Family Business Magazine E-Newsletter
March 20, 2007




Contents
1.  Eight steps to fraud prevention.
2.  Brown-Forman to be led by non-family chairman.
3.  New York Times hears presentations from outside shareholders.
4.  Mentoring and succession in family firms.
5.  Leadership advice from a non-family CEO.





1.  Eight steps to fraud prevention.  Over the past several years, the public's attention has been captured by cases of corporate fraud involving very large publicly traded companies. But small and medium-sized companies suffer a greater share of fraud losses than their larger counterparts do, according to the American Institute of Certified Public Accountants. Michael Ueltzen, CPA, a partner at Ueltzen & Company LLP and chair of the AICPA Business Valuation and Forensic Litigation Services Executive Committee, suggests these steps to help keep businesses out of court and detect fraud before it eats into investor profits:
  1. Start from the top. An employee manual can help to establish the principles and values to guide your organization in a standardized way. A manual levels the playing field and keeps the rules from becoming arbitrary.
  2. Check employee references. When hiring new employees, check references and perform background checks that include employment, credit, licensing and criminal history.
  3. Create internal controls. Open bank statements before the bookkeeper does. Consider having statements sent to your home address. All account reconciliations and general ledger balances should be reviewed by a person removed from the day-to-day transactions; theft often occurs when bookkeeping is sloppy and unsupervised. Always split signing authority and check preparation between at least two people.
  4. Secure the organization. For example, using pre-numbered checks enables you to audit for missing checks and helps to uncover checks clearing out of sequence. All checks should be kept under lock and key, and keys should not be distributed.
  5. Safeguard payroll. Small-business owners and managers should take the extra time to review every payroll check personally. This procedure provides a monitor to ensure employees are being paid appropriately.
  6. Look at lifestyles. Pay attention to how your key people are living. If your assistant shows up for work in a Jaguar, you might need to be a bit more attentive.
  7. Consider annual audits. An audit will not uncover all fraud within an organization, but it will provide a bird's-eye view of the business. An audit also may motivate bookkeeping-related staff to keep things honest.
  8. Take those tips. Consider setting up a hot line to take anonymous tips. Publicize it among your employees, customers and vendors.
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2.  Brown-Forman to be led by non-family chairman.  For the first time in its 137-year history, Brown-Forman Corp. will be led by a chairman who is not a descendant of the founder, the Wall Street Journal recently reported. President and chief executive Paul Varga will assume the additional role of chairman at the Louisville, Ky., company -- maker of Jack Daniel's Tennessee Whiskey, Old Forester Straight Bourbon Whisky and other wine and spirits brands -- effective Aug. 1. He will succeed Owsley Brown II, who will reach the retirement age of 65 in September, the article said. Brown will continue to serve on the board. Fifth-generation vice president and board member George Garvin Brown IV, 37, will become presiding chairman on the board. He has worked at the company since 1996, the Journal reported.  (Source: Wall Street Journal, March 2, 2007.)

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3.  New York Times hears presentations from outside shareholders.  The New York Times Co. invited representatives of key shareholders Morgan Stanley and T. Rowe Price Group Inc. to make presentations to its board of directors in late February, the Wall Street Journal reported. The Journal called the move a sign that the Times "may be trying to appease investors who have criticized it." Morgan Stanley controls 7% of the company's Class A shares, which have less voting power than the family-controlled Class B shares. T. Rowe Price owns 14.9% of Class A shares. According to the article, Morgan Stanley money manager Hassan Elmasry told the Times board he may withhold votes for directors at the annual meeting in April. He raised concerns about the company's shareholder return, declining circulation, capital allocation and credit rating. Elmasry also questioned whether the dual-share structure was succeeding in preserving journalistic integrity, the report said. Brian C. Rogers, chairman of T. Rowe Price, focused his presentation on the company's capital allocation, according to the Journal. "If I were the board and I were trying to signal that I'm listening," Rogers told the Journal, "I would make some type of gesture to simply show [the meetings] were not a waste of everybody's time."  (Source: Wall Street Journal, March 12, 2007.)

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4.  Mentoring and succession in family firms.  In a family business, "mentoring helps next-generation members to assess their shortcomings and clarify their personal values," writes Finnish researcher Minna Tunkkari in The Family Business Mentoring Handbook. "Together with on-the-job training, mentoring leads to increased self-awareness and self-control. Once this level of personal growth is achieved, the protégé is able to tackle family and business challenges.... Mentoring by a non-family member helps the younger generation to identify their roles in the family business. The outsider's perspective appears to be an essential element of these relationships." Tunkkari, who conducted in-depth interviews with next-generation members for her doctoral dissertation, writes that "One notable finding of my study is that mentors should not be 'go-betweens' who relay messages from one generation to the other. The goal of mentoring is not to resolve family conflicts.... Structures like family councils should be used to settle intra-family problems. The role of a mentor is simply to help protégés anticipate upcoming challenges."



For more information on how mentoring can help prepare successors, see The Family Business Mentoring Handbook. Learn more about the book and view the table of contents here.

All ten handbooks in the Family Business Handbook Series are on sale -- more than 25% off -- for a limited time only. Further discounts are offered for quantity orders. See our Bookstore Order Form for sale price information.

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5.  Leadership advice from a non-family CEO.  The just-published Spring 2007 issue of Family Business Magazine features an article by David Doll, who in November 2005 was named the first non-family CEO of the Kanaly Trust in the firm's 30-year history. Doll describes his firm's succession quest -- which took more than a decade -- and offers some advice for family business leaders. Among his leadership lessons:


For more insights on the role of non-family executives in family companies -- plus information on succession planning, mergers and acquisitions, strategic planning and more -- see the Spring 2007 issue of Family Business Magazine. Visit our website for subscription information.

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