1. Psychology of Succession Planning Guess Who’s (Not) Coming to Dinner Presented by. Dennis I. Blender, Ph.D.

2. Every family is unique

3. Every family is uniquely the same

4. BusinessFamily Ownership Family Business Model

5. 2 1 – Family member 2 – Staff member (non-family, not an owner) 3 – Owner (non-family member, not working in business) 4 – Family member in the business 5 – Family member/owner, not in business 6 – Staff member, owner, not family 7 – Family member, owner, in business 7 1 56 3 1 4

6. BusinessFamily Ownership Family Business Model Family Structure Values, traditions Family system dynamics Business Industry, size Life cycle Strategy, culture Ownership Structure Distribution Governance

7. Family Businesses in the United States Family firms comprise 80-90% of all business enterprises in North America. Family owned businesses account for; 37% of Fortune 500 companies, 60% of all public companies, 78% of all new jobs, 60% of total U.S. employment. 30% of family-owned firms survive into the second generation. 12% will survive into the third generation. 3% operate at fourth generation and beyond. By 2005, virtually all closely-held and family- owned businesses will lose their primary owner to death or retirement ( post-WWII generation entrepreneurs).

8. Family Businesses in the United States 3 primary causes of failure of family-owned firms: Inadequate estate planning, Failure to prepare and provide for transition to the next generation, and Lack of funds to pay estate taxes. The founder’s death precipitates nearly 50% of family firms to collapse. Fewer than 30% of family-owned firms have a written strategic plan. 43% of family-owned businesses will have changed leadership hands by 2003. More than 25% of family firms expect the next CEO to be a woman.

9. Family Businesses in the United States 70% of family business owners cite life insurance as their top source of funds to pay for death taxes. 25% of senior generation family business shareholders have not completed any estate planning other than writing a will. 81% want the business to stay in the family. 20% are not confident of the next generation’s commitment to the business. Of primary importance among family firm wealth holders is not only transferring their financial wealth but also transferring their values surrounding their wealth. The oldest family-owned business operating in the U.S. – Zildjian Cymbal Co. – founded in 1623 in Constantinople (and moved to U.S. in 1929).

10. Rejuvenation Maturity Expansion/ Formalization Start Up Controlling Owner Sibling Partnership Cousin Consortium Young Business Family Entering the Business Working Together Passing the Baton BUSINESS OWNERSHIP FAMILY Continuing Evolution of the Family, the Business, and Ownership

11. Family Axis Young Business Family Adults under 40, kids under 18 Creating workable family, marriage Work-family balance Entering the Business Adults between 35-55, kids in teens, twenties Managing midlife transition Independence of children Facilitating a process for initial career decisions Working Together Adults between 50-65, “kids” between 20-45 Cross-generational cooperation, communication Encouraging positive conflict management Passing the Baton Adults – 60+ Senior generation disengagement Generational transfer of leadership

12. Business Axis Start-up Informal organization structure Simple model (one product, service) Survival Expansion/Formalization Increasing structure, multiple products lines Evolving owner role and professionalism Strategic planning: policies, systems Cash management Maturity Stable (or declining) customer base Well-established routines Strategic re-focus, re-investment Management/ownership commitment - variable Rejuvenation New strategic direction Renewed commitment, leadership Willing to change, re-direct

13. Ownership Axis Controlling Owner Ownership control in one individual Generating capital Balancing control with other stakeholders Choosing next generation Sibling Partnership Two or more siblings Developing shared control Defining roles of non-employed owners Retaining capital Controlling family branches Cousin Consortium Many cousin shareholders Mixture of employed and non-employed owners Managing complexity of family Creating family business capital market

14. Common Transition Stage Family - Passing the Baton Leadership transfer Founder’s willingness to release control Next generation’s ability to assume control Founder – looking at retirement Next generation – looking to make their mark Business – Maturity Examining the current state of the business Establishing new strategic direction Determining needs of the business (financial, human resources, etc) Ownership - Controlling Owner Passing ownership to others Passing control to others Understanding needs of different generations Psychological readiness to move forward

15. The Family Dream

16. Business Ownership The Family Dream A deeply held vision of the family business in the future An imagined possibility that generates excitement and commitment. Serves as a beacon. Adds meaning, purpose and inspiration. Helps rank priorities and guides decision making. Individual dreams of the founder are usually connected to aspirations for the family business. Not all family members share the same dream Place to work Place for my children to work Source of unlimited income Opportunity for a legacy

17. Clandestine Planning

18. Common sources of succession conflict Leadership –Who will be next leader? Control –How to share, empower, distribute? New vs. old –Products –Procedures –People Sharing between the “ins” and “outs” –Family vs. family –Family vs. non-family Transition timing Black sheep and the prodigal son/daughter “Blood” vs. marriage Compensation –Internal vs. external equity The Psychology of Transition

19. Family Patterns Traditions and values Methods of communication Enmeshment and disengaged Degree of triangulation

20. The Psychology of Transition Individual Patterns Personal dreams and aspirations Developmental stage Assessment of skills and abilities

21. Conflict Resolution

22. Methods of Conflict Resolution - Intrapersonal Minority decisions Majority decisions Compromise Consensus/win-win No deal Methods of Conflict Resolution - Interpersonal Withdrawers Smoothers Compromisers Fighters Problem solvers The Psychology of Transition

23. Promoting Healthy Dialogue Mutual purpose Mutual trust and respect Mutual communication and meaning The Psychology of Transition

25. Successor Selection 1.Identify future business challenges 2.Define strategic implications 3.Develop leadership requirements 4.Gather information about likely candidates a)Internal and external 5.Assess candidates’ capabilities a)Skills, abilities, personality b)Strengths and weaknesses c)Perceptions of others

26. The Psychology of Transition Successor Selection (continued) 6. Internal candidates a) Competence b) Time to develop 7. External candidates a) Compatibility 8. Proceed with choice a) Implications, consequences b) Establish time table 9. Make announcement 10. Cross fingers

27. Business Ownership The Psychology of Transition General Observations Succession is a journey. To succeed, the family must keep the ultimate destination in mind. Succession is often driven by the biological clock. Transitions are normal and predictable. Family patterns are easy to identify and extremely hard to change. An active, deliberative exploration of all options and implications is critical to successful planning. Consider the short-term and long-term interests of the business and family members. Continuity planning requires anticipating future challenges and developing strategies to address them before they happen.

28. BCG Principles and Approach The family business is the client. Respect and honor the preservation of the family values. Use knowledge, experience and observations to educate and anticipate likely results. Facilitate goal setting and implementation strategies without being judgmental. Facilitate solutions through dialogue and communication. Collaboration amongst professionals through an interdisciplinary approach best serves the clients needs.