner and to pass ownership onto the next family generation or management team so they can continue to grow the business and generate future value. MBO’s are a fantastic option to protect the legacy of the business and the future of the workforce (essentially an ‘extended family’). MBO’s also help to incentivise the next tier of management; which may be the next generation within your family or your loyal staff that have helped to develop the business to where it is today (or both). Careful planning is required to ensure that the next tier management team have the drive and ability to take on additional responsibility and help the business to pay down potential debt raised as part of the MBO. With MBO’s, current shareholders don’t necessarily need to sell 100% of ownership, and in certain circumstances you could still be the largest individual shareholder, having the ability to say no to key future business decisions. This can help in phasing an exit plan for current shareholders whilst overseeing the next tier of management as they grow into their new roles. Are there any downsides? A sale to a competitor will typically generate a higher value for shareholders paid on day one. Although, if you see high growth in the future business under a new management team, an MBO can provide a much higher value to the family, but over a longer period. The level of cash paid to shareholders on day one through a MBO will be limited to the excess cash in the business and the level of debt that can be raised against the business. This needs to be fully appraised through detailed forward-looking financial projections to ensure the business doesn’t become over-geared, which may stifle future growth or put the business at risk. What if the next tier management or the next generation is not ready? Teams may need strengthening or may require additional guidance as they grow into their roles – in a lot of situations, shareholders are positively surprised. Careful tax planning is required for MBO’s to ensure they are structured in the most efficient way to benefit from the most effective tax rates, and practical advice around the impact on Inheritance Tax should also be sought. About the Author - Natalie is a Chartered Financial Planner and a Director of the Independent Financial Planning team at Mazars and is also the Head of the Family Business team. Having worked in financial services for over 18 years, Natalie has a wealth of experience helping individuals, families and business owners with all aspects of their financial planning, both UK based and Internationally.

Smith of Derby is a great British family business and has been putting Derby on the map for generations.This is a video outlining some of the family company’s core values and history and was filmed and edited by Nicholas Whitworth, a 6th Generation, Smith family member. It showcases the business, their pride and passion and the core values behind this award winning family business.

Smith of Derby scooped three awards at the Family Business of the Year Awards (‘FBOTY’) organised by Family Business United (‘FBU’), including the golden globe, Supreme Family Business of the Year 2020. FBU celebrates family owned businesses across the UK, recognising the contribution they make in terms of employment, income generation and wealth creation. In the ‘virtual’ awards ceremony held live online, Smith of Derby took the Manufacturing Family Business of the Year title which was promptly followed by the Midlands Family Business of the Year award and then the ultimate triumph, they were crowned Supreme Champions for 2020. For this Derby based company, in family ownership since its beginning in 1856, and now under the leadership of the fifth and sixth generation of the family, the evening was filled with emotion. Smith of Derby are true ambassadors for the family business sector and have really helped to put Derby on the map, celebrating their journey and even creating a film about their heritage . The film celebrates the life and times of this award-winning family company and is a fitting tribute to the their leader for many decades, Mr Nicholas Smith. As Bob Betts, Managing Director of Smith of Derby explains, “He was fondly known at the works as ‘Mr Nick,’ following the Midlands manufacturing tradition. Nick died just over two years ago, having served the family company since childhood, and these awards are a fitting recognition of all of his hard work in bringing the company safely into the 21st century.” Paul Andrews, Founder and CEO of FBU adds, “Smith of Derby are worthy winners of these awards and sit firmly at the top of the podium this year. As Supreme Champions they beat off some incredible competition to take the title, recognised for their values and ethos as a family business, commitment to manufacturing and their local community and have an incredible story to tell that weaves its way throughout the business.” Ben Fowler, Managing Director at Western Pension Solutions and one of the judges for the awards sums up why they are worthy winners, “Smith of Derby represent the true essence of an internationally successful family business. It feels almost as though they are the guardians of time itself whilst at the same time embodying a sense of timelessness. Committed to exceptional quality, craftsmanship and heritage, they take a long term view of their business and continue to invest heavily to prepare them for the years to come.” Natalie Wright, Head of Family Business at Mazars, a fellow judge and sponsor of the Manufacturing Family Business of the Year Award added that “this is a family business full of pride and passion for what they do. They are great British manufacturers and a fantastic ambassador for the family business sector too. Family is at the heart of what they do and they fully deserve all the accolades that winning these awards will bring them.” On winning the treble, Heather Whitworth, Mr Nick’s daughter and director of the family firm added: “This is such a special moment for the company. It is a fitting tribute to the whole team who have worked incredibly hard, not just in 2020 but over the decades. The team have worked tirelessly to maintain and develop the company,. and to continue to cherish our customers and win new friends across the world. These awards are accepted on behalf of the whole team who deserve all the recognition and our thanks.” As Paul concludes, “Smith of Derby are a fantastic business that have truly stood the test of time! They are innovative and entrepreneurial and continue to evolve, with an eye on the future, strong family values at their core and undertake work in the public realm that really does make places better.” “This business is all about beautiful, accurate clocks that are the heartbeat of the community and everyone involved at Smith of Derby have a role in keeping them ticking. Fantastic winners of these awards and it really does feel that they are the guardians of time for the nation.” “We look forward to the continuing journey of our incredible Supreme Champion Family Business of the Year, Smith of Derby,” he concludes.

Family businesses benefit by leveraging knowledgeable senior family leaders with innovative members of the next generation. Research shows that family business protégés — the incoming younger generation — report being most satisfied with mentors who were “still directly involved and active in their family companies rather than retired.” Those same protégés wanted a mentor who seemed invested and interested in their personal development. Mentoring is a critical issue for sustaining a multi-generational family business. Guidance has to be given to younger, less experienced workers. More importantly, the next generation of leaders needs to learn what it means to run a business, juggle employee personalities, and make difficult decisions. Fortunately, many family businesses already have the resources to solve this problem themselves. If a family business stays around long enough it is going to have seasoned members who become less active (on one hand), and it is going to have younger members who are more innovative and tech savvy (on the other). For senior members in particular, this mentor-protégé model creates a dignified process of passing the torch from one generation to the next. Leveraged the right way, these two groups can partner up to improve the chances that a family business survives for years to come. The Co-Mentoring Model Pairing an old industry veteran with an upcoming practitioner pre-dates modern businesses. Feudal systems relied on a master and apprentice to keep trade secrets alive over many generations. Today’s co-mentoring model improves on the traditional model, thanks to advances in the understanding of human psychology. Co-mentoring uses the gifts, talents, and understanding of both mentor and protégé. Instead of a rigid, hierarchical relationship between master and apprentice, each is co-mentor to the other. Seasoned family members stay active and can counsel the young about business practices and professionalism, as well as pitfalls to avoid. Younger family members receive crucial advice while bringing new ideas and innovative processes to their elders. Family And Tradition If you investigate successful family businesses, one recurring theme you’ll encounter is a sense of pride and understanding of family values. With the help of a co-mentoring process, older family members can impart that pride and understanding to the next generation. When McKinsey & Company published ‘The five attributes of enduring family businesses’, it noted that multi-generational businesses “make sure to permeate their ethos of ownership with a strong sense of purpose.” In other words, they deliberately build structures and processes to transmit important family values. Finding The Right Mentor And Protégé The most successful businesses tend to handle relationships more effectively. This is no secret. In this circumstance, that means pairing the right mentor(s) with the right protégé(s) to achieve the maximum results. Mentors don’t have to be family members per se. Neither do innovative protégés. But it tends to be the case that family members occupy both spots, especially for smaller or newer family businesses. Barbara Weitman, who has authored more than half a dozen books on small business planning, cautions against founding parents serving as direct mentors to their children. In her J.K. Lasser’s Finance & Tax for Your Family Business, Weitman writes that sometimes “mentoring is better left to non-family members” because young workers may take family instruction as criticism or judgment, even when it isn’t intended that way. This is sometimes true. Parents remain parents no matter the age of the children. But it’s also true that parents are biologically designed to help their children become more successful. What’s right for one family business isn’t necessarily right for another, and sometimes parents make the best mentors. It’s impossible to tell each family business which individual mentor best pairs with which younger family member, but I know the most successful businesses will tend to figure it out for themselves. Ripple Effects Perhaps the most significant by-product of a robust mentor-protégé system is better succession planning. We know that open communication is key to engaging the next generation, but it’s also key when it’s time to choose the next leader. A good mentor-protégé system encourages trust and honest dealings between generations, and Lord knows succession planning is easier when the kids get along better with Mom & Dad. Between 65 and 75 per cent of family-owned businesses fail or are sold before the second generation gets a chance to take over, depending on the country. No matter where you look, the failure rate reaches 90 per cent before a third generation takes over. Good mentoring is one more levee against that tidal wave of failure.

Finding a family successor is one of the greatest challenges for family firms but when done correctly, it will deliver value for the company over and above any other strategy. For all family firms there comes a point when the founder has to retire. The family has to then decide whether to keep the firm family-owned and family-managed. When there are strong assets (the unique contributions that only families can bring to the firms) underpinned by efficient governance structures, a family succession is the right path to take. But how to ensure the path ahead is clear for the chosen successor? My book “The Family Business Map” co-authored with Joseph P.H. Fan, identifies a number of challenges that families and businesses across the world face during a succession process. These include cultural issues, the transferral of family assets and competency. The first three are: The challenge of succession culture The challenge of transferring family assets The challenge of being competent When Culture Matters It would be unrealistic to believe that the culture of any given country doesn’t affect the succession planning of family firms. In fact, this is probably the strongest influence over the firm’s decisions in this process. A succession model which works successfully for, say, a 40-year-old US family business couldn’t easily be applied to a Chinese Confucian-based family firm in Malaysia where the sons would typically inherit the lion’s share. To take a very different example, consider the case of Chief Abiola of Nigeria, the country’s most influential entrepreneur since independence, who lost his entire business empire leaving his more than 40 children with nothing to inherit — in large part due to the lack of an established culture of transferring wealth from generation to generation in Nigeria. In contrast, in the Middle East, firms are to a large extent governed by Sharia law which dictates certain protocols that have to be respected and in Thailand and India, for example, children rarely go against their parents’ wishes. No one culture is easier than another and the families simply have to work around the cultural reality that the firm and the family live in. Transferring The Family Assets Powerful family assets are the pillars upholding family business strategies and it is their transfer from one generation to the next which lies behind the success of every family firm. Whether the assets are in the form of the firm’s heritage, powerful business networks or core values, the key is to find common ground between the generations. The assets are typically transferred through an apprenticeship model where the younger generation are exposed to the family firm from an early age and are taught everything about the firm over a long time frame. In addition to providing the younger generation with a strong platform from which to take over, this model also prepares the older generation to let go. This model works successfully for firms across the globe. The Mulliez family stands out in France’s business landscape for successfully transferring their values. The family’s business stable includes the retail distribution groups: Auchan, E. Leclerc, Decathlon, Flunch and Leroy Merlin,all grown from the founder’s textile manufacturing business, Phildar. In 2011, the family could count 780 direct descendants, 70 percent of whom belong to the family association which controls the business interests. Their family motto, “tous dans tout” (everyone in everything), reflects the core values of solidarity, family heritage and responsibility towards future generations. With a large pool of talent and a strong entrepreneurial spirit among family members, the Mulliez family is a role model for families in business around the world. While the apprenticeship model is successful at transferring family assets, it doesn’t prepare the younger generation particularly well for changes in the business and the economic environment, nor does it facilitate a change in business strategies. A particular challenge among Asian family firms is the third generation who went abroad to study and returned with a mix of old Asian and Western values. This is a recent phenomenon which is expected to become more prevalent given the globalised world we inhabit. The Measurable CV The succession decision will involve many questions for both the older generation and the younger generation alike. For cultures where it is expected that several members of the younger generation will take over the ownership and management of the family firm, answers should be sought to: How to choose between equally able children? Will they make good business leaders or will the company suffer under their leadership? Will the heirs collaborate in the future – do their personalities blend well – or descend into sibling rivalry? How do we nurture the competencies necessary to take the firm forward? And how shall we support others who wish to pursue a career outside the company? Family firms are typically founded by entrepreneurial creative people who build the company on hard work and experience, without necessarily having formal training. Thirty years down the line when the succession question arises, the company is no longer the same entity it was when it was founded. The workforce will have increased and new markets might start to look attractive. For that reason, it is valuable for the younger generation to gain experience outside the firm — whether this involves going to business school or having job, board or CEO experience elsewhere — which can then benefit the family business when they return later. The De Kuyper family succession process is one example of a very formalised approach to finding the right successor for the family business which I have written about in a previous article. My research has shown that a combination of the apprenticeship model and education/experience outside the family firm is the ideal path to take. Succession planning typically takes ten to thirty years to complete and is best done when communication is transparent and shared among family members so that everyone can envision the path ahead. For family firms with strong family assets and few roadblocks, a family succession is the surest road to success. Morten Bennedsen is the André and Rosalie Hoffmann Chaired Professor of Family Enterprise at INSEAD and Academic Director of the Wendel International Centre for Family Enterprise. He is a contributing faculty member to the INSEAD Corporate Governance Centre and is co-author of the book The Family Business Map: Assets and Roadblocks in Long-Term Planning (Palgrave Macmillan 2014). This article was first published on the INSEAD website and has been reproduced with permission.