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Spring 2013

October Current Thinking Column

Saturday, October 29, 2016

Exploring the “Troisieme”

by Leslie Dashew


As I find myself in the “troisieme,” or the last third of my own life, I find that I am trending along with the majority demographics right now. That is, I am a “baby boomer” and my peers are exploring how to find meaning and impact during our longer lives. 

Why is this important? If we hold on to our leadership roles and do not work on transitioning, we keep the next generation from having their chance to lead during their generative years. As an example, I recently saw a production of a play entitled Charles III about the supposed death of Queen Elizabeth and the succession of her son, Charles. However, that transition happened when Charles was an “old man,” and the next generation (his kids) were of the age at which they thought they should be ascending to the throne. Charles waited to have his chance, only to be seen as out of touch with the realities of the current political environment. 

Since it is likely that many of us will live well into our nineties, even exceeding 100 years of age, it is important that we plan not only for our financial security and medical needs, but also for a life of meaning. Erik Erickson, the noted developmental psychologist, told us that each age of our lives has a unique challenge to resolve. In the elder years, the dilemma is “integrity vs. despair.” If we can look at our lives and feel we are living in accordance with our values and using our waning energy toward those values, then we experience the joy and peace that comes with integrity. On the other hand, if we only look at our losses and what we can no longer accomplish, we despair. The ability to accommodate the evolving reality that we are experiencing with an attitude of acceptance and appreciation, while supporting the following generations with our wisdom and love allows us to gracefully age. 

Angeles Arrien, a cultural anthropologist who died early in her elderhood (just a few years ago), did a seminar on the second half of life that I attended some years ago. She pointed to some of the touchstones and opportunities that our later years provide for us. Some of her comments that resonated with me are the following: 

Before I explore meaning, I have to explore authenticity. Allegiance to honesty and integrity is greater than stubbornness and pride.

I see the stubbornness and pride in some elders who feel that holding on to power and control is the only way to continue to have impact and meaning. Having the courage to honestly look at the world today and authentically and openly recognize our own abilities/limitations allows us to stay connected to younger generations and our peers in very significant ways. 

The mark of wisdom is a person in the second half of life who is committed to being a unifying force, creative and solution-oriented. Wisdom is not age-bound. Every culture (except ours), respects elders. We need to develop intergenerational, multi-disciplinary, and multi-cultural councils to solve problems. 

When we can connect across generations in an organized manner and share the wisdom we are harvesting, we enable future generations to consider how to apply that wisdom in arenas we have not played. The combination of wisdom of the elderly with the understanding of today’s world is magical.

We cannot have wisdom without integrity and character. And it is never found in the extremes. Nor is it found in states of indulgence or denial. When in denial or indulgence, we normalize the abnormal, taking us out of our integrity base. It is always found trying to hold all the options and possibilities to find an elegant solution. 

Finding the way to make connections, come to middle ground, and being a force for “and” rather than “but” is a great gift that comes from seeing the benefits of collaboration over conflict.

Reciprocal mutuality is coded in our genetics—to help one another. In the second part of life, generativity includes passing on the family stories. We begin to harvest our journey, mend our life, and tell the stories that transmit the values and lessons learned. Young people often love to hear the stories of their ancestors and what contributed to their lives. Through this generativity, we can lead the process of healing schisms. We can encourage compassion and mutual understanding. We can demonstrate that our lives are more productive when we engage others in this mutual appreciation and complementary roles.

We have much to do in this stage of life. It is important that we identify what it is that we wish to leave as a legacy and how we can support the next generations in their work. Since living this long is a new phenomenon, we have few role models to guide us. Rather, our exploration and travels offer paths for others to consider as they approach this age as well. 

 

September Current Thinking Column

Friday, September 30, 2016

Implications of a Transition Plan on Today’s Operations:

Redefining the Role of the Leader

by Burak Kocer PhD

As we work with family business leaders to plan the transition of a company, one of the main topics becomes redefining the way decisions are made and carried out. In fact, a family business leader’s transition plan would be a void letter if it had no implications on how the company is run today.  Alas, this is a change that is easier said than done and a true test of sincerity for the owner. Quoting Morpheus of the film The Matrix, “There is a difference between knowing the path and walking the path.”

The most explicit impact of the transition plan on the way the company is run today concerns delegation. The mere fact that the founders grew a small startup operation to what it is today gives them every legitimate right to undertake all critical decisions. As the operations expand, the founders hire managers with specific executive responsibilities, yet in many cases, they work so closely with those managers that you would not necessarily call it a “delegation.”

In this article, I would like to discuss three main problems that stem from a lack of proper delegation. Subsequently, I will suggest various ways on how to expand delegation.  

In the absence of an effective delegation:

The owner becomes a part of the decision.

When the owners work closely with the managers, i.e., make decisions together, they eventually become a part of those decisions, which leaves no room for the development of accountability.

There remains no space to grow talented managers.

A founder, who undertakes all decisions regarding the creation of new systems, eventually leaves behind an organization that is incapable of creating anything new in his/her absence. However, this is exactly what is expected from a leader—to not only run a system effectively, but to be also capable of creating new ones.

A leader dealing with numerous key performance indicators (KPIs) cannot see the forest for the trees.

Unlike the number of different horizontal responsibilities that a manager assumes, the number of KPIs that he/she should focus on should decrease with the level of  increasing hierarchy. When a founder strives to manage operational responsibilities, he/she ends up focusing on a vast range of KPIs, which obscure his/her appreciation of the overall situation.

Redefining the Founder’s Involvement in Business

A transition plan should eventually redefine the way in which the founder is involved in business processes today. Here are some suggestions to facilitate this most challenging task for a founder:

1. The best way to emphasize delegation is, to the extent it is possible, limit the cooperation between the founder and a manager to formally defined meetings, rather than informal discussions ad hoc.

2. Changing the meeting frequency from weekly to biweekly or even monthly can help implement the expansion of delegation incrementally.  

3. In order to make delegation properly work, a sound control system should be provided. When redefining the leader’s involvement in the operations, you need to make sure that internal controls are up and running. An internal control checklist is a critical instrument that requires periodic review.

4. Although valuable as time savers, abbreviations sometimes make us forget the real meaning of the concept. For example, KPI stands for key performance indicator and has value in limited numbers. A priority matrix can be utilized to outline monthly, quarterly, and annual review periods for each KPI in order to keep the meeting agenda more concise.

5. Tolerance intervals should be defined for the KPIs not included in the predefined review schedule and should be reported if and when there is a deviation greater than the accepted level. For example, this can be 1% for an indicator and 3% for another.

 

September Current Thinking Column

Wednesday, September 14, 2016

Consilience: Linking Knowledge from Different Disciplines to Create a New Knowledge

by William Roberts, CLU, ChFC

The Aspen Family Business Group recently hosted a multi-disciplinary conference at Cannon Beach, Oregon.  There, with the crashing of ocean waves as our soundtrack and incredible natural beauty as our backdrop, 20 advisors from a variety of professional specialties joined together to share our passion for counseling with families in business.

The goal of the conference was to pass along both explicit and tacit knowledge about working with families in business, and to share in collaboration with other advisors. As the weekend progressed, a rich sharing of thought and insight unfolded.  The advisors truly bonded together over a similar passion to share the wisdom garnered from their time in the trenches with families.

One of the skills we explored was the ability to ask reflective questions—the nature of which cause the person being asked to pause and reflect. These types of questions open dialogue rather than ending it.  This skill was demonstrated in a "live case study" created by the group.  Problems were manufactured around the theme of a business succession crisis in a family business.  They ranged from a major health problem inserting the urgency to a rift in the family over an addiction issue to an unclear succession path and several business or financial issues. The insights gained by watching skilled specialists in different disciplines ask questions exposed the breadth of the family's issues.  From the reluctance of the senior generation to face the urgency of the succession situation to the fact that the bank or a non-family partner could call in notes and essentially shut down the business, a range of problems and issues were identified.  As Einstein said, "A problem identified is half solved.” This scope in questioning demonstrated the importance of having different disciplines involved, and that collaboration to understand the full range of issues while working together to devise solutions for the family is key.

For years, we have looked for insightful and thoughtful questions. We have searched for questions that will reframe a problem in a different light and cause the person being questioned to pause and say, "I have never thought about the problem that way.”  We learned just such a question a few years ago.  As the story goes, an advisor was having a first time meeting with a very affluent person at a Starbucks.  The meeting was winding down with the fatal result for any advisor trying to move to an action step, the client said, "Great to meet you, but I think I have all my ducks in order and I am all set.”  The advisor then asked, "Would you mind if I asked just one more question? How would things be going both operationally and personally in your family if you had passed away 90 days ago?"  As the advisor related to us, with this question came three hours of discussion that culminated in the client agreeing to hire the advisor.  When asked later on why he had hired him, he relayed that every other advisor had asked a similar question but in the future tense, "What would happen if you died five years from now?" he said, “But you put me in the picture by asking what would be happening if I died 90 days ago.  You made me realize where all the missing elements of my plan existed and motivated me to action.” I have used that question ever since.

I had the opportunity to study an address by Dean James Ryan from his 2016 Commencement speech for the Harvard Graduate School of Education.  He put forth the premise that searching for great questions and then using them in all kinds of situations—with family, with friends, at work with fellow employees, or with clients—would help others and increase our value to those around us.  He then described five questions which at first seem quite ordinary, but upon reflection provide a way to see past the easy answers and to focus instead on the information behind the answer that gives us so much insight into the real problems that exist.  

Here are the five questions Dean Ryan suggested could open the door to deeper insight:

The first is "Wait, what? " The "wait" is the stop sign when we hear something that is important but needs further clarification. "What" could be asked in various forms several times until we have the clarification crucial to a full understanding.  The "what" keeps us from jumping to conclusions about the answers.

The second question is “I wonder…?” followed by “if,” "why,” and “what” which expresses curiosity and an invitation to imagine. This type of “What could happen if…?” mindset can lead to a better understanding of what the other person is imagining in their own mind and encourages them to drill even deeper into the subject being addressed.

The third question is "Couldn't we at least…?" This is a question that could be used when the conversation is stuck on some point, enabling us to get past the disputes or disagreements and instead find areas of common consensus from which to move forward.  It is also a method to move forward when we are not sure of where we will finish.  “If we could just begin...” or “How might that play out?”  is a way to move forward around difficult barriers.

The fourth question is “How can I help?” This expresses a humility that we may not have all the answers and that there are others—other advisors, other experts—who can offer assistance.  We are looking for specific ways that we individually can help.  Yet this question also expresses a genuine desire to lend a hand where we have the expertise or insight to assist.

The fifth question is "What truly matters?"  Dean Ryan even suggests that this question could be substituted for New Year's resolutions. This moves to the heart of the issue at hand and truly allows the questioner to delve into the motivation behind the person answering.

If you get into the habit of asking these questions regularly, you have an excellent chance of being both successful and happy.

 

July Current Thinking Column: Consilience

Thursday, July 28, 2016

Consilience 

by Joe Paul

In families, each individual carries a narrative about their family. Sometimes these narratives match up with one another, yet often they do not. Sometimes individuals understand the motivations of their relatives, yet often they do not. Family members need to trust each other, yet it does not always happen. 
 
We find that families in business together (FBT) often have divergent memories that can be so different from each other that one might conclude they grew up in completely different homes. 

An example: I once was talking with three adult siblings about their family history. A brother said to his older sister, 

“I used to get so scared when dad would become angry and treat you roughly.”
“What do you mean?” his sister asked.
“It happened lots of times. I remember us sitting at dinner one time and Dad grabbed a handful of your hair saying, ‘Get that damned hair out of your face!'”
His sister looked concerned. 
“I don’t remember anything like that. What happened next?”
“Well, we did what we always did. We whispered a frightened ‘May I be excused?’ and slowly slid our chairs back, silently withdrawing to our rooms, shutting the door behind us. We would stay alone in our room for the rest of the evening hoping we wouldn’t hear the sound of his shoes coming down the hall.” 
“That’s so strange,” she said to her brother, “I don’t remember Dad being physically abusive to anyone except you.”
“What do you remember?” he asked.
“He was always slapping you on the side of your head, or kicking or shoving you around when you did something he didn’t like.”
“Wow! That is really spooky,” he said. “I don’t remember him ever being abusive to me.”

In the Aspen Family Business Group, we call this kind of difference between the memories of individual family members “narrative dissonance.” This kind of condition emerges in families that experience long periods of time in a high level of chronic anxiety. It is an example of the kinds of challenges facing families in business together (FBT).

In a small workshop this upcoming August, the Aspen Family Business Group is introducing the term consilience to the field of counseling families in business. The Latin root of the term means “jumping together.” We are using the term to describe the coming together of family members over things like their memories, ideas, beliefs, emotions, mission, and purpose. We work to develop creative ways to overcome their differences, encourage family harmony, and create a more productive organizational culture in the businesses they own. We use the word consilience to describe the way we work with our clients that are FBT. Consilience creates convergence and agreement in spite of differences. Consilience encourages the differentiation of individuals and sub-groups (e.g. a Board of Directors, next generation of owners). 

Reaching consilience requires courage, respect, dedication, altruism, goodwill and trust. As a family loses consilience, communication breaks down in the business and/or the family. Individuals become aggressive, selfish, pig-headed, and secretive. At the same time, altruism, trust, and collaboration disappear.

In the sciences, consilience describes a convergence and confirmation of knowledge from different disciplines. In legal circles, it describes an agreement among all parties. In Consilience: The Unity of Knowledge, the entomologist E.O. Wilson postulates that since the Renaissance, the sciences have become split into more and more narrowly defined specialties. He believes that through consilience, there will be a reversal of that history, uniting science and the humanities.

Our conciliatory process helps families overcome the damaging effects of mistrust, internal competition, poor communication, etc. The conciliatory process involves assessment, alignment, commitment and implementation. We are sharing this concept with any interested advisor to FBT because we believe that the use of these processes does not require formal graduate psychological training and education. Rather, what is required is wisdom and emotional intelligence. 

In the August workshop, our goal is to pass on both our explicit and our tacit knowledge about working with FBT’s and collaborating with their other advisors. We will be giving you practical tools that are “tried and true,” as well as introduce concepts like memetics, epistemology, cultural evolution, and evolutionary psychology that will be new to you in the context of family businesses. These ideas are stretching our own understanding of the profound purpose and meaning of what our work is really all about. 

 

June Current Thinking Column

Thursday, June 30, 2016

Legacy Transformation

by Leslie Dashew


I recently had a conversation with a client who said, “A lot of what you write about is how to transition ownership and legacy from one generation to another…but what about those of us who are considering selling the legacy business? What about our dilemma?”

So I decided that I would give it some thought through writing about it. 

The Dilemma: We have tried to be good stewards of the business we have been given through our work in the family business, our oversight on the board, and the role(s) we play in the family and community. We have appreciated the assets we have been given. However, our lives have taken different paths, the industry is not the same and frankly, the continuation of the business without the infusion of much debt or sharing of equity would not be good stewardship of this asset. Even more so, the passion isn’t there anymore. 

So, as our friend Jay Hughes has suggested, without the energy that comes from personal passion, a business will die (see, for instance, his thoughts on the matter in The Rising Generation).

The legacy of most families, however, is more than the business. In addition, there is often a “spiritual legacy” that encompasses the lessons, values, principles, stories, and wisdom that can be shared from generation to generation. There are also pieces of a legacy we often might choose not to pass on, such as addiction, abuse, suicide, long-term conflict, and/or obligation to continue a destructive relationship, or unrewarding business.

Transforming the legacy means, to me, taking the best of the family’s financial, spiritual, relational, intellectual, and other forms of capital and passing them on in a form that will be productive for current and future generations. Some examples include:

In one family, the founder created a somewhat successful business from which his sons took the baton and continued, through good times and bad. The father originally built a very small business, but as the sons took over, they had to learn good business practices in order to grow the company. At one point, they were so close to bankruptcy that they felt their faith was the only thing that saw them through it. However, because of this experience, the sons committed to sharing their success with the employees who stuck it out through thick and thin. This experience also inspired the sons to tithe. Their legacy was not just a financial one, but a very concrete manifestation of the faith in what they shared. This legacy passes on to the next generation on paper in legal documents and also in the hearts of their heirs. 

In another family, the rising generation (4th) faced the conflict of their elders (3rd generation), which prevented them from constructively collaborating in the stewardship of their family and its assets. They came together, determining that conflict would not be their legacy. They committed to enacting certain practices and processes that would keep communication open and direct. They also committed to creating their own vision of the future that built on the strengths of the family and business, leaving behind the “shaky” footing of the previous generation. 

Another family captured the heroic history of their ancestors in books and videos about the family and their endeavors. They sold the legacy assets and built new businesses that were relevant to today’s market. So while honoring the values, courage, and business savvy of the founding generations, they pursued a new path that captured their imaginations and hearts, ultimately leading to financial success. 

Finally, another family took the difficult path of saying they would be better off not collaborating as business partners, but rather finding a way to stay connected as a family, which they ultimately deemed more important. They honored their roots as blood relatives and worked hard to rebuild relationships that had been strained by the inability to partner together. They each took a part of the business legacy and transformed it individually, healing the strained relationships. Their gift to the next generation was the opportunity to have holidays together, to remember the ups and downs of the family history, and to create new traditions.

Research at Emory University has shown that children who have heard stories about their ancestors are more resilient than those who have not. These ancestral stories help children feel they are a part of something larger than themselves, fostering an enduring identity that holds generational meaning. So, when the going gets tough, children know others might have solutions as the family goes back generations.

Moreover, kids who have heard stories that included the “ups and downs” also understand the cyclical nature of life, and that when you hit rough spots, it isn’t the end. 

These resilient offspring have a legacy that gives them context and hope during the most difficult times, as well as stories of achievement and dreams that can propel them further.

As such, I think that part of the answer to my client’s question about passing on legacy from family to an outsider is to look to the stories, traditions, and creative possibilities that can be passed along no matter what physical assets exist. These may ultimately be more powerful as they provide the tools with which new legacies can be built. 

 

May Current Thinking Column

Tuesday, May 31, 2016

THE HOLY TRINITY OF CORPORATE GOVERNANCE: 

Direction, Representation, and Accountability

by Burak Kocer, PhD


This past April, I spent three creative days in our Aspen Family Business Group 2016 Spring Salon with Joe Paul, Leslie Dashew, Bill Roberts and Donnel Nunes. These annual meetings provide a great opportunity to catch up and contribute to each other’s work by learning from each others’ experiences and perspectives. This year, we also hosted Dr. Manulani Aluli-Meyer of University of Hawaii, with her brilliant wisdom introducing to us the concept of “epistemology” and how we can apply it in our work.

For my part, I have greatly benefited from the Spring Salon, in terms of clarifying my mind and focusing on my role more effectively as a family business advisor. This column is one of the most immediate outcomes of our Spring Salon on my behalf. Since I wrote my October column on “The Art and Science of Governance,” I have been working on developing a more organized and clear model. Well, one does not need to look far for inspiration to further develop this model with these wonderful people around me. Hence, this small piece is devoted to the leading experts of the Aspen Family, Donnel, and Dr. Meyer.

Decision-Making Power

Defining how decisions are made and controlled is central to our work with families. This involves designing mutual roles of three main governance bodies in family businesses: the family council, the board of directors, and the executive team. Of course, from a legal point of view, this list should have started with the shareholders’ meeting, but for the purpose of this paper, I will not do so for the following reason:

As Joe contends, “Power in a family business is often independent of ownership or management position.” And this is exactly where we want to influence for a quality decision-making function.

The role of governing bodies is to create a healthy environment for quality discussion and ultimately form a common decision in favor of the company’s interest, not that of an individual shareholder. On the other hand, save for exceptions, a shareholders’ meeting is where individuals come with premade decisions. They either approve or disapprove an agenda item based on the position they took before they even entered the meeting. In these meetings, it is legitimate for each shareholder to protect his/her own interest and, in general, it is a process of “legalizing” the decisions that were made before.

In a family council, we prioritize creating open channels for communication among the shareholders, and between shareholders and other members of the family, ultimately developing a culture of collective decision-making. Hence, this is one of the platforms where a family can achieve “collective transformation through individual excellence” in Dr. Meyer’s words.

In fact, the three governance bodies represent stages of a process, in which multiple interests of different stakeholders are transformed into a single direction.

From Multiple Interests to a Single Voice

It is quite fair for shareholders to have different strategic preferences, risk appetites, or management styles. But these are all discussions at the ownership level and must be melted into a single voice that will set the direction for the business. Keeping this plurality at the executive level will turn into incompatible managerial actions that could potentially lead to a business disaster.

The board of directors is where different alternatives are evaluated and the direction is set.  The head of execution holds the steer as the captain to lead the business in the manner designated by the board. Depending on the complexity of the business, the appropriate mechanism may change, but the need is same: You need to develop a process for evaluation of different alternatives in a way that all shareholders feel legitimized and heard, with a single voice to guide the entire organization accordingly.

This chart depicts the strategic flow of the governance body from multiple interests to a single voice. 

Once you start designing the three main governance bodies—the family council, the board of directors, and the executive team—you will face the following questions:


  1. Who should be involved?
  2. What is the ideal size?
  3. What are the respective authorities?

The Holy Trinity

There is an unlimited number of answers to those questions. Choosing the right combination is the art of governance, which should be decided in relation to the specific needs of the family and the business. However, we also have a formula for this process, which I call the holy trinity of corporate governance:

  1. Direction
  2. Representation
  3. Accountability

Whatever governance model you create, it should satisfy these three needs. You have to make sure that governance bodies:

  1. provide a clear direction to the organization,
  2. allow for representation of stakeholders and
  3. hold those who are authorized to act on behalf of the others accountable

At this point, I would like to recall the second axiom in Joe Paul's book, The Emotional Ledger, "It is not a question of whether a family business is governed or not. A more salient question is what is the business and the family being governed by." The right answer to this question lies in the way a family business approaches the aforementioned three needs. 

Direction

“If there is no goal to achieve, there is no progress to be secured.”

When the company is not operating in line with the predefined and approved objectives, the performance of executive managers will be questionable. In a family business, the cost of this suspicion is usually higher. It is good practice to have a system in place that allows for setting the objectives accurately. To do so is inevitable to define, which requires a combination of skills and experience to ensure the quality of decision-making.  This analysis will help families focus on the qualifications instead of individuals and differentiates between ownership and management roles, which come with different rights and responsibilities.

Representation

“Rewards of inclusiveness outweigh perceived risks.”

Families need a shared vision, which is carried out to the future owners of the business throughout the years. This requires gradually involving family members who do not work in the business with the governance system. Representation also allows family members to be confident that they are able to exercise their legitimate rights on the business despite limited involvement in operations, while differentiating between ownership and management.

Accountability

“If both questions and answers come from the same person, you cannot be sure about the accuracy of either one.”

The depth of separation will depend on the complexity of the business, but any organization requires some sort of border between execution and control. This also allows for a division of work between the decision makers in terms of their time horizon. The focus of those who undertake the daily operations is on the specific work they do, while those who exercise the control function must apply a broader perspective to ensure long-term stability.

Matching the Holy Trinity with Governance Bodies

This Governance Priorities Matrix can be used as a guideline when seeking the right answers for designing governance bodies.

At the family council, the primary concern is representation, followed by direction. First, anyone with legitimate interest in the business must be present. Only with their involvement can the direction for the business be mutually agreed upon and accepted.

In the board of directors, the primary concern is giving a clear direction to the executive team and accountability for the formulation and execution of this direction. Representation is of least concern, as we cannot give up the qualifications we need to set an accurate direction for the sake of an individual member’s needs. This is where different interests are melted into a single voice, requiring a combination of diverse skills. A good practice is to define the required qualifications and let people nominate the appropriate candidates according to their right of representation.

At the executive level, representation is not one of the needs to be satisfied at all. In fact, the entire chain of governance is built upon this objective: To ensure that the business is run by competent hands. These competent hands will be accountable to the board for results, and must cooperate with them in setting the direction and providing feedback.

When evaluating the governance bodies, you may want to check The Governance Priorities Matrix to understand the potential consequences of your existing composition. 

 

Save The Date: Private Workshop for Advisors

Thursday, April 28, 2016

Save the Date

Private Workshop for Advisors to Families in Business 

August 19-21, 2016
To Learn Leading Edge Tools and Concepts 
In an Intimate Setting with Pioneering Experts, 
Joe Paul, Leslie Dashew, and Bill Roberts
of the Aspen Family Business Group
Schooner's Cove Inn
Cannon Beach, Oregon


For more information about the event, including how to register, click here.

 

March Current Thinking Column

Thursday, March 31, 2016

Letting Go and Preparing the Next Generation for Succession

by Leslie Dashew


16 years ago, Joe Paul and I worked in Nepal with advisors to family businesses and conducted the first ever Family Business Program in Nepal. Upon return from that trip, I flew immediately to Grand Rapids, Michigan where I gave the following talk on Succession.  As I reviewed this presentation, I thought it would be timely to share once again.

I have just returned from one of the most fascinating places on earth:  Nepal.  I spent two weeks training advisors to family businesses in one of the poorest, but most beautiful places on earth.  The elevation of the country changes from almost sea level in the southern Terai to over 28,000 feet at the top of Mt. Everest in the north. This is a country in transition:  it has been open to the west since just the l950s; has had democracy for less than l0 years; and businesses have only really developed in the last l0-15 years. More than half of their national budget comes from development funds from other countries. 

There is a strong tradition of the “undivided family” there, where parents and their grown children and grandchildren live together, keeping their assets undivided, or pooled. But as the country goes through this transition, there are questions about whether the undivided family will continue to work.  There are large business houses (as they are called), equally sophisticated as the largest family business in this country, who believe that staying together provides access to more resources than the divided family.  And there are others who believe that it is impossible for siblings to work together, own businesses together and/or live together harmoniously, and that assets should be divided so that the competition and creative energies will foster greater growth in the assets.

The country has not seen a surge of succession issues just yet, as they are still struggling with the questions of basic survival and moving from a dependent economy to a more free-standing economy.  But we heard issues that mirrored all the issues we see in family businesses in the west:  lack of communication and understanding between the generations; fear of discussing “issues;”  negative influences of “outsiders” (like in-laws) who may be jealous or have different values; old ways vs. new ways and professionalizing the business. They are just now beginning to have the opportunity to consider passing a business to the next generation.

One of the benefits of traveling-particularly to a country which is so remote and different- is to gain perspective. And one of the lessons of this trip was an affirmation that that we have more in common with people around the globe than we are different.

We are very fortunate in this country to have developed a relatively stable economy, broad based opportunities for creativity and entrepreneurship and access to many kinds of resources.   We are blessed with the opportunity to have to worry about how to pass on assets:  we actually have assets to pass on.  We are even blessed with having a bureaucratic government to have to deal with...at least it is somewhat consistent and predictable from year to year. And all of our children-male and female- have the opportunity to become owners of our assets and to readily have access to education. We take a lot for granted in this country and traveling to the other side of the globe helps me to gain perspective.

COMPASSION AND KNOWLEDGE:  BUDDHIST PERSPECTIVE

I came away not only with an appreciation of our country, but of Nepal’s wisdom and beauty as well.  And you’ll forgive me if I look at succession a bit differently now than I did three weeks ago.  For now, I believe we must look at it in terms of the legacy we have and the responsibility of passing on that legacy as carefully as possible.  Something I learned in Nepal gives guidance to that.  The country is largely Hindu, but holds a strong Buddhist tradition as well.  The two cornerstones of Buddhism are compassion and knowledge. The more I thought about it, the more I came to believe that these are the cornerstones of successful succession in family businesses as well. 

COMPASSION FOR EACH OTHER

1.  For the Elder Generation

When you are passionate about your work and your business and have spent countless hours and years intimately involved with every detail of it, it is hard to let go.

When you look around you and see the people who have helped you build this business over the years, people who are loyal, dedicated, talented, and have become like family (if they weren’t already related), it is hard to let go.

When you see the young people around you who don’t seem to have the same work ethic, commitment, “fire in the belly,” and they think they can take care of your baby, the business, it is hard to let go.

When you look at the stakeholders in the business and worry if they will conflict with each other, if they will be jealous of one another, or if they will develop a shared vision for the future of your business, it is hard to let go.

When you think about what you would do with your time, your energy, your creativity or with whom you’d do it if you didn’t stay involved with your business, it is hard to let go. 

A productive, engaged, successful man or woman who has built a business can’t just let go. You have to take hold of something else: something which is interesting, challenging and gives you a sense of purpose. And making this transition doesn’t happen over night.

It takes time to reengage in other activities:  you have to find the right niche.

It takes time to build confidence in the next generation of leaders: they have to have the authority and autonomy to lead, while you are on the sidelines offering coaching.

It takes time to build an ownership team that understands its role and place in the scheme of things; and it takes time for a family to build a shared vision of the future which includes the opportunity for everyone to share in its creation. 

So how do you engage the younger generation in this dialogue so that you can have confidence as you pass the baton to the next runner?

First you have to trust that the runner who is following you will catch the baton when you pass it to him or her.

You must trust in his competence, character, and commitment.

Second, you must have faith that the legacy you have built has taken root in your successors: that you have provided the values, learning opportunities, and space to use what you have given them.

Third you must give the family team the opportunity to have their imprint on the business (just as you have) and to find their way to work together.

Finally, you have to let go...no matter how hard it is.  For unless you let go of the baton, the next runner cannot take it. 

2.  For The Younger Generation

As for the younger generation, how do you prepare for the challenge of carrying on the business? How do you follow in the footsteps of a powerful force, a great actor.

For the successor generation, it is like standing in the wings, as an understudy watching the star perform on stage and waiting for your chance to show that you, too, know the lines, the blocking, and the character. Sure, you get your time on stage in smaller parts, but you know you can do the big role and you are just waiting for your chance. The problem is, the lead doesn’t want to give up his role. So you remain untested—waiting, practicing, learning. While you admire the leading actor, you can’t help feeling you might be able to do it just as well, or even better.

Following in the shadow of a large tree is not easy:  it is hard to find your place in the sun. But you must honor the tree, your roots, and your own new growth. You must appreciate the foundation you have been given and build upon it. Maintaining the dignity and honor of the prior generation is important to your own esteem. You must prepare by developing your capacity to lead and to manage. It is difficult to gain the respect of the older generation. It is difficult to wait for the older generation to let go of the baton and let you have the authority to make decisions and direct the business.

There is a range of types of capital which you must be able to manage:

  1. Operational Assets (money, equipment, factories)
  2. Intellectual Capital (information, knowledge, advisors, mentors)
  3. Relationship (your team, your network, your family)
  4. Spiritual (your beliefs, faith, commitment)
  5. Health (physical and emotional health, energy)

 

Earning the trust of the generation which precedes you means demonstrating that you will be a good manager of these resources (managing means doing things right), but also to be a good leader-which means doing the right things.  This too, requires balance.  In the ancient oriental book, the Art of War, Sun Su says that great leaders possess the five characteristics in balance:  sternness, humanness, intelligence, courage and trustworthiness. 

In a commentary on this, Jai Lin describes what occurs if a leader is out of balance on these dimensions: 

Reliance on intelligence alone results in rebelliousness among followers

Exercise of humaneness alone results in weakness

Fixation on trust results in folly

Dependence on strength of courage results in violence

Excessive sternness of command results in cruelty 

When one has all 5 virtues together, each appropriate to its function, then one can be a leader. 

Development of Knowledge

So given our understanding and compassion for both of these roles, how do we bring about the transition?

According to Margaret Mead, it takes 3 generations to have a full conversation: 

the oldest generation to say how things were;

the middle generation to say how things are; and

the youngest generation to say how things will be.

The key lies in creating the forum for on-going dialogue and the development of compassion and knowledge.  

Succession involves many dimensions and actors, and the challenge is that we never know how long we have to make the transition. It could be minutes, or it could be decades.  Until you take your leadership of this transition seriously and realize that you may not have as long as you hope to pass on the legacy, the process doesn’t occur. 

The succession is not just about ownership or equity, and it’s not just about management, which are the two most commonly considered factors. It is also succession of knowledge, relationships, and authority.

One of the challenges to the transition, is when the next generation doesn’t appear to appreciate the knowledge or ways of the older generation. It’s hard for the older to trust the successor—after all, that’s what’s made you  successful.

So, transferring the knowledge you do have, and realizing that it has to be supplemented by new knowledge, requires compassion for the next generation.

They have to make mistakes too, and it would be better to do so while you are around to consult.

Succession also means relationships.  The web of relationships which surround the elders have contributed to the success: employees who have helped build the business, advisors on whose wisdom you have depended, suppliers and customers whose loyalty is often hard to replace, and the family whose support and challenges have been part of your role as well.

Succession means allowing these relationships to evolve as well.  Sometimes the long-term employees have a hard time accepting the leadership of the kids they’ve watched grow up.  Some will have to go because they don’t want to grow with the new ways.  Old advisors may not have kept up their knowledge or their connections with the new generation, so sometimes the youngsters have to find their own advisors. 

Customers and suppliers watch the changing of the guard as well--often looking for signs of confidence from the older generation and looking for signs of new passion, energy and creativity.

Finally, and often most challenging, is the succession of authority.  At some point, the baton must leave one hand and go to the next. Until that happens, the succession is a sham.  Until the responsibility, the decisions, the power is vested in the next generation, titles, money and other roles are meaningless.  The relay race cannot go on unless the baton is passed.  And if the older generation trips and falls before it is passed, the opportunity to take pride in the next generation, to see a legacy go forward, to provide coaching from the sidelines and to receive the recognition and acknowledgement that accompanies a successful transition is lost.

So how do we create the forum for this exchange of compassion and knowledge?

Establish a place for dialogue in the family so that the dreams and perspectives of all family members can be exchanged, along with knowledge, e.g. a family council.

Through the dialogue, see if you can come up with a shared vision of the future--one which the younger generations can feel excitement for and commit to making happen.

Then, look at what it will require to make that vision happen:  typically a strategic plan for the family and the business can be developed which clarifies the path for going forward. If the younger generations develop this plan, the older can offer wise counsel, yet it is up to the younger generation to make it happen.

Take whatever steps are necessary to assure that the authority is passed:

 stock transfer

true role transition in leadership

moving the energies of the older generation to new activities

Finally, use a structured time or place in which to meet to monitor progress. Through this communication, the transition can be celebrated and mid-course corrections can be considered. All, of course with wisdom and compassion.

The most common greeting upon meeting someone in Hindu countries is Namaste, or the god within me greets and honors the god within you.  Succession depends on just such mutual respect and honor.

 

February Current Thinking Column

Monday, February 29, 2016

Defining a Purpose Changes Lives 

by Joe Paul

Today I want to touch upon the effects that a purpose has on individuals, families, and organization, and in particular, how a clear sense of one’s purpose develops the capacity for leadership. My ideas about this topic have been shaped by my work counseling and mentoring family business leaders, their successors, and their advisors.


Imagine a scenario in which Fred, his father’s successor in their family’s business, had gone through a process with a consultant to define a statement of purpose for his life. The only requirements were that the statement must be limited to one sentence and it must be applicable to every role in his life (e.g. a husband, a business owner, a father, a citizen, etc.). He was told that going through the process of defining a purpose for your life often stimulates qualities such as courage, commitment, and stamina. It can also complicate your existing relationships. Fred found that it also enhanced the ability to focus his energy and develop a greater self-confidence. A commitment to the statement seemed to also illuminate what his efforts were actually in service to on a deeper level. 


His Statement of Purpose for his life was,

“To encourage trust, transparency and peace in all my relationships.” 

In a few months his purpose was tested. Fred had been a long-term supporter of a politician with whom he believed his values were most compatible. But upon hearing reports of his clandestine activities, Fred began to realize that the money and time he devoted to the politician had been in service to something that is antithetical to his values and his new sense of purpose. The seriousness of the disparity between what the politician would say and what he actually did was so egregious that Fred started petition to sanction the man for violating the party’s code of conduct. This action was difficult for him because this politician was a friend of his parents. It was a real test to see if he could “walk the walk.”


I am relating this story to you because it is an example of how self-definition precipitates substantial changes, including a greater capacity of leadership. But another question I have often wondered about is how these ideas about one’s sense of purpose actually bring about changes in the thoughts, feelings and behaviors of others. 


I have found that the theory of Memetics has a great deal to say about the life-cycle and influence of ideas. Memes are ideas that spread by competing for the mind space of individuals and groups. For instance, introducing you to the concept of memes is already creating competition with your existing ideas about how knowledge flows between people.


Memes have been described as having a virus-like pattern of survival. For example, when a person has a religious conversion they are “infected” by contact with a Christian memeplex (a memeplex is a powerful cluster of memes in symbiotic relationships). An infected individual becomes a vector for the spread of that denomination of Christianity.


I encourage you to look into the literature about memes. A good place to begin is a cursory introduction is hereIf you would like to discuss memes and how they can be used in your work with family businesses and/or their advisors I encourage you to contact me here


I’ve also included a previous essay, "Guidelines for Consulting to Family Business Leaders, Successors, and Their Advisors" for further exploration of the topic below. The Aspen Family Business Group recently published a book called Balancing the Emotional Ledger: Axioms and Guidelines for Counseling Families in Business which can be purchased here

Guidelines for Consulting to Family Business Leaders, Successors, and Their Advisors 

by Joe Paul

Regardless of the consultant’s “discipline of origin,” there is a meaningful distinction between family business consultants and consultants to families in business. The former works with unique kinds of businesses, the latter works with unique kinds of families. Significant differences in assessment and intervention flow from this difference. 


Assessments and interventions need to be grounded in an understanding of individual psychology, family systems theory, and organizational development.


The level of trust in the family and in the business defines what is possible. Interventions need to be based on an assessment of the level of trust in these systems and the basis of the mistrust, when it exists. 


Of the factors that make a family business work, we have found that trust is more important than love. 


Commitments to rational agreements and contracts among family members typically will not control the family dynamics that drive behaviors; especially when mistrust or a sense of unfairness is prevalent among family members. Generally speaking, problematic family issues need to be dealt with directly by the consultant if he or she feels competent to do so, and not indirectly via documents that have not addressed underlying family issues. 


A family owned business is often weakened when a family leader uses the business to try to manage the problematic psychological issues of an individual family member, or the problematic relational issues in the family itself. The more serious the issue and the longer it goes on, the more likely it is to damage the business. If, for instance, a leader maintains an incompetent family member in an executive position only to keep harmony in the family, the business is bound to suffer. The longer it lasts, the more damage it does. 


The interventions of consultants need to be based on an assessment process that integrates the interactions of family dynamics, management requirements, and ownership concerns.


The consultant should not “take sides” until he or she is sure they know why they are doing so. The initial responsibility of the consultant is to create a context that is safe enough for the family to have the conversations they have been avoiding. To do this the consultant must be seen as trustworthy in the eyes of as many members of the client-family as possible. This means that it is important to avoid being unwittingly co-opted by the politics of the family early in the engagement and before a strategic plan for the engagement has been developed. 


Much of the change that happens as a result of successful consultation shows up first in the way people communicate. Sometimes this means talking about things they have avoided, and sometimes this means that they simply learn to be more civil.


Resistance to change is a natural part of a system’s way of surviving. Whenever possible, this resistance should be honored and “reframed” by the consultant as an individual’s attempt to preserve something important. It is the consultant’s responsibility to monitor the balance between the forces for change and the homeostatic forces that preserve what is familiar to the family. Interventions should be managed accordingly.


Most successful interventions lead to:


A) Increased differentiation of some family members as effective fiduciaries, or “accountables”, e.g. Managers, Directors and/or Trustees. We describe this process as “finding your voice” in a new role or business responsibility. 


B) The differentiation of organizational sub-systems within the family and business that will carry significant responsibilities, e.g. creating a Family Council, a Board of Directors, a Management Team, a Shareholders Group, etc. 


C) The ability of individuals and sub-systems to “morph” from one role to another in an orderly way.

 

One of the most important intangible assets of a family in business is the ability to think clearly together. The most common factor that interferes with the ability of the family to function intelligently is family politics. The assessment process needs to identify those factors that keep the family from thinking clearly.


Avoid rushing to solutions early in the consulting process. To do so is often an indication that the consultant has been co-opted by factions within the client system, or by personal (sometimes unconscious) issues of the consultant. 


The consultant needs to develop a standardized assessment process that integrates objective assessments and clinical interviews. The consultant should also attempt to include all individuals in the family who have, or will have, either a direct or indirect influence on the family’s decision-making process. This means that it is important to include spouses who do not work in the company, or own stock.

 

January Current Thinking Column

Saturday, February 06, 2016

Family Business Mistakes: How To NOT Set Your Widow Up For Failure

by William E. Roberts, CLU, ChFC


In the past year, we have been exposed to several situations with widows whose husbands ran significant family businesses. In some cases, the passing of the husband/founder was sudden, in other cases, an illness preceded the demise, but the death came at an unexpected time. All the dialogues had remarkably similar issues and problems, so much so we decided to address the issues and create a series of questions that you might use to evaluate your readiness should a catastrophic event occur in your family.


In two of the families, the loss of the founder and driver of the family business success was sudden and completely unexpected. Until the event, one a boating accident, the second an unexpected heart attack, neither of the spouses were involved in the business other than from the periphery. Also evident was a lack of a Catastrophe Contingency Plan directing what actions should be taken if an event occurred. In both cases, the estate plan of the owners passed 100% of the stock to the widow. In some instances, this might work, and the widow might make wise decisions that results in the business continuing successfully. Unfortunately, neither of the aforementioned examples resulted in a happy ending. Let's explore what happened and what could have been done differently.


In one case, the stock passed to the widow, conferring all the power to make/enforce decisions, take distributions from the company, and hire/fire employees. Their son, who was in the business with his father when he passed, was completely unprepared when his father dropped dead of a heart attack. While friends and advisors provided advice, the fact remained that he was hamstrung in the running of the business, leaving him little room to make decisions to allow the company to continue much less grow to its capabilities. Key employees left as the situation deteriorated, finally leaving them with only one alternative. They were forced to sell at a deeply discounted price to a competitor. The mother was left with a depleted lifestyle, and the son was forced after a short period with the new buyer to leave and find a new position.


In the second scenario, the surviving spouse, despite her inexperience running the business, decided to step in and continue the business her husband had founded. While valiantly attempting to manage a complicated business, she made decisions to bring in relatives to run divisions of the company. Unfortunately, while loyal to her, they proved inept at the job they were required to do, and in too many cases, more enamored with the salary and perks their position afforded. Eventually, the business fell apart and was forced into liquidation.


The third scenario did not involve an unexpected event. An illness of the founder preceded, but his passing came unexpectedly and without warning. In this case, considerable planning was in place. A complicated estate plan had been completed by the owner and a successor selected. Control, however, remained with his spouse through trusts set up for her benefit. A Board of Directors had been created with outside board members, which his spouse chaired. While the potential for success had been put in place by the founder in naming his successor, creating the Board of Directors, and completing a thoughtful financial estate plan, problems still arose that would ultimately result in family conflict.


This case is more complicated because considerable planning had been done. The spouse was placed in a position that has taken her a good two years to understand. Her responsibility was far beyond mere financial issues and grieving for her lost spouse. She was thrust into a role as trustee and running a board that required her to learn all new skills. What was it like to run a board? How to act as a responsible fiduciary of her spouse's trust? All were challenges she was unprepared to handle. She turned to the family attorney to assist her in understanding her new roles, but felt fairly or unfairly that he was pressuring her to make decisions unfavorable to her family. Rather, he urged her to accede to the wishes of other branches of the family. She felt very alone, left searching for answers.


What steps could have been taken to change the results of these situations and hundreds like them, to avoid the tragedy of losing the family business? The following are a few questions that you can use to assess your own plan.


Does your business have a Catastrophe Contingency Plan to handle the stress caused by the sudden loss of the CEO/owner? This is not simply purchasing a key person life insurance policy. This is addressing the next day, the next week, the next month, concerns of customers, vendors, advisors and your banker. This is the “first 90 days plan.”


Is your estate plan the substitute for a well-thought out succession plan? Will it really work, and have you thought through all the scenarios that could arise?


Will stock be owned by non-operating family members? How well will the operating shareholders get along with the non-operating shareholders?


Does the company have compensation plans in place tying key employees to the company particularly during a difficult transition like the loss of the key driver in the business?


If your spouse will inherit the business, how prepared is she/he to make decisions about the operations of the company? Which advisors would they turn to and how well do they know them? How versed are they in the governance factors of running a company or a Board of Directors? What time frame will be required for them to overcome grief and learn the details of running the business and the board?


Complete succession planning is composed of seven elements, and an important practice that goes hand-in-hand with avoiding some of the aforementioned situations. For an in-depth look at the seven dimensions of succession planning, read our previous musings here. Also, for coping with the devastating effects of losing a loved one suddenly, Bonnie Brown Hartley’s Fire Drills for Sudden Death offers meaningful and constructive advice.


By no means is this a complete list of the issues faced in the scenarios described above. There are, of course, specifics unique to each situation, but what was true throughout was the lack of focus on the reality of the loss that occurs in these situations. While some planning had been accomplished, the in-depth planning and communication needed to survive was lacking. Whether it was an unwillingness to face the reality of mortality or serious procrastination, we will never know. What we do know is that the result was predictable, but also avoidable with the right effort and focused thought.


 

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