© Wright, Johnston & Mackenzie LLP 2013 Recognising the opportunities when advising Family Businesses Liam Entwistle 14 th November 2013

Objectives for this evening Develop a “family business perspective” in addition to your “business adviser perspective” Develop an understanding of the challenges family businesses face © Wright, Johnston & Mackenzie LLP 2013

The “One-Circle” Model © Wright, Johnston & Mackenzie LLP 2013

The Family Business System FamilyBusiness Emotional Inward Little change Facts Profits Outward Fast change This is where it gets interesting! © Wright, Johnston & Mackenzie LLP 2013

The 3-Circles Model FamilyBusiness Ownership 7 8 © Wright, Johnston & Mackenzie LLP 2013

Segment 1 – Family Members FamilyBusiness Ownership 7 8 Family Members  Family life in balance with business  Job prospects  Future ownership  Wealth  Family harmony © Wright, Johnston & Mackenzie LLP 2013

Segment 2 – Non-family investors FamilyBusiness Ownership 7 8 Non-family investors  Return on investment  Dividends / profit share  Liquidity  Exit route  Information

Segment 3 – Non-family employees FamilyBusiness Ownership Non-family employees  Job security  Strategic direction  Family influence on reward  Effects of nepotism © Wright, Johnston & Mackenzie LLP 2013

Segment 4 – Family Owners FamilyBusiness Ownership 7 8 Family Owners  Same as non- family owners  Info about job prospects  More ownership in the future © Wright, Johnston & Mackenzie LLP 2013

Segment 5 – Non-family working owners Family Business Ownership 7 8 Non-family working owners As for 2 and 3:-  Return on investment  Dividend / profit share  Liquidity policy  Exit route  Job security  Strategic direction  Family influence  Nepotism © Wright, Johnston & Mackenzie LLP 2013

Segment 6 – Family Employees FamilyBusiness Ownership 7 8 Family Employees  Same as non- family employees  Info about ownership, career and succession prospects © Wright, Johnston & Mackenzie LLP 2013

Segment 7 – Working family owners FamilyBusiness Ownership 7 8 Working family owners  All of the above! © Wright, Johnston & Mackenzie LLP 2013

Segment 8 – Family owners and business leaders FamilyBusiness Ownership 8 7 Family owners and business leaders  All of the above, plus  Managing conflicts of interest  Focus on vision  Not becoming isolated © Wright, Johnston & Mackenzie LLP 2013

Conflict is unremarkable © Wright, Johnston & Mackenzie LLP 2013 They're playing at Family Boardrooms….

How family businesses develop, and how you can be there for them © Wright, Johnston & Mackenzie LLP 2013

The 3-Circles Model FamilyBusiness Ownership 7 8 © Wright, Johnston & Mackenzie LLP 2013

Time changes everything! - crossing boundaries FamilyBusiness Ownership 7 8 © Wright, Johnston & Mackenzie LLP 2013

Succession Options What would the senior generation prefer ? 1. Appoint Family member 2. Appoint caretaker manager 3. Appoint professional manager 4. Liquidate the business 5. Sell the business 6. Do nothing Succession options © Wright, Johnston & Mackenzie LLP 2013

EstatePlan Capitalisation of Business Tax Plan Business Plan Retirement Leadership Development Career Development Wills Ownership Succession Business Family The Succession Conspiracy Quality of Life © Wright, Johnston & Mackenzie LLP 2013

The “Do Nothing” Option ! The least logical The most costly The most destructive Yet sadly By far and away the most popular © Wright, Johnston & Mackenzie LLP 2013

Where do Solicitors fit in? The issues of conflict of interest “The Lawyer” reaction to problem solving Being first among advisers, and at the heart of the solution © Wright, Johnston & Mackenzie LLP 2013

The role of Trusted Advisor Recognised as independent by all the family Proactively encourages the family to “get organised” Invests time to understand the issues Recognises when specialist Family Business Advice is needed © Wright, Johnston & Mackenzie LLP 2013

Where specialist advice is likely to be required 2 nd Generation onwards Succession planning Wills, tax advice, Powers of Attorney, estate planning, wealth planning, trust creation and administration, Family partnerships Ownership, Governance & Management Articles of Association, Shareholders agreements Constructing effective Boards Effective use of Non Exec Directors Managing branch politics © Wright, Johnston & Mackenzie LLP 2013

Where specialist advice is likely to be required 2 nd Generation onwards Managing Conflict in a family business Mediation Employing and remunerating Family and non Family Dividend policy vs executive bonus Communicating between Board & Family Interpreting and implementing a Family Constitution Family councils © Wright, Johnston & Mackenzie LLP 2013

Opportunities for Solicitors? Develop the skills and knowledge required to TRULY understand your client (the family enterprise) Invest time with your client to gain that understanding and in the process become the TRUSTED ADVISOR Help the client understand the predictable issues heading their way and persuade them to create a blueprint for tackling them Profit from the legal work that will flow from the business and the family Collaborate with other advisers to help the client © Wright, Johnston & Mackenzie LLP 2013

Recognising the opportunities when advising Family Businesses Liam Entwistle 14 th November 2013