Include your in-laws
You welcome your in-laws to your holiday table. But do you welcome them to join your family business governance structures?
In his wonderful book Family: The Compact Among Generations, retired family wealth consultant James E. Hughes Jr. writes:
Holding tight to the principle that only shared "blood" entitles a member to participate in family governance requires that many persons be excluded from it and thus from family decision making. Ironically, this out-group consists of people who consider themselves family members and whom the family considers in all other respects to be family members....
Given the difficulty of attempting to become a family that lasts five generations, it is highly doubtful that a system of family governance that excludes many of the members governed by it will lead to success. A family needs the human and intellectual assets of every member to enhance the group's well-being and to achieve its mission of greatness. Requiring any subset of family members to be governed by a system that bars their direct participation is unlikely to encourage the commitment and contribution of their human and intellectual assets. Rather, it will certainly discourage it.
For understandable reasons, some families prohibit in-laws from owning stock in the family business (though there are ways to prevent complications of stock ownership that would arise in the event of a divorce). Even if your in-laws can't be shareholders in your company, there are ways for them to participate in your family council or family meetings.
Your in-laws are the main sounding boards for their spouses (i.e., your blood relatives). If these husbands and wives are inundated with complaints about the family or the business and have no formalized way to help create unity, a host of problems can result. Hughes's wisdom bears heeding.
Conference emphasized learning and interaction
About 210 attendees, representing 60 families, came to the Coronado Island Marriott Resort & Spa in San Diego for Transitions West 2013, the seventh conference presented by Family Business Magazine and Stetson University's Family Enterprise Center. The theme of the conference, which took place November 13-15, was "Family Business Dynamics and the Dynamic Family Business."
Special sessions were added to the conference to facilitate discussion and sharing. Topic-based focus sessions allowed attendees to focus on areas of interest. In addition, special interest group meetings were scheduled for those wishing to discuss issues facing family councils, family offices, the next generation, senior family business members and non-family executives.
Before the conference officially opened, several families convened family meetings facilitated by family business advisers and coordinated by Transitions staff.
An optional pre-conference session, "Transitions 101," introduced first-time attendees to the conference format and offered tips on how to get the most out of the sessions. This introductory session also included an overview of basic family business concepts to new conference participants and others who wanted to brush up. Family Business staffers Barbara Spector and David Shaw, Stetson's Peter Begalla, Saybrook University Professor Dennis Jaffe and veteran Transitions attendee Dan Agnew, president of The Agnew Company, spoke at this session.
Transitions West 2013 officially opened on Wednesday evening, November 13, with a keynote address by Deborah Marriott Harrison, global officer, Marriott Culture and Business Councils, Marriott International Inc. The title of Harrison's talk was "The Marriott Family: History, Culture and Succession." Tim O'Hara, audit partner at PwC, delivered the keynote introduction and led the Q&A. A welcome reception followed.
A full day of conference sessions began on Thursday, November 14, with a panel conversation entitled "Know Which Hat You're Wearing." Howdy S. Holmes, president and CEO, Chelsea Milling; Anne Eiting Klamar, president and CEO, Midmark Corporation; and Joshua Nacht, a board member of Bird Technologies, discussed the importance of separating the roles of shareholder, family member and business employee. Bryant W. Seaman III, managing director and head of private asset advisory services at Bessemer Trust, was the conversation leader.
Family dynamics and sensitive issues
A panel conversation focusing on "Family Dynamics -- Building Trust, Respect and Communication" followed. Eric Allyn, board member of Welch Allyn; Harold L. Yoh III, chairman and CEO of Day & Zimmermann, and Julianne Lundberg Stafford of Lundberg Family Farms spoke about their families' strategies for building family cohesion and avoiding or resolving disputes. Arne Boudewyn, managing director -- family dynamics, education and governance at Abbot Downing, served as conversation leader.
After lunch on Thursday, participants broke into focus sessions based on their company's generational stage. Jeff Ladouceur, director at SEI Private Wealth Management, and Nancy Drozdow, principal at CFAR, facilitated sessions for family companies in the founder and second generation. Justin Zamparelli, a partner at Withers Bergman LLP, and Anna Nichols, director of communications at Altair Advisers LLC, facilitated sessions for third-generation family companies. Dirk Jungé, chairman of Pitcairn, and Saybrook University's Dennis Jaffe were the facilitators for sessions geared toward families whose enterprises were in the fourth generation and beyond.
"Dealing with Sensitive Family Issues" was addressed in a panel conversation led by Dana Telford, a consultant with the Family Business Consulting Group. Panelists were Preston Root, president of the Root Family Board of Directors; Dale Marquis, founder and chairman, and Matt Marquis, president of Invest West Financial Corporation and Pacifica Hotel Company; and Frederic J. Marx, a partner with Hemenway & Barnes LLP. They discussed strategies for addressing issues of addiction, illness, unsuitability for leadership and other problems potentially threatening to the future of the family and the family business.
A second set of focus sessions addressed tax and estate planning (facilitated by Jeff Saccacio, a partner with PwC), trusts and ownership (facilitated by Laura Ziegler, principal and fiduciary counsel, Bessemer Trust), wealth management (facilitated by Anna Nichols of Altair Advisers), family dynamics (facilitated by Abbot Downing's Arne Boudewyn), the next generation (facilitated by Greg McCann, director of Stetson's Family Enterprise Center), married-ins (facilitated by Michael Farrell, managing director of SEI Private Wealth Management) and family councils (facilitated by Justin Zamparelli of Withers Bergman and Debbie Bing, a principal of CFAR).
Special interest group meetings followed the focus sessions. Some attendees gathered with their peers to discuss family councils, family offices, and issues facing next-generation members or non-family executives. Other attendees paired up for one-on-one meetings with fellow participants with similar interests.
Group dinners on Thursday night were held at two family-owned restaurants: Boathouse 1887 on the Bay and Brigantine Seafood Restaurant.
Next generation and entrepreneurial innovations
Friday, November 15 opened with a panel conversation entitled "From Child to Owner: The Engaged Next Generation." Phil Clemens, CEO of The Clemens Family Corporation; Kareem Afzal, vice president and business development manager of PDC Machines; and Tim Hussey, president and CEO of Hussey Seating Company, shared their views on what it takes for the next generation to be good owners, and what the family can do to foster a sense of stewardship. The conversation was lead by Rhona Vogel, CEO and founder of Vogel Consulting.
A panel conversation on "Entrepreneurship, Investment and the Dynamic Family Business" followed. The session focused on deploying family wealth in new ways within and outside the family business, investing family capital and encouraging new ways of thinking. Pitcairn's Dirk Jungé led a conversation featuring panelists Jason Pritzker, president and co-founder of Yapmo LLC, and Warner King Babcock, chairman and CEO of AM Private Enterprises Inc.
The conference closed with a keynote address by The Clemens Family Corporation's Phil Clemens, who spoke about how his family made the transition from a "family business" to a "business family."
Transitions West 2013's Platinum Sponsor was PwC. Gold Sponsors were Bessemer Trust, Abbot Downing and Vogel Consulting. Silver Sponsors were the Family Business Consulting Group, SEI Private Wealth Management and The World Residences at Sea. Bronze Sponsors were Pitcairn, Withers Bergman, CFAR, University of Pittsburgh's Institute for Entrepreneurial Excellence, Altair Advisers and Kellogg School of Management's Center for Family Enterprise.
Transitions East 2014 will be held March 26-28, 2014, at the Grand Hyatt Tampa Bay in Tampa, Fla. For information, see www.familybusinessmagazine.com/transitions
Be discreet when complimenting kids’ work
Lucy Kellaway, who writes a Financial Times column called "On Work," recently advised her readers not to praise their subordinates in public.
Kellaway cited a study by researchers Elaine Chan and Jaideep Sengupta that was published in the Journal of Consumer Research. Chan and Sengupta found that bystanders who overhear someone who is being praised envy the person who receives the compliment and resent the person who gives it.
"This means that most managers are getting it badly wrong," Kellaway wrote. "They have been taught that a vital part of their job is to stroll around the office dispensing praise here and there .... What they are actually doing is creating resentment and making themselves deeply unpopular."
Family business owners who are trying to bring next-generation members along would be wise to pay particular attention to this research tidbit. The risk of staff resentment is already considerable when a next-generation member comes aboard. Chan and Sengupta's findings indicate that senior family members who loudly tout a young relative's accomplishments might exacerbate the problem.
The best way to fight accusations that family members owe their jobs to nepotism is for family hires to demonstrate competence and humility. Their elders can help by maintaining high standards for next-generation members -- and by being discreet and judicious with the plaudits.
Candid comments on the sale of a business
When a family decides to sell their company, they usually issue a press release with a terse statement attributed to a family representative. Such statements tend to highlight a synergy between the family business and the acquiring company; for example, they often note that both entities have similar values or goals.
Statements attributed to family members seldom describe how they feel about selling the business founded by their ancestor. And while some of these comments cite the economy, industry shifts or a tough competitive environment as reasons the family opted to sell, rarely do they mention family dynamics (other than the lack of a family successor).
But last month, upon announcing the sale of his family's United Supermarkets LLC to Albertson's LLC, United co-president Matt Bumstead made some revealing remarks -- not in a written statement, but in person.
United Supermarkets, based in West Lubbock, Texas, had been family-owned since 1916. Four generations of the Bumstead family had owned and operated the company. Lubbock news/talk radio station KFYO reported that Matt Bumstead was "impassioned" as he made the following comments at a press conference:
"Fourth-generation family businesses don't come along very often; there's a reason for that. And there's a reason that very few make it that far, and there's a reason that there are very, very, very few fifth-generation family businesses. The main reason for that, honestly, is the family, and that's it's hard for a family to keep their arms around an enterprise, a mission, as something grows over that many years.
"We've seen other family supermarket businesses who had been great and proud reach a point where they were dying on the vine. In many cases it was because, though no real fault of their own, the family lost control, lost their ability to support. They lost their ability to be good stewards. To make the right decisions or to lead in the right way.
"We were not going to let that happen to our business. Not to this company, not to this mission, not to our people, not to our guests. And there certainly are thousands of people who are second-guessing this decision tonight and they have a right to, and quite frankly it's an honor that they care enough to do that. I assure you, no one cares more about these people than our family. And no one cares more about this mission and the legacy than we do."
A broken philanthropic promise
If you're going to make a promise, you'd better be sure you can keep it. And the bigger the promise, the higher the stakes if it's broken. A recent situation involving a business family's bequest to a Kentucky college bears this out.
As the Wall Street Journal reported last month, the A. Eugene Brockman Charitable Trust withdrew a donation of stock worth $250 million to Centre College in Danville, Ky., less than two months after the gift had been announced. The donation would have essentially doubled the 1,400-student college's endowment, the Journal article said. Robert Brockman, son of the late A. Eugene Brockman, is a Centre College alumnus and a former member of the school's board.
According to the Journal report, the gift of stock in Universal Computer Systems Holding Inc., which does business as Reynolds & Reynolds Inc. of Dayton, Ohio, and makes software for auto dealerships, depended on a recapitalization of the company. Over the summer, the company -- whose owners include Robert Brockman, who is its CEO, and Texas buyout firm Vista Equity Partners -- tried to raise about $4.3 billion in loans and bonds through a recapitalization after an unsuccessful attempt to sell the business. The recapitalization would have valued the company at about $5.36 billion, the article said.
But then the company halted the deal before the credit was funded. A spokesman for the company told the Journal, "We have a lot of confidence in our financial strength and the flexibility it affords us in the future."
The gift would have created 40 full scholarships each year starting in 2014 for science and economic majors. According to the Journal report, the college has halted its marketing campaign for the program. Evatt Tamine, a trustee for the trust, told the Journal it still plans to support the school. "There were all sorts of things we didn't anticipate and couldn't address in time," Tamine said.
Halting the recapitalization may have been the best move for the company, but the withdrawal of the bequest harms the reputation of the Brockman family, and that of the college. It's best to hold your grand announcements until your plans are fully hatched.