Family Business Conference 2010 Factors causing Family Business Failure International Institute for Family Enterprises Paul Dietze | Managing Director By kind invitation of the Yemeni Businessmen Club 29 September 2010 | Sana'a, Yemen © International Institute for Family Enterprises

What is the International Institute for Family Enterprises (IIFE)? Factors causing Family Business Failure What is the International Institute for Family Enterprises (IIFE)? We are the premier advisor and knowledge-leader for Middle Eastern and German family enterprises, delivering profound improvement to our members for success across generations. 29 September 2010 | Sana'a, Yemen © International Institute for Family Enterprises

© International Institute for Family Enterprises The International Institute for Family Enterprises Factors causing Family Business Failure IIFE Executive Summary Founded in 2007 at Witten/Herdecke University in Germany Academic non-profit organization Pioneering approach (First-Mover in the MENA Region) 100% privately-financed organization Developing a selective “By invitation only-membership” for Middle Eastern and German family businesses and value-adding third parties Integrated and global best-practice approach in the fields of research, education, networking and advisory services 29 September 2010 | Sana'a, Yemen © International Institute for Family Enterprises

© International Institute for Family Enterprises The International Institute for Family Enterprises Factors causing Family Business Failure IIFE Global Experience 29 September 2010 | Sana'a, Yemen © International Institute for Family Enterprises

Family Businesses Dominate the Global Economy… The International Institute for Family Enterprises Factors causing Family Business Failure Family Businesses Dominate the Global Economy… “Family businesses are challenged. Only 30% of all family-owned businesses survive into the second generation, 12% will still be viable into the third generation, and only 3% of all family businesses will be operating at the fourth- generation level and beyond.” Joseph Astrachan, Ph.D., editor, Family Business Review & IIFE Board Member 29 September 2010 | Sana'a, Yemen © International Institute for Family Enterprises

Why Do Family Businesses Fail? The International Institute for Family Enterprises Factors causing Family Business Failure Why Do Family Businesses Fail? Poor Management, Insufficient Capital, Lack of Planning, Overexpansion, Strategic Deficits, Competition, Wrong Decisions,… “Most family businesses do not fail because of high taxes, economic turbulences, or technological revolutions. They fail because of family conflicts and the inability of senior generations to let go.” Dr. Jürgen Hereaus, Chairman Hereaus Group & Patron of Arab-German Family Business Summit 2010 29 September 2010 | Sana'a, Yemen © International Institute for Family Enterprises

© International Institute for Family Enterprises The International Institute for Family Enterprises Factors causing Family Business Failure The Three Circle Model Family Members Non-Family, Non-Manager Owners Non-Family Employees Owners Owner Source: John A. Davis | Professor at Harvard Business School and IIFE Board Member 29 September 2010 | Sana'a, Yemen © International Institute for Family Enterprises

© International Institute for Family Enterprises The International Institute for Family Enterprises Factors causing Family Business Failure The Developmental Stages of the Ownership System Cousin Consortium 12% Sibling Partnership 30% Controlling Owner Source: Kelin Gersick, Ph.D. | Professor Yale University and Chairman of IIFE Academic Board 29 September 2010 | Sana'a, Yemen © International Institute for Family Enterprises

Types of Family Business Ownership The International Institute for Family Enterprises Factors causing Family Business Failure Types of Family Business Ownership Cousin Consortium Sibling Partnership Controlling Owner Source: Kelin Gersick, Ph.D. | Professor Yale University and Chairman of IIFE Academic Board 29 September 2010 | Sana'a, Yemen © International Institute for Family Enterprises

The Controlling Owner Stage The International Institute for Family Enterprises Factors causing Family Business Failure The Controlling Owner Stage Owner - Manager Source: Kelin Gersick, Ph.D. | Professor Yale University and Chairman of IIFE Academic Board 29 September 2010 | Sana'a, Yemen © International Institute for Family Enterprises

Types of Family Business Ownership The International Institute for Family Enterprises Factors causing Family Business Failure Types of Family Business Ownership Cousin Consortium Sibling Partnership Controlling Owner Source: Kelin Gersick, Ph.D. | Professor Yale University and Chairman of IIFE Academic Board 29 September 2010 | Sana'a, Yemen © International Institute for Family Enterprises

Types of Sibling Partnership The International Institute for Family Enterprises Factors causing Family Business Failure Types of Sibling Partnership Sibling Partnership Egalitarian First Among Equals Source: Kelin Gersick, Ph.D. | Professor Yale University and Chairman of IIFE Academic Board 29 September 2010 | Sana'a, Yemen © International Institute for Family Enterprises

Types of Family Business Ownership The International Institute for Family Enterprises Factors causing Family Business Failure Types of Family Business Ownership Cousin Consortium Sibling Partnership . Controlling Owner Source: Kelin Gersick, Ph.D. | Professor Yale University and Chairman of IIFE Academic Board 29 September 2010 | Sana'a, Yemen © International Institute for Family Enterprises

Governance Structure for a Complex Family Enterprise The International Institute for Family Enterprises Factors causing Family Business Failure Governance Structure for a Complex Family Enterprise Family Governance Business Governance Family Assembly Shareholders’ Assembly Family Council Council of owners Advisory Board Career Planning Committee Board of Directors Family Office Family Foundation Redemption Fund CEO Venture Capital Fund Education Committee Family Reunion Governance Management 29 September 2010 | Sana'a, Yemen © International Institute for Family Enterprises

Governance Structure for a Complex Family Enterprise The International Institute for Family Enterprises Factors causing Family Business Failure Governance Structure for a Complex Family Enterprise Family Governance Ownership Business Governance Family Assembly Shareholders’ Assembly Family Council Council of owners Advisory Board Board of Directors Family Business 29 September 2010 | Sana'a, Yemen © International Institute for Family Enterprises

© International Institute for Family Enterprises The International Institute for Family Enterprises Factors causing Family Business Failure Avoiding Failure | Family Constitutions Family mission/vision for the family, business, owners and governance Core family values Family commitment to the business and other activities Preamble Family employment and compensation policies Selection of future business leaders Retirement policy Employment Policies Ownership transfer policies Stock buyout process and valuation method Dividend policy Shareholder responsibilities and rights New venture support Perquisites (perks) policy Ownership and Financial Policies Family ground rules – how to treat each other and support the family Agreement on how to arbitrate or mediate disputes Family council and family assembly structure Governance Regulations Family office and service Education plan Philanthropy, civic and other key family activities Other Family Activities 29 September 2010 | Sana'a, Yemen © International Institute for Family Enterprises

© International Institute for Family Enterprises The International Institute for Family Enterprises Factors causing Family Business Failure Thank You! 29 September 2010 | Sana'a, Yemen © International Institute for Family Enterprises