23 Key Takeaways, One for Each Year of Family Business Advisory
All stemming from personal experience
1. In family business, every generation is a first generation.
2. Early on, founders/first generation entrepreneurs need to decide what to do with their Wealth upon retirement: dispose of it or pass it on.
3. If they decide to pass it on, they need to pave the way to the NextGen family entrepreneurs and make them feel welcome.
4. Wealth is a family business context is taken in its broadest sense. It includes tangible and intangible assets, and encompasses financial, intellectual, cultural, and human capital.
5. Passing on the mantle requires mental and physical preparation. Succession planning is a journey that starts at the cradle and is never ending. It cannot be reduced to a process, it grows organically, at the pace of the slowest family member.
6. Family constitutions are the culmination of a family business succession journey. They are the instrument in which the Family members define the common project they wish to accomplish together, and state the rules of engagement they are willing to abide with, in order to complete said project successfully.
7. Family constitutions are devised BY the Family FOR the Family. Advisors are mere facilitators. Sometimes, they are called upon to hold the pen, on behalf of the family.
8. However, at the end of the day, the Family remains the author of the final product, and owns its content. Choose Advisors you trust and who’s values are compatible with yours. Pay them fairly and timely. Do not try to outsmart them, as the fate of your Legacy is in their hands.
9. Signing a family constitution is not an end in itself. The journey getting there is the most important thing. Implementing it and revising it periodically will consolidate the bond among the family members and will ensure the survival of their legacy long term.
10. In modern times, parents are not expected to create clones. Their role is confined to upbringing, educating, and instilling values in their children. “Your children are not your children …” They are sovereign. They alone decide what to do with the Wealth: keep it or dispose of it.
11. Should they decide to keep it, the NextGen need to choose whether they want to be active owners or passive owners and determine the extent of their involvement.
12. Early on, the Family will be called upon to determine its Needs vs. its Wants, and to strike a balance between the interests of the Family and those of the Business. This will set the stage for family employment policies, investment (expansion) strategies, and dividend payments.
13. Conflict is an inherent part of human nature. It is the primary cause for the destruction of family businesses. If not addressed early on, it has a tendency to grow and fester.
14. Injustice, and the perception thereof, are the primary cause of conflict, in a family business context. The strength of a family business resides in the strength of the bond among family members. Entrust conflict management to a professional and avoid, at all costs, hobbyists and well-wishers.
15. Justice in a family business environment may be achieved through institutionalization at the three levels: the Family, the Business, and the Personal Assets.
16. Communication creates connections and promotes rapprochement among family members.
17. To institutionalize is to separate ownership from management, i.e. ensure that the business is managed professionally, irrespective of whether the managers are family members or not.
18. Institutionalization entails the introduction of structures and supporting them with rules that apply to ALL (commonly referred to as governance.)
19. Family offices result from proper institutionalization. They are the ultimate tool used by families with wealth to separate personal assets from business assets.
20. When adopting a joint stock structure for their company, shareholders abdicate their right to manage their assets, to the benefit of a Board they elect/appoint. Unless otherwise expressly stated in the constituting documents of a company, the Board has absolute powers to bind the company, as it sees fit. It derives its powers from the law. Governance will ensure proper checks and balances are introduced and implemented to avoid abuse of power.
21. As family businesses grow, they tend to appoint independent Board members to help the shareholders achieve their targets. The composition of the Board is a matter of maturity; as the family and the business mature, as the number of independent board members grows.
22. In family business, the Ownership dimension transcends Shareholding (ownership of financial interests). You may own the financial interests in your business, but in reality, you do not Own your business. You hold it in trust for the benefit of your stakeholders, be it your children, your suppliers, your clients, or the community you serve.
23. IPOs are overrated. Investigate alternative financing sources prior to launching an IPO. IPOs should be used as a last resort and as a means to raise capital to finance the expansion of the business, or as a means to cash-in in the event the family wishes to exit the business altogether. Under normal circumstances, IPO preparedness takes between 5 to 7 years.
“Yesterday is gone. Tomorrow has not yet come. We have only today. Let us begin.” (Mother Theresa)