MGT Family Business Management Succession - Leader Development & Implementation Chapters 6 & 7 Family Business Management, Concepts and Practice By A. Bakr Ibrahim & Willard H. Ellis Instructor: Dr. Irene Duhaime

MGT Dr. Irene M. Duhaime 2 Class Schedule - Week 7 4 Succession - Leader Development & Implementation l Reading: Chapter 6 & 7 FBM l Questions n 10-18, 20, 22, 23, 25, 36, 37 FBAB

Chapters 6 Chapters 6 Family Business Management, Concepts and Practice By A. Bakr Ibrahim & Willard H. Ellis Planning For Succession

MGT Dr. Irene M. Duhaime 4 Contents 4 Corporate Euthanasia 4 Characteristics of Succession in Family Business 4 Planning for Succession 4 Effective Succession Process Continued ….

MGT Dr. Irene M. Duhaime 5 Contents …. Continued 4 Critical Issues in Succession 4 Selecting the Successor 4 Hostile Takeover 4 People Involved in Succession Process

MGT Dr. Irene M. Duhaime 6 Corporate Euthanasia 4 Death of family firms due to lack of succession plan 4 Not many family firms survive beyond first or second generations 4 Survival of Family Firms depend on effective Succession Planning

MGT Dr. Irene M. Duhaime 7 Characteristics of Succession in Family Business 4 Dual Relationship l Family Systems l Business Systems l Conflict among family members over succession ….continued

MGT Dr. Irene M. Duhaime 8 Characteristics of Succession in Family Business ….continued 4 Biological Necessity l Passing on a legacy l Founder/CEO resist letting go. 4 Nonmarket-based Transfer of Power l Not an arm’s length market-driven process l Heir inherits the family business

MGT Dr. Irene M. Duhaime 9 Planning for Succession 4 Proper planning is critical 4 Contributions from family and non-family member 4 Currently a small percentage of family firms plan adequately

MGT Dr. Irene M. Duhaime 10 Planning for Succession - Guidelines 4 Include offspring early in the family firm 4 Include offspring in the formulation of corporate mission, vision and strategy 4 Plan the gradual transfer of power 4 Develop an inheritance plan and discuss it with family members ….continued

MGT Dr. Irene M. Duhaime 11 Planning for Succession - Guidelines …continued 4 Hire professional managers in some key positions 4 Provide a zone of comfort for siblings during transition to avoid conflict. 4 Adjust the job to fit the successor’s skills, competence, capacity to lead and function effectively

MGT Dr. Irene M. Duhaime 12 Planning for Succession - Guidelines …continued 4 Encourage family and non-family members to participate in succession plan. 4 Consider the next generation family members’ career, seniority, life stage and needs. 4 Establish and communicate clear guidelines concerning career development

MGT Dr. Irene M. Duhaime 13 Effective Succession Process

MGT Dr. Irene M. Duhaime 14 Effective Succession Process 4 Preparing the Offspring l Pre-entry Acculturation (Prepare offspring for leadership role at an early age, before joining the family business l Integrate offspring into the family business to promote interest and nourish commitment l Offspring work outside family firm to gain experience and be seen as earning the position. …..continued

MGT Dr. Irene M. Duhaime 15 Effective Succession Process ….continued. 4 Preparing the Offspring l Summer jobs allow offspring to become familiar with different areas of the business l Shop-Floor Level entry allow the offspring to “learn the ropes of the trade”; establish relationships with employees at all levels; gain acceptance more easily.

MGT Dr. Irene M. Duhaime 16 Effective Succession Process 4 Role Adjustment l Process of disengagement or mutual adjustment W.C Handler.

MGT Dr. Irene M. Duhaime 17 Effective Succession Process 4 De-Coupling of the Two-Systems l Separate social functions (family) from the business function 4 Role of Family Members l Understand and respect each other’s needs, motivation and skills l Provide emotional support for departing CEO and administrative support for successor.

MGT Dr. Irene M. Duhaime 18 Effective Succession Process 4 The Strength of Relationships l Strong relationship between Founder and offspring; and among siblings 4 The Successor’s Ability l To work independently and provide leadership l To understand and respect needs, motives, career stages and skills of family and non- family employees

MGT Dr. Irene M. Duhaime 19 Critical Issues in Succession 4 Elder son often given the leadership role regardless of capabilities 4 Daughters are “the invisible successors” despite their skills and competence

MGT Dr. Irene M. Duhaime 20 Critical Issues in Succession 4 Founder as Advisor l Presence or technical competence may be critical to the firm’s survival l Interference may undermine the new successor 4 Founder as Consultant l has specific task(s) l reports to new CEO

MGT Dr. Irene M. Duhaime 21 Selecting the Successor 4 THREE COMMON MODELS 4 Eldest Son becomes successor uncontested 4 Division of assets among male descendents; each son managing his own part 4 Consensus-type approach: decisions made by family council.

MGT Dr. Irene M. Duhaime 22 Effective Succession Process

MGT Dr. Irene M. Duhaime 23 The Troika of Succession in Family Business 4 Family Business Management l assessment of skills required to manage effectively l capacity to provide leadership l ability to work independently l ability to manage conflict

MGT Dr. Irene M. Duhaime 24 The Troika of Succession in Family Business 4 Offspring Suitability l Experience, skill and training l Seniority l Career plans and willingness to accept leadership role.

MGT Dr. Irene M. Duhaime 25 The Troika of Succession in Family Business 4 Perception of Family and Non-Family Employees l ability to provide leadership and guidance l management style l fairness l overall suitability

MGT Dr. Irene M. Duhaime 26 Hostile Takeover 4 Usually results from unfair or hasty succession 4 Scenarios: l Elder son is ignored l Successor takes over against the founder’s will l Founder too sick to manage the business l Founder suddenly dies

MGT Dr. Irene M. Duhaime 27 People Involved in Succession Process 4 Family Members l Wives, sons, daughters, brothers, sisters 4 Non-family members l Friends, senior employees, professionals (accountant, lawyer, banker) (Consulted at different levels to provide neutral and more objective point of view.)

Chapter 7 Chapter 7 Family Business Management, Concepts and Practice By A. Bakr Ibrahim & Willard H. Ellis Managing The Transition

MGT Dr. Irene M. Duhaime 29 Contents 4 Next Generation 4 Problems During the Transition 4 Romancing the Past 4 Successful Transition 4 Restructuring

MGT Dr. Irene M. Duhaime 30 Next Generation 4 Transition to the next generation is often confrontational 4 Survival rate beyond first generation is 30% and beyond second generations is 13% 4 Difference in values 4 Drive to equal or outdo predecessor

MGT Dr. Irene M. Duhaime 31 Problems During the Transition 4 Decision-making which does not include the senior family and non-family executives 4 Family infighting resulting from l lack of a proper succession plan and/or l restructuring which results in loss of power and/or status for family members ….continued

MGT Dr. Irene M. Duhaime 32 Problems During the Transition …continued 4 Non-family executives abandon the ship, out of frustration with the succession process and outcome. 4 Disruptive behavior from non-family members who feel betrayed or insufficiently rewarded for their loyalty.

MGT Dr. Irene M. Duhaime 33 Romancing the Past 4 Strong attachment to the past 4 Block out negative or bad memories 4 Family and non-family employees idealize former leader’s virtues. 4 New leader expected to live up to those ideals.

MGT Dr. Irene M. Duhaime 34 Successful Transition

MGT Dr. Irene M. Duhaime 35 Successful Transition 4 Time to readjust l Implementation of new socio-political systems and new management styles should be gradual and should evolve over time. 4 Effective Change Management l Changes include new technologies, new culture, and new management techniques l Effective communication of the change process and the rationale l Participation of others in the change process

MGT Dr. Irene M. Duhaime 36 Successful Transition 4 Accommodation l Recognize tensions, polarities and paradoxes. l Use consensual decision-making approaches l Use conflict-bargaining procedures 4 Power Orientation l Social Power - need to help others l Personal Power - need to control others

MGT Dr. Irene M. Duhaime 37 Successful Transition 4 Successor’s Management Skills l Gain experience outside family business l Maintain an open door policy with family and non-family employees l Avoid the trappings of the older generation l Earn respect and legitimacy from within the business l Plan a strategy to deal with older generation

MGT Dr. Irene M. Duhaime 38 Successful Transition 4 Interpersonal Relationship of Key Family Members l Intergenerational relationships (between current and next generations l Intragenerational relationships (between siblings and other relatives)

MGT Dr. Irene M. Duhaime 39 Restructuring 4 Step-by-step restructuring to get feedback, reduce conflict and tension 4 Involve family and non-family in the restructuring process. 4 Communicate purpose and methods of restructuring. 4 Involve neutral party like management consultant.

MGT Dr. Irene M. Duhaime 40 Questions and Cases l Questions n 10-18, 20, 22, 23, 25, 36, 37 FBAB

MGT Dr. Irene M. Duhaime 41 Question 10 How does a successor prove that she/he is capable and got the job based on ability rather than genes ?

MGT Dr. Irene M. Duhaime 42 Question 11 Should a successor or in-law joining a family business have an employment contract ?

MGT Dr. Irene M. Duhaime 43 Question 12 Where should a successor start in the family business and how much should she/he be paid? How should responsibilities be determined?

MGT Dr. Irene M. Duhaime 44 Question 13 When and how is it appropriate for a successor to make a suggestions for change in the business?

MGT Dr. Irene M. Duhaime 45 Question 14 How should a successor address his father, mother, uncle or other relatives while in the office? Does it make a difference?

MGT Dr. Irene M. Duhaime 46 Question 15 How can a successor be judge as a fellow employee and not just as a son or daughter of the founder or head?

MGT Dr. Irene M. Duhaime 47 Question 16 Should a non-family member who has been with the company for a long time mentor and critique the successor(s)?

MGT Dr. Irene M. Duhaime 48 Question 17 How does a successor maintain a sense of privacy while working in a family business?

MGT Dr. Irene M. Duhaime 49 Question 18 How does a successor deal with employees who use him to influence the boss and owner, who may be a parent?

MGT Dr. Irene M. Duhaime 50 Question 20 Is there room in family business for a successor to grow personally and professionally?

MGT Dr. Irene M. Duhaime 51 Question 22 What role do daughters play as possible successors and is it different from that of sons or sons-in-law?

MGT Dr. Irene M. Duhaime 52 Question 23 How does the female successor deal with male resentment and domination and gain the respect of family members and others associated with the business?

MGT Dr. Irene M. Duhaime 53 Question 25 Can a female who is seen as a good little girl, change that image, be more assertive and confident with male colleagues and be treated as an adult?

MGT Dr. Irene M. Duhaime 54 Question 36 When should successors begin to receive equity? Are there different options? How can the family prevent resentment that can be caused by your estate plans?

MGT Dr. Irene M. Duhaime 55 Question 37 How long does a good succession process take and exactly how should it begin?

MGT Dr. Irene M. Duhaime 56 Class Schedule - Next Week 4 Professional, Non-family Managers l Reading: Chapter 8 FBM l Questions n 16, 60-66, 82 FBAB l Cases: n Baker Inc., p. 287 FBM