Family Business Magazine E-Newsletter
February
6, 2007
Contents
1.
New Gap CEO may face challenges from founding family.
2.
Hallmark wants to sell Crown Media Holdings.
3.
Estate planning opportunities for early 2007.
4.
How in-laws add value to a family firm.
5.
A governance transformation at the cousin stage.
1. New Gap CEO may face challenges
from founding family. The successor to former Gap Inc. CEO
Paul Pressler, who resigned Jan. 22, will face numerous challenges,
potentially including the founding family's resistance to a
restructuring, according to a recent Wall
Street Journal article. The article said the company, whose
sales and profits have been declining, is evaluating strategic
alternatives, including selling the company. But the Fisher family, who
control more than a third of the stock, probably won't want to sell,
the report noted. "For them, it's not about the money. It's their
legacy," an acquaintance of the family told the newspaper. On the other
hand, Bobbie Langa, head of the retail practice at recruiting firm
Russell Reynolds Associates Inc. in Chicago, told the Journal that some candidates might
consider the Fishers and their legacy to be among Gap's positive
attributes. The Fishers, Langa said, "are not the kind of people who
run the day-to-day business." (Source: Wall Street Journal, Jan. 24, 2007.)
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2. Hallmark wants to sell Crown Media
Holdings. Hallmark Cards is trying to sell its Crown Media
Holdings, which owns the Hallmark Channel, according to a recent report
in Business Week. Crown Media
has lost nearly $1 billion and its stock has dropped 72% since it went
public in 2000, the article noted. Though the Hallmark Channel's
ratings are in cable's top ten, the median age of its audience is 60,
and its advertising rates are a fifth of TNT's, the report said. The
founding Hall family "are like many wealthy clans: They lack the killer
instinct to prosper in Hollywood," Business
Week reported. The conservative Halls have been reluctant to
spend a lot of money or to approve new ideas, the magazine said. Former
Crown Media chairman Robert A. Halmi predicted that a buyer would dump
the Hallmark Channel name. (Source: Business Week, Jan. 29, 2007.)
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3. Estate planning opportunities for
early 2007. Although estate planning for family business owners
can be complicated by the mix of family and business owners, it's
extremely important to develop and monitor a plan, according to Joseph
Kluemper, senior manager with BDO Seidman's Family Wealth Planning
Group. The management succession of the business may not necessarily
coincide with the desired ownership succession, Kluemper points out. He
urges small-business owners to consider these factors early in the year:
- Alternative transfers. Techniques to
consider for transferring business interests to family members include
grantor retained annuity trusts (GRATs), installment sales and private
annuities.
- Charitable planning. Transferring
closely held stock to charitable trusts, such as charitable remainder
trusts and charitable lead trusts, can provide significant income tax
benefits while helping to accomplish a business owner's philanthropic
goals.
- Property determinations. Consider
who owns the business and properties contained within. Designations
such as tenancy in partnership and joint tenancy with right of
survivorship contribute to tax and estate planning considerations.
- Trusts. There are several types of
trusts: irrevocable, revocable, inter vivos, testamentary and more.
Figure out which one works best for you and your business.
- Beneficiaries. Review your will,
trusts and beneficiary designations for each part of the business to
ensure they are still appropriate in light of the changes in federal
and state tax laws as well as changes in your family's personal
circumstances.
- Annual gifts. The annual exclusion
amount for 2007 is $12,000. Make the gifts early in the year so that
income and future appreciation on the gift are also given away.
Interests in the business are often an ideal gift.
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4. How in-laws add value to a family
firm. "As outsiders, in-laws are quick to perceive the
hidden side of family relations and its impact on the business," writes
family business adviser Ivan Lansberg in Building Strong Family Teams.
"In-laws are often the messengers who get shot for saying what the
blood family feels but dares not say." The best way to enlist their
loyalty and support, Lansberg suggests, "is not to think of them as
'in-laws,'" but to treat them as "full-fledged family members whose
opinions and attitudes are valued." He recommends encouraging in-laws'
participation in family discussions and meetings. "Through involvement
in a family council," he writes, "they can learn to appreciate the
family's values and traditions. They hear first-hand about ownership
issues that are likely to affect their children's future, rather than
having their spouses interpret for them what the family is thinking and
planning."
For more
information on establishing effective partnerships with in-laws,
siblings, spouses, extended family members and employees, see Building Strong Family Teams. Learn
more about the book and see the table of contents here.
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5. A governance transformation at the
cousin stage. When ownership of a family company passes
from a sibling partnership to a cousin collaboration, the business's
governance system is likely to go through a radical change, writes
family business adviser and researcher John L. Ward in the current
issue of Family Business
Magazine. Ward lists eight typical questions as examples of fundamental
decisions about the governance system that the family owners and their
succession task force must make at this juncture. Here are three of
them:
- Encourage or restrict family participation?
Is the family more worried that there will be too few family
members taking on roles or too many who are not qualified?
- Rotation or stability? Should roles
rotate among family members, or should effective incumbents remain in
their positions for a long time?
- Insiders or outsiders? The mix of
family and non-family board members is a decision that has enormous
implications for the direct involvement of family members over time.
For more of
Ward's thoughts on important decisions that must be made concerning
board design and leadership at the cousin stage, see "The great governance transformation"
in the Winter 2007 issue of Family Business Magazine. Subscribers can
access the article free of charge in our online Articles Library. See here for subscription
information.
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