Workshop Session IV Determinants of Longevity of the Family Enterprise Professor Alden G. Lank UBC C1 Alden G. Lank

Achievable Strategies Determinant I Achievable Strategies 2 UBC C Alden G. Lank

Determinant II Common Vision 3 UBC C Alden G. Lank

Appropriate Governance Institutions Determinant III Appropriate Governance Institutions 4 UBC C Alden G. Lank

“Appropriateness” is a function of… (for the Business): Trans-national, national, local laws and regulations Cultural traditions Size of the business Age of the business Complexity of the business Ownership stage: Owner-manager Sibling partnership Cousin consortium Etc. 4a UBC C Alden G. Lank

“Appropriateness” is a function of… (for the Family): Which generation(s) in power Family traditions/values/history Number and ages of family members (active and non-active) Number of in-laws Geographic distribution of the family Type, size, complexity of the business Degree of cohesiveness of the family Availability of talent to lead and staff Breadth of distribution of ownership Family wealth Etc. 4b UBC C Alden G. Lank

Clear Separation of Roles Determinant IV Clear Separation of Roles 5 UBC C Alden G. Lank

Effective Conflict Management Mechanisms Determinant V Effective Conflict Management Mechanisms 6 UBC C Alden G. Lank

Defining Conflict Competitive or opposing action of incompatibles Antagonistic state or action (as of divergent ideas, interest, or persons) Hostile encounter: fight, battle, war A type of behaviour which occurs when two or more parties are in opposition or in battle as a result of a perceived deprivation caused by another or others 7 UBC C Alden G. Lank

Conflict Management Proposition No. 1 Over time, conflict is inevitable in families and in family businesses Proposition No. 2 Conflict can be healthy or unhealthy, functional or dysfunctional Proposition No. 3 How conflict is managed is one of the key determinants of effective families and family businesses Proposition No. 4 There are several conflict management strategies: no single one is a panacea Proposition No. 5 Pre-establishment of “rules of the game” can obviate many conflicts Proposition No. 6 Goal should be to maximize win/win for all parties concerned and arrive at the best decision given the family’s and the family business mission/ goals/ objectives 8 UBC C Alden G. Lank

2. Family Business: The Ultimate Paradox? Family businesses have BUILT-IN CONFLICTS due to the intersection of two worlds which are governed by DIFFERENT VALUES AND LOGICS* Family World Mutual cooperation Loyalty Unity Permanence Stability Business World Competition Opportunities Diversity Impermanence Instability Disruptive Constructive Conflict 9 UBC C Alden G. Lank

Conflicts: within the Business Family; within the Family Enterprise; between the Business Family and its Enterprise - I Same as in any family or business but In addition unique causes and impacts, e.g., conflict within the family can have short- or long-term negative consequences for the business and vice versa! 10 UBC C Alden G. Lank

10a UBC C Alden G. Lank

Conflicts: within the Business Family; within the Family Enterprise; between the Business Family and its Enterprise – II - Battlegrounds - Who gets what percentage of ownership, of voting shares? Can one get rid of (or acquire) shares and at what price? Who represents the family as owners in the company? What are his/her/their responsibilities and rights? How can we fire our representatives? What are the ground rules for election to/tenure on the board? Who of the family has the right to work in the family business? For that matter, who is family? How are career decisions made for family members in the business? What’s our philosophy: Family first? Business first? Other? 10b UBC C Alden G. Lank

Conflicts: within the Business Family; within the Family Enterprise; between the Business Family and its Enterprise – III - Two Fundamental Triggers of Conflict - Sense of inequity Desire for power 10c UBC C Alden G. Lank

Conflicts: within the Business Family; within the Family Enterprise; between the Business Family and its Enterprise – IV The goal of conflict management in the family business and the business family should be to apply conflict management strategies that are most likely to produce positive outcomes for both the family and the business —Win/Win — N.B. Easier said than done! 10d UBC C Alden G. Lank

Generic Conflict Management Strategies Avoidance Ignorance Withdrawal Denial Referral Arbitration Triangulation Fate Confrontation Face-to face Problem-solving Dialogue Degree of long-term effectiveness in resolution of major actual and potential conflicts 11 UBC C Alden G. Lank

Positive Outcomes of Constructive Conflict Higher motivation and energy Higher innovativeness of individuals Better understanding of own position Greater understanding of own identity Means of managing own internal conflict R. Walton 13 UBC C Alden G. Lank

Prerequisites for Effective Conflict Management in Business Families and Family Enterprises Supportive value system Written “rules of the game” preferably before they are needed Structural/institutional mechanisms for maintaining constructive dialogue Known and accepted process when agreement not possible Sense of humour 14 UBC C Alden G. Lank

The Four “Pillars of Peace” in the Puig Family (Spain)^ Truth Justice Love Freedom ^1998 Distinguished Family Business of Year - IMD 15 UBC C Alden G. Lank

Two Key Forms of Justice Procedural Justice Distributive Justice N.B. Perceived procedural justice can have a major impact on perceived distributive justice 16 UBC C Alden G. Lank

Explicit family personnel policy Determinant VI Explicit family personnel policy 17 UBC C Alden G. Lank

Explicit Family Personnel Policy - Issues - Who is family? Philosophical considerations; right or privilege? Why is it important to have family in the business? What prerequisites for entry? Conditions of employment over the career: N.B. Same or different than non-family employees? Monitoring of career progression by whom? How? Who takes decisions on career issues of family members? How are grievances handled? By whom? 17a UBC C Alden G. Lank

Attracting and retaining competent non-family managers Determinant VII Attracting and retaining competent non-family managers 18 UBC C Alden G. Lank

Effective management succession process Determinant VIII Effective management succession process 19 UBC C Alden G. Lank

Effective ownership succession process Determinant IX Effective ownership succession process 21 UBC C Alden G. Lank

Some Thoughts on Ownership Transfer What is desirable and/or doable is a function of tax and family From the family viewpoint, “fairness” – procedural and distributive – is often the key criterion Three basic approaches to fairness: Capitalistic: To each according to his/her contribution (may be OK if primary goal is to ensure business productivity) Egalitarian: To each in equal measure (may be OK if primary goal is family cohesion and no one is working in the business) Communistic: To each according to his/her needs (may be OK if primary goal is collective family welfare) If family tree is not pruned, need to keep many non-active family shareholders informed and, hopefully supportive. Beware of golden handcuffs. 21a UBC C Alden G. Lank

Developing enlightened owners Determinant X Developing enlightened owners 22 UBC C Alden G. Lank

Developing Enlightened Owners Keeping informed Becoming and/or staying educated Understanding legal rights and obligations Creating stock liquidity mechanisms Verbalizing realistic but demanding expectations Spreading the news Sharing the wealth 22a UBC C Alden G. Lank

Continuous building of family cohesion Determinant XI Continuous building of family cohesion 23 UBC C Alden G. Lank

A word to the wise… Gather around business issues and gather to have fun together virtual or real 23a UBC C Alden G. Lank

Creating and up-dating family protocols Determinant XII Creating and up-dating family protocols 24 UBC C Alden G. Lank