A few weeks ago, at the end of “Family Governance, Aaaah!” I promised to follow up with more on the subject, in my “5 Things” format. I said it would be out in February, and this being my final blog of the month, that means now.
This week contained a flashback for me. I was a guest speaker at a University business school, five hours down the highway. There I was, standing before a group of students getting ready to soon begin their careers, much like I was “just” 30 or so years ago.
Invited by two colleagues/friends who teach “Managing the family Enterprise”, I had sent along copies of my favourite book, SHIFT your Family Business, so that the students could be prepared to ask whatever they wanted of its author.
Lucky You!
I began by asking the students if they felt lucky (no, not because I was in their presence). To my surprise, heads began nodding, even before I shared my thoughts about why they were in fact quite lucky to be sitting where they were.
I related my story of being in their shoes in the 1980’s, getting ready to work in my family’s business, but doing so without the benefit of a single course related to Family Business.
This was no slight to my alma mater, it was more about the timeframe. I explained that the Family Firm Institute just celebrated its 30th year in 2016, and CAFÉ (Canadian Association of Family Enterprise) also had its 30th recently. This “field” is still quite new.
I also shared one of my favourite stories about my Dad, who had joined CAFÉ in those early years, and his reaction to the great advice he’d heard from the advisors at those earliest CAFÉ events.
It was quite à propos in this setting, as these were undergraduate business students, like I had been at the time, many preparing to join their family companies in the coming years.
“We’re not gonna do that”
“You know, these people at CAFÉ”, I related my Dad’s words, like it was yesterday, “they say that you shouldn’t hire your kids right out of school, you should make them get a ‘real’ job first”, he said, as I nodded, hopefully. “Well, we’re not gonna do that”, he continued, patting me on the shoulder.
For effect, I acted it out with a student in the front row.
I also added that not standing up to him and questioning him, and not suggesting that I would like to pursue that option, turned into one of my biggest regrets.
Case Study: Corleone Family
The class uses one family business case for the entire semester, and this year’s choice is the Corleone family, of Godfather fame. “Cool!” I thought, as I learned this fact during a call with one of the instructors a week prior.
I really enjoyed doing “my homework”, watching the movies over the weekend so I could contribute to class. I hadn’t seen them in decades, and had forgotten how Vito actually stepped aside, letting Michael take over decision-making without second-guessing him, well before his unfortunate demise.
Family Governance
This class also featured a group presentation on Family Governance, and I have to admit that I got a kick out of the fact that the team used a quote from my book on one of their Powerpoint slides, with attribution, and my name spelled correctly.
Last week I wrote about the Queen and Prince Charles, and now the Godfather, what’s next? (Hint: more on Family Governance).
Should Have Refused
Back to the title of this post, courtesy of Vito Corleone, likely recognizable to most readers.
The reason I use it here is to underscore that I now recognize that the key word in the sentence is “can’t”.
More and more these days, kids are in fact refusing their parents’ offers to join the family business. To me, that is a good thing.
I should have refused too, but I didn’t. It would have been better for me, and actually better for the whole family, but it did not fit the shorter-term plan of the patriarch.
Love of “Business” vs Love of “My Business”
In response to a question from the class, I suggested that I strongly support teaching the “NextGen” about “business”, and even to “love” business, as part of “financial literacy” and to pass along the entrepreneurial family spirit.
But loving “business” and loving “this particular business that Dad started” isn’t the same thing.
Imagine if Michael Corleone had been able to use his great skills in the truly legit ways he had hoped, without the family baggage…
There was plenty of attention on Queen Elizabeth this week, celebrating her sapphire anniversary on the throne. I laughed to myself, thinking about Prince Charles and how he must feel. “Mummy, when do I get my turn?”
If you are unfamiliar with the “sapphire” anniversary, join the club, but that’s probably because not many people make it to their 65th anniversary of anything. Of course not many people get to be called “Your Highness” for their entire adult life either.
Sticky Baton Syndrome
Back in 2015, I wrote a Quick Start Guide (whitepaper) called “Sticky Baton Syndrome (ask Prince Charles)”. So this week when we heard about this anniversary, it brought back the plight of this ultimate “heir apparent”, who unwittingly served as my illustrative sub-title
I don’t normally write about the Royal Family, preferring to share my thoughts on family business and business families, but some overlaps with the monarchy are inevitable.
The Sticky Baton Syndrome piece in fact mentioned Charles in the title only, and I chose him because he is the best known “poster boy” for it.
I recall fifteen years ago, when the woman who adorns every Canadian coin and our $20 bill celebrated her golden anniversary, and part of me thought that she should take the opportunity to walk away on top, sort of like some people were hoping Tom Brady would do this week after winning his unprecendented fifth Super Bowl.
But alas, no, she decided to hang on, and who can blame her, well, besides Charles, I mean?
Empire versus FamBiz; Career versus Birthright
Family Businesses are known for their tendency to look at things with a very long-term view, compared to non-family companies who often only look out as far as their next quarterly earning report.
Age 65 used to be the “retirement age”, but 65 years “on the job” is almost unheard of, and when we do hear about it, it’s rarely in a complimentary way.
So how should we look at family business careers and what makes sense? Well every family is different, and each family business leader is too. But part of my answer lies in the word “career”.
What if the one holding the baton thought about their role as though it were a career, rather than a “birthright”?
Different Strokes
There is an old maxim about a 75-year life, divided into 3 periods of 25 years, where you start by learning for 25 years, then working for the next 25, and then giving back for 25.
That framework can work for some, though admittedly not that many people can afford to stop working at 50.
This idea that reaching a point in one’s life where there is a shift in focus fits with Andrew Carnegie’s modus operandi as well. He is quoted as saying “I resolved to stop accumulating and begin the infinitely more serious and difficult task of wise distribution”.
A shift in focus is required, and not everyone knows how to properly prepare for it.
My book SHIFT your Family Business – STOP working in your Family Business, START working on your Business Family is all about that shift.
Dying at your Desk
Some people will actually “die at their desk” and a percentage of those would not have it any other way. I hope that those who are waiting for those folks’ batons fully understand what they are in for, because “business succession via death” has never been considered a “best practice”.
Even the papacy may have finally figured that out, with Pope Benedict actually becoming the first Pope in several centuries to actually retire instead of dying on the job.
The “Ideal” Way to Phase Out
Here are some suggestions on what a good situation might look like:
- Scaling back the number of days worked each week
- Gradually delegating tasks AND decision-making
- Giving up the CEO role and remaining Board Chair
- A gradual transfer of ownership to NextGen leadership
If you can start down each of these roads over staggered timeframes, even better.
A key element reported by those who have done this successfully is that they have something else that they are excited to go to, and that they never feel like they are being forced away from their role.
What are you excited to go to next?
Family businesses come to life in different ways, but their ownership structure usually starts out pretty simple. With the coming of age of the next generation of family members, things inevitably get more complex.
Preparing the rising generation to work in the business is a subject that gets talked about quite a bit. Preparing them to be good owners is also something that we are beginning to hear more about as well. All of this is good news.
But my subject today is based on a real life case, brought to my attention by a colleague. I asked her for permission to address it in this space, because I have not seen much written on it, and it can be pretty tricky.
Unfortunately there isn’t necessarily an easy solution, but then again, in the arena of family business, there rarely is.
The Case of the XYZ Family
My colleague and I are members of a “study group” of a dozen or so members of FFI, we come from a handful of countries, and it is always interesting to note the cultural flavour that comes with the stories we share.
The XYZ family is based in another country on another continent. X and Y are brothers, and they own their business 50/50. So far it’s pretty simple. Oh, one more important point, X is a silent partner, and Y runs the business.
I don’t know for sure but will assume that there is no shareholders agreement in place, likely because of the standard, “hey, we’re family, we trust each other, we will work it out” attitude.
Arrival of the Next Gen
The business continues along without issue, and the brothers start families of their own. Y, the active brother, has a son and a daughter. X, the silent brother, eventually also has a daughter.
Just to add a bit more complicating “spice” to the story, Y’s son, Z, ends up going to work in the business along with his Dad, Y. X remains silent. Everything is fine, right? Well, for now, seemingly, yes.
Projecting the Future
So if you are Z, the son working in the business, what might concern you, long term? What issue keeps you up at night, to the point that you would raise it with your friendly neighbourhood family business consultant?
If you guessed “ownership”, give yourself a gold star.
The young man has likely already witnessed some of the difficulties that his father has had in running the business while being responsive to a silent partner, uncle X.
When he projects to the future, he sees a situation where he is the only family member working in the business, but his “silent partners” could be his sister, and his cousin.
If ownership follows the standard equal distribution among children that is the default in their country, he foresees himself owning 25% of the shares, and having to answer to his 25% owner sister, and their 50% owner cousin.
Sustainability in Question
When something can’t go on forever, it won’t.
Just to make sure we see the difficulty here let’s add another layer. Let’s say Z has five kids, and his sister and cousin only have one child each. And let’s say only one of his kids joins the company and runs it, along with his silent relative partners.
How would it be to own 5% of a company and run it for relatives who own the following shares:
Owner-Manager: 5%
Siblings: 5% / 5% / 5% / 5%
Cousin: 25%
Second-Cousin: 50%
Thanks, but No Thanks!
Talk about a thankless job. Family businesses CAN last many generations, but those that do are the exceptions, not the rule.
We often look for whom to blame when they don’t last, yet sometimes just the way they are structured and the simple math of family division make it nearly impossible to make this work.
So Do We Give Up?
No.
We look ahead and foresee the potential issue, and talk about ways to resolve it. The brother owners need to realize that this can’t work long term, and figure out their next steps.
Assuming that Y can buy out his brother’s 50%, that would resolve a big chunk of it, for now, anyway.
They might even use a formula that Z will be able to follow to eventually buy out his sister down the road.
Bring it up, talk it out, resolve it before it kills the business.
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