Trust is a fundamental basis for both cooperation and competitive advantage in family businesses. The words ‘trust’ and ‘business’ written within such proximity may raise some eyebrows. However trust is a fundamental basis for both cooperation and competitive advantage in family businesses. Trust entails the acceptance of one’s vulnerability based on one’s expectations of the way others will behave. This vulnerability is central in many definitions of trust and is the condition of being open to harm, criticism or attack. Gene politics hold the business together through ties of trust, flexibility in decision-making and power in execution. Trust is a multidimensional, complex and dynamic construct that includes an emotional attachment of care and sincere concern. Risk propensity is also an element of trust. It is associated with qualities like consistency, competence, fairness, responsibility, helpfulness and benevolence. Shared trust in family businesses that are governed by fairness and justice emerges from a set of relational ethics that value cohesion and consensus. In family businesses, harmony within the family is characterised by trust and mutual understanding. Family business owners who have difficulties in trusting are characterised by passivity, pessimism and isolation. These types of leaders seldom speak positively of non-family coworkers and are described as paternalistic. On the other hand, family businesses owners who engage in trusting relationships have been associated with optimism and pro-activity. This type of leader embraces involvement of others in the family business. Among other things, these owners are transparent about the rules governing family members’ entry and involvement in the business. Communication, which is indispensable in any form of business, entails revealing oneself, being open to others, trusting, as well as raising issues that might generate conflict. Open communication about difficult issues is vital and this requires trust and willingness to be vulnerable. Family forums, such as meetings and councils, are valuable mechanisms to enhance trusting relationships, to improve communication and prevent and manage conflict effectively in the family business. Consultants and advisers may act as trust catalysts in family businesses by inspiring members and business partners to trust each other. Trust catalysts serve as a reminder of the family glue: they are good listeners, remain calm and put a damper on destructive conflict. Gene politics is a term that is used to describe the ties of blood that run through the family business and the biases such ties bring. Gene politics exists only in family businesses and generates a culture that is capable of motivating, nurturing, integrating and innovating. Gene politics hold the business together through ties of trust, flexibility in decision-making and power in execution. Trust in family businesses provides a means of co-ordination, reduces risk, and may lead to greater investments, and economic efficiencies. Trust enhances performance and long-term orientation. Leaders act on trust and this is especially so in family businesses where shared leadership is the prevalent form of leadership as the business grows through generations. Owner-managed businesses develop into sibling partnership and cousin collaborations demanding an ever-increasing form of shared leadership. In shared leadership there is tacit understanding, intuition and trust between parties. Trust needs to be sustained and nurtured throughout, particularly as the business grows and expands. The incumbents’ trust towards successors, and vice versa, is an important criterion for successful succession. Mechanisms that may lead to trust in the successors’ abilities in one family business may not work in another. To ascertain whether the abilities of the next generation will fit in with the needs of the business, open discussion between owner-manager, potential successors and other family members is recommended. Lack of trust is one of the causes of problematic relational factors that cause conflicts and that obstruct successful succession. Trust is also positively related to the transfer of knowledge in succession that needs to be created, shared and transferred over time to create value to the family business. Interpersonal trust that is indigenous to family businesses stems from common heritage and can be sustained by fostering additional and complementary forms of trust. This additional trust is fostered through openness to outside influence, clear and transparent policies and strong communication. The evolution of trust in family businesses is different from that in non-family businesses. In non-family businesses, relationships, formal contracts and controls are initially used to start business relationships. These are gradually complemented with relationship-based trust. Initially in family businesses, relationships based on trust are central, however, as the business evolves, additional processes that engender competence and system trust become increasingly significant. A recommendation for family business leaders is to juxtapose processes typically linked with control, such as policy formation, with those associated with trust building, such as communication. Sustained levels of trust are key ingredients for emotional capital that is central in the success of every family business. About the Author - Roberta Fenech is an associate consultant for EMCS and also a lecturer at St Martin’s Institute of Information Technology.

Sustainability is an age-old problem for businesses of all shapes and sizes across the entrepreneurial landscape. Measuring the success of non-family businesses is typically generational, whereas the judgement on family businesses is over a longer timeframe with sustainability analysed over decades. Considering that one job in three within the UK is family business-based (IFB 2008), an understanding of the phenomenon which leads to the vast majority of family businesses failing to progress to the second generation and even fewer to the third is essential. In short, why do so few family businesses succeed at sustainability with only 1 in 10 surviving to the third generation (BERR). The ability of the family business to disseminate the tacit and explicit knowledge required to deliver competitive advantage is at the heart of the successful succession. The central drive for sustainability, coupled with familial ownership and management, delivers a unique identity. The stakeholders of the succession process are the family, the founder, the successors and the advisers. Each can be a significant reason for success and equally the cause of failure. The article will continue by discussing these areas along with conflict which acts as a further primary cause of the family business breakdown. The Successors’ Role Lost tacit knowledge and the inappropriate replication of old decisions can lead to poor quality successors and an inability to deliver the same added value as the previous generation. Encouraging the potential successor to gain external commercial experience and either quality educational or practical expertise will provide the tools to aid independent decision making. It is important that this encouragement does not lead to a stifling sense of pre-destiny but provides the opportunity to develop ideas and independence. The Role Of The Founder The majority of founders refuse to discuss succession plans and continually change retirement plans and dates, aiming for an individual sustainability. The perception of indispensability becomes endemic and represses the next generation; so firm plans are needed to avoid the ‘just five more years’ sentiment. The overall strategy for the founder will include addressing their financial, business, family and psychological concerns amidst a backdrop of a strong board and an established peer network to enhance the succession potential. The founder can further play a part by helping to develop a robust family business culture that will endure without their central leadership. Areas Of Conflict And Resolution Conflict can greatly affect the chances of developing a sustainable family business through the generations. Typical conflict issues include the capacity and capability of the successor, family issues that directly affect the business, poor communication, and non-executive shareholder issues. Non-executive family shareholders are those individuals or groups that hold an ownership stake but are not part of the day-to-day running of the business. Arguments typically develop around the direction of the business, the dividend policies, the executive remuneration policy, the succession policies and other family employment rules. The implementation of a family charter and family council can go some way to addressing these associated issues and can give a formal feedback channel to address emergent and long-term issues that the family members face with the help of advisers. The Role Of Advisers Trusted, knowledgeable and experienced advisers can deliver detailed input to the succession strategy via skills audits, family charters, forecasts and business plans or they may simply act as a sounding board throughout the process. Family Matters Integral to succession success are the actions of the family. The introduction of the family charter can aid the long-term reduction of conflict. Included in the charter would be a set of rules on the entry and exit of family members to the business, capital rights of each participant, the salary and bonus structure enjoyed by the members, and a route for mediation resolution. Evidently, the facets of the family business problem are inter-related, no more so than the connections between founder and successor which exist in adult-child and founder-successor forms. This creates tensions and blurred bonds that will often drive the ultimate outcomes and sustainability. It is important that the relationship becomes an adult-to-adult rather than adult-to-child during the antecedent phase of the succession process. This will create the change dynamic and aid the removal of ambivalence via a combined professional-emotional bond. Bringing together the pertinent complex issues and strategising as a whole leads to enhanced opportunities for the sustainability of a key part of the global economy; family business. Of Course It Matters… This article began by asking whether sustainability in family business matters before moving onto a strategy for improving the success rate. Maybe there is space for an alternative view of family business sustainability that takes a step back from the prescribed wisdom. It may be worth considering that a large number of family businesses only ever intend to ‘survive’ for one generation; the available figures for survival rates do not examine the thousands of businesses that provide funds and resources to the next generation and their successors to continue entrepreneurial endeavours outside of the banner of the initial family business. The ‘failure’ rates may be hiding a sustainable business family ethic developed from within the initial family business too. About the Author - Richard Alun Jones, Commercial Finance Director who can be contacted on rjones@accural.co.uk

Billionaire businessman William Heinecke discusses his unique, entrepreneurial approach to philanthropy. Every year on his birthday on June 4th, billionaire William Heinecke closes his company of 45,000 staff for the entire day. “I ask everyone to give up their day to work for a charity, whether they are painting a school or working with their community. It is their gift to me.” This approach to active giving has become a hallmark of Heinecke’s philanthropic mantra: corporate social responsibility interwoven into his day-to-day businesses. When it comes to philanthropy, the Bangkok-based founder of publicly-listed restaurant, hotel and retail operator, Minor International (MINT), does not just write cheques. Much of his philanthropic contributions came from the proceeds from the book he authored, The Entrepreneur: Twenty-Five Golden Rules for the Global Business Manager, which has been published in four different languages and had various reprints. He is also heavily involved in elephant conservation. “Since commercial logging was banned in 1989, elephants and their mahouts have been unemployed. Many were just roaming the streets and begging,” he explains. He founded the Golden Triangle Asian Elephant Foundation in 2001 as part of one of his hotels, the Anantara Hua Hin Resort & Spa, which he raises money for through the glamorous Annual King’s Cup Elephant Polo match. To date the competition has raised US$750,000 for the foundation. He admits that his entrepreneurial approach to philanthropy may revert to cheque-writing over time. When he feels his company is sustainable, he will join Bill Gates’ Giving Pledge and donate at least half of his wealth to charity. “It is my personal goal to give more away over the years to come as we owe this to future generations. Currently, I am very focused on ensuring the continued sustainability of the company – long term business success so that we can ensure a bright future for all our stakeholders,” he told Wealth-X in an exclusive interview. What keeps the 65-year-old US-born billionaire up at night is the thought of the direct and indirect impact he has has on his 45,000 employees. “We employ 45,000 people. We say for every one employee we have we affect 10 lives, so that is a lot of responsibility.” His approach looks like it is paying off. Last year MINT realised record net profits of 4.1 billion baht (US$126 million), up 26 per cent on the previous year. The leap in profits meant that Heinecke, who owns a third in the company, was propelled into billionaire territory for the first time. MINT now operates over 1,400 restaurants, 250 retail trading outlets and over 100 hotels in 27 countries from Australia to Africa. His most well-known business is the luxury Anantara Hotel Group, whose postcard-perfect resorts are beloved by VIPs and celebrities from R&B star John Legend to footballer Cristiano Ronaldo and tennis champion Roger Federer. Heinecke is the true essence of a self-made man. One of the wealthiest expatriates in Southeast Asia today, Heinecke started out life as the son of a military foreign serviceman and a journalist. They moved to Bangkok when he was 14 and two years later, he had successfully introduced go-karting to Thailand. He persuaded the editor of Bangkok World to let him write a column on the subject, who agreed on condition that he secured advertisements to run alongside it. Heinecke’s first venture proved so successful that at 17 years old he took over from the paper’s advertising manager while still attending school. When he graduated a year later in 1967, he borrowed US$1,200 to register his first two companies under Minor Holdings (so-called because his entrepreneurial career began at age 16); Inter-Asian Enterprise which supplied office cleaning services, and the radio advertising company Inter-Asian Publicity. Five decades on and Minor International is the largest listed hotel operator in Thailand, with big names including the Anantara, AVANI, Oaks, Per AQUUM, Elewana, Four Seasons and Marriott. It also operates 1,200 restaurants in Asia including Swensens, Sizzler, Dairy Queen, The Coffee Club, Burger King, Thai Express and the Pizza Company, the largest pizza chain in Thailand, which Heinecke’s eldest son is in charge of. “Our restaurants served over 6,000 tons of ice cream and over 13 million pizzas last year,” claims Heinecke proudly. Heinecke, who dropped his American passport to become a Thai citizen in 1991, said despite his recent success he is still heavily involved in the businesses, and works “what most people would call very long hours, maybe 12 hours a day.” His record profits have been steadily rebuilt after a difficult period when the tsunami struck Thailand in 2008 and many of his businesses were damaged or worse. His Anantara Royal Coco Palm Hotel in Phuket was completely destroyed and 12 members of staff lost their lives. “It was devastating for everyone. We couldn’t bear to build another hotel on that site so we just deserted it and rebuilt elsewhere,” he said. He said that the natural disaster heightened his awareness of the need for philanthropy and now he considers it a key part of his business model, although he keeps it low key. “I’m not a big self-promoter when it comes to philanthropy. The best types of philanthropy are not exposed to the public because if you are doing it to raise your profile it is for the wrong reasons.” He added that he is asked to speak at public and private events every day, and he frequently does, as long as the firm will donate to his foundation to pay for his time. “I am happy to speak at public events but I sort the wheat from the chaff by asking them if they are willing to donate to a charity for me to speak. If they do they clearly think what I have to say is worth it.” And what is his mantra in life? “I don’t do anything I don’t feel passionate about and enjoy immensely. My advice is don’t work for money or prestige, work for your passion. Then you will always be successful.” Reproduced with permission from an article that was first published on Wealth-X and written by Tara Loader Wilkinson. To find out more please visit www.wealthx.com

When cultural traditions and interpersonal relationships coincide, businesses start acting in irrational ways. The world knows that Samsung, LG, and Hyundai are based in South Korea. Relatively few outside Korea, though, grasp how massive they actually are – did you know, for example, that Samsung encompasses more than 70 “affiliated companies” involved in everything from fashion to healthcare? These three firms are among Korea’s biggest chaebol – family-owned conglomerates whose internal diversity and mass of incestuous affiliations have no precise analogue in the business culture of any other nation. The chaebol were largely responsible for pulling Korea out of poverty in the latter half of the 20th century, and they continue to exert a titanic influence over the country. This raises an interesting question: How far does the “Korean-ness” of the chaebol extend? Since we know that each one is ruled pretty much unilaterally by its founding family, how relevant are Confucian ideas about family life to understanding how chaebol behave in the business environment? Quite relevant, as we found when doing research for a paper recently published in Academy of Management Journal (JungYun Han of National Taiwan University and Andrew Shipilov, INSEAD Associate Professor of Strategy, and I wrote the paper). Applied beyond the Korean context, our findings suggest that the line separating business strategy from cultural and interpersonal influences is largely illusory. Chaebol Family Values Confucian values place men in a privileged position within families. Upon marriage, a woman separates from her own family, surrendering her inheritance along with the responsibility to care for her parents as they age. By accepting her as a bride, the husband’s family is thought to have done a “favour” for the wife’s family, which they are obligated somehow to repay. This places the wife’s family in a submissive position as the wife establishes a place for herself in the new household. Korea has arguably veered away from undiluted Confucian culture in recent years, but the conglomerate owner-families have been classed among the country’s conservative holdouts. Add to the above, the fact that chaebol owner-families often intermarry – just as business families the world over have always done, with full awareness of how such ties can boost cooperation and information exchange between companies. We wanted to determine whether marriage ties between chaebol introduced a Confucian-style dynamic whereby the “husband’s chaebol” (meaning the conglomerate owned by the husband’s family, in which the husband himself is generally a junior member) lorded it over the “wife’s chaebol”. Market Entry And Exit The mind-boggling diversity of the chaebol entails a fair amount of market-hopping. To examine how inter-chaebol marriage ties affected market entry and exit, we traced the composition of the owner-families behind Korea’s 60 biggest chaebol over the period 1987-2011, juxtaposing it with data on the chaebol’s presence in various industry markets during the same years, as reported by a leading credit agency. We also interviewed Korean executives and journalists to verify our theories. The lopsided picture that emerged would make no sense to those unfamiliar with the Confucian dynamic. We saw that the husbands’ chaebol were, after marriage, more likely to enter markets where the wives’ chaebols were already present. Far from trying to repel the invasion, the wives’ chaebols seemed to step aside and make room, despite the business threat posed by the husbands’ entrance. In addition, wives appeared to help their husbands exit markets with resources intact, whether by buying up their assets (factories, distribution networks, etc.) at non-competitive prices or by not teaming up with other firms to take advantage of the fragile state of retreating husbands’ firms. Nothing here would be particularly out of the ordinary, if there were reciprocity in these relationships. But this was emphatically not the case: The wives’ chaebol seemed timidly to refrain from entering markets where their husbands had established a foothold. In markets where both spouses were present, the wives stayed close to their husbands, letting them be the ones to exit if they chose. Our interviewees confirmed the observed gender dynamic was rooted in Confucian values. “If in-law families have some conflicts, the odds are always against the wife because she becomes a part of the husband’s family,” one said. “That’s why even when a wife’s chaebol sees some potential economic benefits from marriage [i.e. through the opportunity to enter new markets], they hesitate to exploit it.” Interpersonal 'Trojan Horses' The behaviour of the chaebol has implications for all organisations. The business world is thick with cross-organisational ties mixing the professional and the personal, as when ex-schoolmates broker a collaborative relationship between their respective firms. While such ties are unquestionably valuable, they can also be “Trojan horses” through which status hierarchies – which often have a cultural dimension – can sneak into business behaviour. For example, strategic alliances built around board interlocks can be unbalanced by a high-status board member throwing his weight around and eliciting deference from other directors. As the chaebol prove, interpersonal ties can even influence interactions between firms that directly compete with one another. Therefore, it’s always naïve to talk about business competition as something removed from its social and cultural context. About the Authors - Henrich R. Greve is a Professor of Entrepreneurship at INSEAD and the John H. Loudon Chaired Professor of International Management. He is also co-author of Network Advantage: How to Unlock Value from Your Alliances and Partnerships. This article can be read on the INSEAD website here and has been reproduced with their permission.

A lot of multi-generational family businesses struggle to get buy-in from everyone. A family constitution can help secure, and maintain, commitment towards a unified goal. I often speak about family businesses needing to bring everybody together to proactively plan for the future. At FINH, we openly endorse the development of a Family Council or even a “Family Constitution,” the latter of which serves as an emotionally-binding contract, creating a vision for how the family and the business can grow together. Rather than the default arrangement — jamming business talk into discussions around the dinner table –family businesses can leverage their own unique, formal family constitution. The idea is to build around a sustainable model that promotes generations of pro-growth decisions. Creating a Family Constitution A family constitution can be as simple or nuanced as the family wants, but keep in mind it’s easier to get buy-in by starting with the lowest common denominators. In other words: everyone wants to succeed individually, as a family, and as a business. Start with the basic premise and go from there. Just like putting up a house, crafting a family constitution starts with the foundation and framework. The foundation is the people. This means members of the family get together, often with an experienced professional, to speak openly and create commitment. Every family business has its own dynamics and personalities, so the path to consensus is always different. The framework is made from procedural rules that are drafted directly into the formal constitution. This is when family meetings are scheduled, when the relationship between family issues and business issues is defined, and roles/responsibilities are established. What to Include Family constitutions are sort of like shareholders agreements. There’s a lot of flexibility in the standard shareholders agreement, but each one has to cover the basics like ownership, finances, assets, transfers, and restrictions. Family constitutions will vary from family to family, but each one should cover ownership, business interests, conflict resolution processes, wealth and title transfers, communication channels, and the role of the family council. Emotion is a real dynamic in family business, and it won’t go away just because a family constitution established a formal process. In no way should the family constitution be designed to squash emotions, either; make sure there’s sufficient room in the structure to accommodate intensity and passion when it pops up. Remember that the family constitution doesn’t force agreement. It codifies agreements once reached. Constitutions included family values, family goals, and the process through which those values and goals are synthesized. When used properly, a family constitution both creates a path and sets up guard rails to keep everyone on track. It’s a document everyone can refer to, read, and understand. Relationship Between Family Constitution and the Family Business Family constitutions are not the same thing as business constitutions. The business needs its own rules and processes, particularly if it includes non-family workers or management. Instead, the family constitution is the physical, documented result of strong family governance – it acknowledges that the business needs and the family needs aren’t always the same, but they aren’t completely separate, either. A family constitution helps bring the family together in cooperation. This inevitably helps the family business out, especially in families prone to infighting. It also serves as an example for times of future conflict. Each family constitution gives direction in a way that benefits the business, even if indirectly. Sometimes this takes the form of a “mission statement” or a “purpose statement.” The values and principles laid out here will underpin the conduct of the family business moving forward. Why Family Constitutions are Important? Creating a family constitution is not a guarantee of business success. It won’t make conflict go away in the family. Instead, a family constitution is a living, documented mechanism to reduce the ill effects of conflict and uncertainty. It should force the members of the family to consider what is most important to them and, more importantly, how to live out those values in their personal and professional lives. Most family businesses fail to make it to a third generation. There are major hurdles around succession, taxation, regulation, accountability, and infighting. As a family business advisor, I know first-hand how important it is to have a strategy and a vision. A family constitution won’t give you these things, but it can be a powerful ally in support of them over the long haul.

Understanding family businesses entails understanding the ‘family factor’, more specifically family ownership, involvement, commitment, values, vision, self-perception and succession. Family businesses play a prominent role in the global economy. It is a unique form of business as it is subject to influence from the family. The family is the original economic unit from which all other forms of economic organisations evolved. Families in family businesses are a unique fusion of ownership, strategic influence, concern for family relationships and a dream of continuity. Understanding family businesses entails understanding the ‘family factor’, more specifically family ownership, involvement, commitment, values, vision, self-perception and succession. When addressing the family in the family business one needs to be sensitive to the way families define themselves as there is a great deal of boundary ambiguity, which can be navigated only via the family’s personal definition of family. Family influence in family businesses may vary from one-sided control of the strategic direction of the business to one where strategic control is left entirely in the hands of professional management. A family first philosophy or a business first philosophy may work well or fail, as a function of the changing demography of the family, and the environment in which the business operates. As both the family and business grow what is needed is not an enmeshment but a philosophy that mediates between a family first or business first approach offering a more balanced framework for decision-making and planning. Families share common goals and resources. As generations are added, the family business will have multiple family systems to consider. Each will have its own background, values, goals and development, but they are interconnected as a larger family system, as well as a family business. The family and business are not necessarily compatible and the family factor may impose costs and liabilities. Family, ownership and business clearly involve different and sometimes conflicting values, goals and actions and in a family business individuals may have multiple roles and priorities. Problems may arise from the unwillingness of family members to monitor, evaluate and discipline other family members such as in the case of nepotism. In other situations the family business may be more insular and self-interested than non-family businesses as outsiders are not trusted and seen as potential competitors and enemies. Family members may not always be able to supply the business with enough talent, for example, in businesses that require highly specialised knowledge of technology and markets. The family factor when invested in and harnessed well is a source of competitive advantage. This occurs when the family business puts high priority on the human capital, emotional capital, social capital and financial capital. On human capital one may say that family members are motivated, committed, flexible and have been socialised and trained early to understand the nature of the family business. Family businesses have an advantage in building social capital as they have a distinct ability to cultivate and nurture long-standing relations across generations.Social capital enhances value creation in all businesses but in family businesses these advantages are absorbed in family members’ social links and in the family network’s configuration, and therefore are more sustained across generations. Family businesses have the ability to attract and provide good quality due to the goodwill and trustworthiness generated by the family name and commitment over time to customers. Families leverage their social and professional networks to ease access of valuable resources. Family cohesiveness is central in accessing and generating valuable resources particularly in difficult times. The total value of the family business to family business owners is the sum of both the financial and emotional value. Family businesses also make non-financial valuations of investments and assets together with financial appraisals. Non-financial values of the family may push the family business to: take an investment diversifying business activity in order to lower total risk, but that at the same time is value driven; make investments in brands or sectors that bring high reputation to the family; hold steadfast in their reluctance to diversify the business portfolio because the founding member started the company in this line of business, expressing legacy value; family business owners may continue to employ workers even through outsourcing would be more financially beneficial. Family businesses enjoy the competitive advantage of strong trustworthiness if they leverage the interpersonal trust that emerges during the early stages of a family business. As the family business grows this trust needs to be supported with the trust that the family members leading the business are not only willing but capable of performing effectively. Transparency and clear policies also help build trust as the family business enters the stages of sibling partnerships and cousin collaborations. Communication is a vital ingredient in re-vitalising collective identity and interpersonal trust. About the Author - Roberta Fenech is a freelance Occupational Psychologist currently reading for a PhD at the University of London

It is often said that the first generation creates the wealth, but that it is the second generation that creates the legacy. In an overseas Chinese Family Business (“CFB”) the traditional approach is for the founder to leave the ownership of the business in equal shares among all of the legitimate heirs. In the past, this meant all of the sons. However, it is more common these days to see all of the children of the founder becoming equal shareholders when the founder passes, if not before then. In the stereotypical CFB, the founder is also the father and the head of the family. While the founder is alive the family is kept together and working together in the business. Sometimes, the surviving spouse of the founder can also keep the family united in the same way. But what happens when the founder is no longer around? Can the siblings work together as equal owners to continue the family firm? Family governance expert, James E. Hughes, the author of ‘Family Wealth: Keeping it in the Family’ (Bloomberg Press) notes that in his experience, the members of the second generation will either see themselves as an ‘Inheritor’ on the one hand or as a ‘Steward.’ Two Different Paradigms What do we mean by a ‘Steward’? This term refers to a member of the second generation who wants to work together with his or her fellow siblings to see the family firm continue under family ownership. They see themselves as being under an obligation to pass on the family firm as a legacy asset to the next generation. To such a person, legacy is important. A Steward is likely to be emotionally committed to the family firm On the other hand, an ‘Inheritor’ sees their ownership in simple financial terms. Such a person is more like an arms length investor. Importantly, they want to be their own person, and they do not want to feel like they have to work together with their other siblings. Under our definition, they may lack emotional commitment to the family firm. In terms of family culture, a person who is a Steward has an inward looking orientation. This means they tend to look in towards the family unit. A person who is an inheritor looks outward. This means they tend to look away from the family unit and they like their independence. By definition, the paradigm of a Steward is very different from the paradigm of an Inheritor. James E. Hughes further notes that in his experience: Neither of these two paradigms is inherently right or wrong. There should be no question of judgement or blame involved here; You cannot convince an Inheritor to become a Steward; It is vitally important that all the siblings who are owners in the family firm can have ‘adult-adult’ conversations about whether, as an individual, they see themselves as a Steward, or as an Inheritor; and To understand the different belief systems and practices within single Asian families and the confusion they create. It is often the relationship between the founder and the siblings that will determine where each of the siblings comes out on this question. Where They Are All Inheritors If all the siblings see themselves as individual Inheritors, you know there is little point in attempting to get them to work together as a family team. Family teamwork and the skills this requires is not an aspect of the Inheritor paradigm. If all of the second-generation owners see themselves as Inheritors, they may still decide to keep their shares intact together out of economic necessity, to pool their financial capital. However, in this event they will be more like a group of unrelated investors. In this scenario, the family firm can be continued if one of the siblings manages to buy out the shares of the others so that this individual can become a controlling shareholder, and in a sense, the new ‘founder.’ This is known as ‘recycling’ the family firm. In the absence of the emergence of a new controlling shareholder in the second generation, it is reasonable to predict that a CFB controlled by a group of Inheritors will disintegrate, either as a result of internal family conflicts, or at the stage when the shares start to pass to the cousin generation. Where They Are All Stewards The second scenario is one where all of the second-generation owners see themselves as Stewards. By our definition, this implies an intention, a motivation, to want to work together. However, will good intentions be enough to make a difference? You could have a group of Stewards who feel very committed to the family legacy, but who still struggle to work together because they lack the necessary skills for effective communicating, decision making and conflict resolution, and because they don’t know how to overcome the tendencies of their family system (i.e. family dynamics) that are inappropriate for the business system. Having good intentions is one thing. Having the rights skills is another thing. It is often said that power corrupts. You could have a group who define themselves as Stewards, but who cannot really work together because of politics or power struggles. Stewardship and working together imply a need for participation and ‘fair process.’ If there is a sibling who seeks to be too authoritarian, to be too directive in their leadership style, expect that there will be some problems with the group. You could have a family that are all Stewards and are fully committed to working together but where there is a lot of confusion over family, ownership and management roles. Most conflicts in a family business are ‘role conflicts.’ Fortunately typical role conflicts can be predicted and therefore planned for. The important tasks in this scenario will include creating good boundaries between family and business; and between ownership and management. The good news is that a group of Stewards is likely going to have the motivation to do the work necessary to improve their skills at working together and to adopt good family business governance structures and processes. This includes cultivating emotional commitment to the family firm. A Mix Of Stewards And Inheritors The third alternative is that some members of the second generation will see themselves as Stewards, and some will see themselves as Inheritors. The third scenario is the case where there is a mix of views. In practice this is likely to be the most common scenario. The danger with this third scenario is that it has the potential to paralyse things if the siblings are unable to discuss and reconcile their differing views. If some are Inheritors, in an Asian family, the Stewards may not be comfortable to move ahead on their own while leaving the inheritors out of it because they fear this will imply the family is not united. Accordingly the group gets stuck. A way to reframe this third scenario into a more positive light is to realise that a healthy family is one that can balance the desire to be together (something the Stewards feel comfortable with) with the desire to be your own person (which is what the Inheritors want). Logically a family system in this third scenario has both ends of the spectrum and just needs to find a way to integrate balance or integrate them. What Is Your Ownership Philosophy? This leads onto James E. Hughes next proposition which is that members of the second generation need to be able to have ‘adult – adult’ conversations about whether each individual regards themselves as a Steward or as an Inheritor. Before examining this concept of an ‘adult-adult’ conversation, why should it be important for the sibling shareholders to be able to have such conversations? These two groups will have different goals and expectations for their share ownership. They are two different types of owners. The two groups could be expected to have different time horizons, risk appetites, liquidity needs, and maybe different expectations for how the company should be managed. If the shareholders are not even able to acknowledge their fundamental differences of view point, if they are not able to ‘agree to disagree,’ or if they are unable to discuss mechanisms for bridging their differences, there will be no leadership for the family firm. If the shareholders are frozen or in confusion, how do the directors know how to govern the business? How can you plan for the future if you are not able to talk about what each owner, as an adult, really wants to do? Another reason is that ‘form should follow function.’ For example, any trust structures or family agreements should be drafted to take into account whether you are looking at the first (all Inheritors), second (all Stewards) or third (a mix) scenario. The way a group of Stewards would want a family trust structure set up, or for a family shareholders agreement to be drafted, could be very different from the way a group of Inheritors would do it. Adult – Adult Conversations What is an adult – adult conversation? James E. Hughes says that an adult – adult conversation is one where siblings can look at each other and listen to each other as adults, not based on their family roles as developed since childhood, and not based on the roles as defined for them by the business founder. In a family, roles and characters are defined from an early stage. It is common that one sibling will look at another sibling through a lens frozen in time. Nevertheless, life is about growth and cycles of change. An adult – adult conversation then is one in which each sibling can look at the other through the lens of the current reality. It is a conversation where you can seek to understand the other while knowing that you are not able to control their view, and they are not able to control your view. In an adult-adult conversation you are not able to impose your perception of what someone else ‘should’ or ‘ought’ or ‘must’ do; or what ‘father would have wanted.’ You cannot invoke ‘family obligation or duty’ against your sibling. Such conversations require a respect for differences. It includes being able to agree to disagree, and being able to work with people who have different views from yours. Conclusions There are two paths for increasing the chances of successfully perpetuating the life of a CFB and continuing the family legacy. The first way is through consolidation of the share ownership and bringing the family firm back under the centralised authority of a single owner. The second path can open up if the siblings, or a sufficient number of them, see themselves as a group of Stewards. However ‘Stewardship’ should be seen as an intention or motive to want to work together. These positive intentions will need to be backed up by the necessary actions work and skills to convert intention into reality. Stewards will also need to adopt sound family business governance practices. Finally, a group of siblings who are unable to have adult-adult conversations about whether they are each Stewards or Inheritors are likely to find themselves stuck and unable to make plans for the future.

Conflict is a natural part of running a business but when colleagues and employees are also family members, ordinary conflict can take on new dimensions. Corporations and non-family business have formal barriers to conflict between colleagues; Human Resources departments and the natural separation between work and family make it unlikely that a workplace conflict will have serious repercussions on a firm’s future. On the other hand, the interconnected nature of family businesses means that family drama, workplace issues and conflicts about the business can more easily become serious problems without special handling. Many, if not most, family firms lack formal processes and strategies to mediate disputes, making it difficult to prevent inevitable quarrels from developing into ongoing issues. Here are five rules to help manage conflict in a family business: Rule 1: Leverage formal governance structures to mitigate conflict One issue that we have seen arise in many family businesses is that family members may lack a forum for discussing issues in the business. Formal structures like family councils, boards and family forums can offer family members a safe, organised way to bring up issues and negotiate conflict. Formal governance can also help mitigate family and financial issues by separating ownership of the business from its management functions. Rule 2: Give family members space (and permission) to air grievances One problem that we frequently see in businesses with a first-generation matriarch or patriarch is that family members may lack a safe way to express their needs and concerns. When people don’t feel listened to or appreciated, seemingly small problems can mushroom into major business and family drama. To help prevent conflicts, family leaders should actively encourage family members to air concerns constructively and give them the space they need to disagree. Senior leaders should come prepared to listen without judgment and be willing to fairly consider what is being brought up. Rule 3: Don’t let business bleed into family time (too much) It’s very challenging to keep from bringing business home, but one way that conflicts turn into family drama is by failing to keep them separate. Family business leaders must set the example by separating business and family time as much as possible. One way to make this separation possible is by having formal spaces and structured times to discuss business issues. Explicitly making other times no-business zones can help family members relax into their personal roles and get away from work. Rule 4: Communicate early and often about issues Many large complications start as small problems that could have been resolved with early intervention. Sometimes, spotting issues early and addressing them through clear communication can be enough to prevent a conflict from developing. Even when family members see each other regularly in the business, formal family meetings can be a better place to hash out complex issues. Whether it’s at a family retreat or simply at a separate meeting, making a break from daily routine to tackle the big issues can help open lines of communication. A formal setting can also help ensure that issues are not ignored and that members of the family have the opportunity to make their opinions heard. Rule 5: Bring in experts to mediate major conflicts Some issues simply cannot be resolved internally. When family members become entrenched and constructive dialogue isn’t possible, an objective expert who is trained to help resolve conflict can help cut through the emotions and focus on issues. A mediator can also help guide a family through initial conversations all the way to a final resolution. We have found that many family groups can achieve more in a few hours with an outside expert than they have in years by themselves. Final thoughts Many conflicts boil down to age-old family disputes. It’s common to see businesses that mirror family hierarchies. For example, parents might run the company together or a favoured eldest child might serve in an executive role while other children and spouses fill in other management positions. However, these parent-child and family dynamics can make the separation of family and business even more difficult. Leaders must be able to treat children like employees and managers during business time to help reduce the risk that family dynamics will damage the business culture. Ultimately, managing family conflicts often comes down to creating better communication skills as a family. While conflict can never be completely avoided, treating it as a normal part of business and developing the skills to handle it can go a long way toward building healthier business and family ties.

As the complexity of family and business relationships increase, families can turn to a formal “family constitution” to create a healthy communication and decision-making environment. It is important for every family business to communicate effectively and to reach decisions that optimally balance the needs of both the family and the business. As the complexity of family and business relationships increase, families can turn to a formal “family constitution” to create a healthy communication and decision-making environment. While not legally binding, a family constitution is held together by the positive recognition and buy-in from all involved. The process and the policies created within a family constitution are always reflective of the values and beliefs of the family group. The intent is to build around a sustainable model that promotes generations of pro-growth decisions. Here are six reasons why you should write your family constitution: 1 – It Will Lay the Groundwork for Tough Decisions Family business leaders have to make the same difficult decisions that any regular business leader needs to make, except that the family business leader often has to consider complex personal and family relationships. It’s easy to make judgments based on emotion in family businesses, which is why a pre-determined, rational family constitution can help cooler heads prevail. Through developing an effective constitution, the family will have already identified the basis on which critical decisions will be made. 2 – Your Chance to Create Ethical Guidelines Family constitutions are bound by moral force. If you are serious about building a unique, marketable brand – for both employees and customers – then it’s important to have a business code of conduct. Equally, your family constitution can lay out the preferences of the family in how they as shareholders would like the company and it’s capital to be directed, provide family thinking around certain shareholder decisions and influence the culture of the business and its employees. These guidelines can also include family conduct outside of the business, conduct with any social media interaction, and communication processes between family members. 3 – Build Cohesion and Internal Harmony Your family constitution is developed by the family group. Ideas are workshopped and opinions are shared. When consensus is reached, it’s done so with unity. Members of the family learn together through a participative process. The resulting document is a codified representation of internal agreement and harmony. 4 – The Chance to Improve Your Bottom Line Though not a cure all, the process of creating a family constitution performs a lot of critical functions that can make business more effective and, by extension, profitable. The family constitution defines the leadership structure, provides a tool for succession, informs communication and conflict resolution guidelines, and – perhaps most importantly – it clearly and concisely identifies the family business’ long-term goals. With that clarity in mind, it’s easier to take effective action to build a profitable company for the long term. 5 – Establish the Rules Around Conflict Conflict is a natural part of running a business. However, when colleagues and employees are also family members, ordinary conflict can take on new dimensions. You should have a plan in place to deal with conflict if your business is going to build a strong, multi-generational legacy. No family constitution can prevent conflict entirely, but it can provide a road map to successfully manage, resolve and define conflicts in a constructive way. 6 – Plan Ahead for Those Entering and Leaving the Family Business No challenge is as serious or as easy to mishandle for family businesses as the issue of family members transitioning both in and out of the organisation. Creating a family constitution provides a robust framework for families to commence their communication and education around succession. Policies such as the employment and remuneration of family members in the family business, education expectations, stewardship and philanthropic activities can all be discussed when writing the constitution. A constitution is a dynamic document so initiating formal family meetings as part of this process can ensure the items resolved can always be open for discussion and improvement.

Succession in terms of business leadership confronts the founder of a family business with a complex set of options as Peter Leach explains below. In broad terms these are: Appoint a family member Appoint a caretaker manager Appoint a professional manager Exit via sale of the business, in part or in par Exit via liquidating the business Do nothing. Each option is distinctive and carries its own set of advantages, disadvantages, opportunities and threats. Also, the scope and impact of these will vary from one family business to another depending on, for example: The ability to attract family and non-family successors who are willing and have the skills to carry on the business The financial needs of the family (for example, whether cash needs to be extracted from the business to provide for the retirement of the senior generation The personal and corporate taxation consequences of the different options The health and size of the business The external commercial and business environment at the time of succession. If there is a commitment to retain direct control over the business, the first option of appointing a family member to succeed is seen as particularly attractive by many founders. Research by IMD has found that, if there’s a suitable candidate, owners will choose a ‘family solution’ for several reasons: It gives their personal ideas and values a greater chance of survival They can feel their life’s work is in good hands They don’t lose contact with the business, and may even retain some influence over it They feel their sacrifices building up the business will have been worthwhile. The appointment of a non-family successor, either to a permanent position or as a caretaker (options 2 and 3), may become the strategy by default if no family successors are available, motivated or have the necessary skills for the task. Genetics do not guarantee that families can produce entrepreneurial business leaders generation after generation. In terms of exit routes, some form of sale as a going concern (option 4) is likely to recover most value from the business. Alternatives within this option include a trade sale (ie an outright sale of the business for cash),which may be particularly appealing where no suitable successors can be found, or a stock market flotation can be the best answer if external capital to finance growth is a priority. Similarly, a management buy-out financed by private equity funding (a sale by the founder to the existing management team, which may include family members), can offer a compromise between transferring the shares to the family and an outright trade sale. Liquidation (option 5) entails selling of all the company’s assets, paying its outstanding debts and dismissing the workforce. It also involves substantial expenses and is unlikely to result in the best price being obtained. Finally, the founder may simply avoid planning for succession by adopting the ‘do nothing’ approach (option 6), and here lies the central paradox. Despite founders professing that a ‘family solution’ is their preferred course, in practice the dynastic dream is rarely achieved. Doing nothing is the least logical, the most costly, the most destructive off all the options, yet is by far the most popular.

Andrew Drake suggests ten simple questions to consider before employing family members. All too often family firms have been found wanting when it comes to employing family members, not least the accusations of favouritism of family members and treating family members differently from their non-family counterparts. When a family firm deals with employees, irrespective of whether they are family members, it should have a common practice in relation to employment policies, remuneration and reward. This helps to ensure that issues are not created which have to be addressed down the line. Here are ten questions that should be considered by anyone thinking about recruiting a family member into the family business: How are you going to identify prospective employees from amongst the family? Are family members clear as to what is expected of them if they want to become employees? Do family members have the relevant experience and qualifications for the job in question? Do family members require a business mentor, either before or after they become employees and if so should that mentor be a non-family member? Do all family employees have a clear job description and career plan? How do family employees’ terms of employment compare to those of any non-family counterparts? Who should appraise family employees? Who should decide on their remuneration? Who decides whether they are appointed to the Board? Can in-laws become employees and/or directors? Family firms can engage in best practice by ensuring that the policies that they introduce are applied to all members of staff with clear communication of policies to ensure that everyone is treated the same way, thus helping to improve the underlying human resources framework within the business that can then help to recruit, retain and motivate all members of staff within the family firm too.

Expectations were set but transitions from Baby Boomers to the next gen have not materialised. Dozens of articles came out during the 1990’s about the coming tidal wave of business transitions from Baby Boomers to their Gen X and Gen Y children. The articles theorised that as Baby Boomers got to be 55 and older, they’d be looking to either sell their businesses or pass them on to their children. The writers looked at the demographics and numbers of closely held businesses, and they theorised that somewhere between $10 trillion and $140 trillion of assets were going to be transferred from one generation to the next. Financial services firms, charities, law firms, and consulting firms all licked their chops at the prospect that all these business transitions would somehow need to be managed and facilitated in an orderly way. The question is: What has happened to the family business transition tidal wave? Wayne Rivers explores further. Surely since all those articles were penned, some family businesses have indeed transitioned. However, the breathless predictions of a tsunami of family businesses moving from senior to junior generations simply hasn’t materialised. The demographers could not have been wrong; simple maths indicates they were not off that much in terms of the ages of the baby boomers. If there wasn’t a chronological mistake, then, why hasn’t the tidal wave come to pass? We believe there are six reasons why family businesses are staying in the hands of senior generation family business owners longer. 1 - Age 65 Is The New 50 A 65 year old family business owner today isn’t nearly as old at the same age as his father was. People today are in better health for longer than ever before. We eat better, exercise more, smoke less, and take care of ourselves better than previous generations. Therefore, when a family business owner reaches 'normal retirement age,' he is often far from ready to retire. He is still filled with energy, ideas, ambition, and there are so many exciting things left to do! 2 - The Great Recession The Great Recession shocked many family businesses, some of whom believed the hype that the Federal Reserve had made recessions obsolete. Now, their businesses from somewhat to a great deal smaller than they were before, senior generation leaders see much which needs to be done to restore the business to its former glory. Leaving the business at the tail end of a historic recession simply doesn’t seem like a good idea to many. 3 - Lack Of Ownership Succession Plans The state of family business estate and ownership succession planning is far better than it was when we started The Family Business Institute 23 years ago. However, many families still wrestle with the issues of ownership succession. How do I treat my children fairly and equitably when I have some in the business and some who don’t work here? How will my children get along when I’m no longer around? Is it fair to treat my daughter who is the CEO the same as her brother who works on the loading dock with respect to ownership succession? If I leave the company in the hands of my children, will my spouse have enough money to be comfortable after I’m gone? Many family business owners have undertaken to wrestle with these questions. Many others have not, and the questions aren’t any easier to answer now than they were 23 years ago. 4 - Lack Of Management Succession Plans It’s hard to beat experience. Even though a 65 year old family business leader might have incredibly competent forty-something children, they are at a severe chronological disadvantage in the sense that the senior generation had a 20+ year business head start, and that gap can never be closed! While the younger generation might have all the tools necessary for future success, they simply can’t replace the hard earned experience Dad carries between his ears. Most closely held companies also have two other management succession limitations: a lack of clear, written, transferable policies and procedures for the various jobs in the company and a lack of Knowledge Transfer (KT) which is the process for formerly transferring soft information (i.e. someone’s experience about business practices and processes) to younger members of the firm. 5 - Lack Of Specific Retirement Plans For The Senior Generation This item is related to item #1 above in that 65 year olds today have plenty of energy and ambition, and most family business seniors have no specific retirement plans remotely capable of consuming their energy and time. The idea of moving to a retirement community, puttering around in the yard, and maybe the occasional round of golf isn’t nearly as compelling and exciting as continuing to fight the daily battles necessary to put the family business back in its rightful place. Since murky retirement plans make for a nebulous future, and the concrete reality of rebuilding the family business is both present and exciting, staying trumps leaving hands down. 6 - Lack Of Buyers For Family And Closely Held Businesses A few years ago I delivered a speech in Canada before which we had surveyed the attendees to learn more about them. Somewhere between a third and one half of the franchisees (who were involved tangentially in the new home construction business) said that when they reached retirement age they were going to sell their businesses. Digging deeper into the demographics, we found that the average franchisee had one location with less than $2 million in gross sales. My message to them – which definitely put them on their heels – was that they couldn’t sell their businesses BECAUSE THEY HAD NOTHING TO SELL! When someone looks to buy a business they want to see a proven methodology for creating top line sales, a management team capable of executing the strategies of ownership, loyal employees who won’t leave the business if the family sold out, strong financials, and a business which isn’t dependent on one or a tiny handful of people to make all the decisions. Unfortunately, that is exactly what most family businesses continue to have to this very day! Even large family businesses, and we are talking in some cases well over $500 million in sales, depend on one or a tiny handful of family members to make virtually every decision in the business large or small. If one were to choose to buy a business like that, what in fact would he be buying? In essence, he’d be buying a job – a job that takes 60 to 80 hours a week sometimes, creates a great deal of mental and physical stress, and offers no escape hatch when things get hairy. Most family businesses don’t have anything to sell because they don’t have genuine businesses; they have jobs, and the jobs are pretty thankless ones at that. Will the family business succession tidal wave one day materialise? Given our steadily advancing ages, it must. Are most family and closely held businesses prepared for the ownership and management succession which must one day challenge them? The answer to that question is still “no” and that in and of itself constrains the possibility of successful family business transition whether it comes in a slow, steady trickle or a tsunami.