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New trend: The succession bonus

The Wall Street Journal recently reportedon a budding trend in public company CEO compensation: Sixteen companies in the Fortune 1000 said they tie their CEO's performance bonus to the development of a succession plan. "[T]hat number will grow rapidly in the next few years, governance experts predict," the Journal article said.

The carrot can be a powerful motivator. David S. Pottruck, a director of Intel Corp. who serves as head of its board's compensation committee, told the Journal that "money does matter. And money talks." The $4 million in stock and cash awarded to former Intel CEO Paul Otellini since January 2013 was given partly because Otellini helped groom his successor, Brian Krzanich, the Journal report noted.

At technology distributor Avnet Inc., the next raise given to CEO Richard Hamada, who has been on the job only since July 2011, will partly depend on his succession planning, the Journal article said. Directors added that provision "to make sure the process is started sooner rather than later," Avnet chairman William H. Schumann III told the Journal.

Too bad this isn't a viable option for family companies, where in most cases the CEO is also the chairman and the largest shareholder and doesn't need to anyone to approve his or her raise. All too often, the leader hangs onto the top job even after he (and in most instances, it's a "he") is past his prime. The quintessential example is Robert Wegman, who didn't turn over the reins of the Wegmans grocery chain to his son, Danny Wegman, until he was 86 and Danny was 57.

Some family business CEOs refuse to step down because they think they're immortal, or haven't figured out how to handle the challenges of retirement. Others have trouble thinking of their children as competent, mature professionals. In some cases, the leader feels that naming one child over the others -- or choosing a non-family member over a family candidate -- will cause tension in the family.

None of these reluctant leaders are doing their families or their companies any favors. In fact, problems below the surface will likely erupt if surviving family members are left to cobble together a succession plan on the fly after the leader's death. But if a plan is created early, shared with the family and implemented on a step-by-step basis over a reasonable time frame, impediments can be discussed as they arise. When this occurs, relationship rifts have a higher likelihood of healing. And, of course, an orderly transition is better for the business.

A fatter wallet might not be a viable succession planning incentive for a family business CEO. But shouldn't the prospect of a healthier family and a healthier business be its own reward? -- Barbara Spector

An April Fool’s joke to play on your family

April 1 is the traditional day for practical jokes. If you're a family business CEO, here's a good one to play on your family: Ask one of your key managers to tell your loved ones that you have suddenly dropped dead.

I'm not suggesting you do this to frighten your family, count the number of tears they shed or assess their reaction when you jump out from behind a curtain and shout, "Only kidding!" I'm recommending this exercise -- often called a family business "fire drill" -- because it is a frequently recommended way to test the effectiveness of your succession plan.

Is your chosen successor prepared to take over? If not, is there a plan to name an interim leader? Does the will you executed years ago need to be updated to reflect births, divorces, deaths or disabilities that have occurred since then? Does your family know where the important documents are kept? Asking everyone to act as if you have died may uncover the answers to these and other key questions.

Family Business Magazine has published several articles describing these "fire drills." If you'd like more information about how these exercises work, you can find it here, here and here.

Oh, and if you're looking for a family business joke that actually is funny, you can find one on JokeCenter.com, here. Smile, everyone!

Hardly working, or working hard?

A study by a team of researchers from Harvard Business School, the London School of Economics and Columbia University's business school found that family CEOs worked about 8% fewer hours than non-family CEOs. Is this an important finding?

The study -- which appeared on Harvard Business School's "Working Knowledge" website in late January and was cited in the Wall Street Journal earlier this month -- was first conducted via telephone interviews with business leaders in India and then replicated with CEOs in Brazil, France, Germany, the U.K. and the U.S.

Is an 8% difference in hours spent at the office something to get worked up about? Commenters on the articles on both "Working Knowledge" and the Journal's websites raise some interesting points (though in the latter case, there are also some off-topic political opinions mixed in).

"Could you tell if any of the family CEOs were conducting some business with family at non-business events or locations?" one commenter on the Harvard site asked.

Another Harvard commenter wondered, "Are the family business CEOs less engaged in their off-hours than the other CEOs? Or do they spend more ‘slow time' thinking about the business, their family and their roles in both? That is, thinking in 20-year or even 100-year perspectives, instead of day-to-day urgent matters and three-month perspectives?"

On the Journal site, one reader noted, "An economic explanation might be that in a family business, ownership has a vested interest in both sides of the work/family tradeoff." In other words, what a researcher might interpret as slacking off can be viewed by family stakeholders as fostering strong family bonds.

Family business consultant Dirk Dreux commented on the Journal site, "Family business CEOs spend more time with their shareholders than any public CEO ever dreamed of, because they are bound by legacy relationships, some relational and some legal (i.e., loan and security agreements, shareholder buy-sell agreements, trusts, personal guarantees, etc.). So even though the family business CEO is away from the business 8% more than the public CEO, it does not mean that the time is being mis-applied. At the end of the day, the family business CEO is playing with his own and his relatives' money, a comment that can rarely be said of public CEOs."

Back in 2006, Family Business Magazine profiled the Wolff Company, a real estate investment enterprise whose second- and third-generation leaders moved the firm from Spokane, Wash., to Scottsdale, Ariz. That wasn't the only change. They also shifted their work schedules to four days a week and took three months off in the summer, plus some extended winter vacations. As reporter Bennett Voyles noted, "as much as they liked their work, the Wolffs liked spending time with their young families more." The family judiciously hired strong non-family managers they could trust to manage operations in their absence.

How did that work out for them? In 2006, four years after they adopted the relaxed work schedule, Voyles reported, the Wolffs were raising more money from investors and doing bigger deals. But increased work hours were a byproduct of that success. Family members told Voyles they were coming into the office on more and more Fridays and telecommuting from their vacation homes during the summer.

Peter Wolff wrote me in an email that today, business is booming to such a degree that family members no longer can maintain a leisurely schedule. "We are busier than ever," he wrote.

 

Why America needs family-owned newspapers

The Record, the Bergen County, N.J., newspaper that was first to report a connection between New Jersey Gov. Chris Christie's staff and the closure of lanes leading onto the George Washington Bridge, "is an increasingly endangered and valuable species," New York Times media columnist David Carr wrote last month. Carr noted:

As chain owners have denuded local newspapers of muscle, The Record, a family-owned business, has managed to avoid the wholesale cuts that have decimated other newspapers. It helps to have dedicated ownership: Started in 1895, The Record has been owned since 1930 by the Borg family, which has called all the shots.
The family has made sure that the newspaper is a source of accountability and high-quality information.

Carr noted that the Record's editor, Martin Gottlieb, received a tip about unusually high traffic on the bridge from none other than Stephen Borg, a fourth-generation family member who is the newspaper's publisher.

Whatever your opinion on Gov. Christie or Bridgegate, it seems clear that the Borg family's long-term commitment to their newspaper, their community and their staff made it possible for the Record's staff to uncover who was behind the lane closures. John Cicowski, a columnist who writes on commuter issues, has been with the Record for more than a decade, and Shawn Boburg, who reports on the Port Authority of New York and New Jersey, has been on the staff for three years, Carr noted.

The Record's editor, Martin Gottlieb, told Carr that Cicowski and Boburg's sources know and trust them because of relationships forged over the years. "These are reporters who know their beats, who know their sources, who get their goods," Gottlieb said.

"[F]amily ownership allows continuity of purpose and personnel," observed Carr -- who is in a position to know, given that he works for the family-controlled New York Times.

In the January/February issue of Family Business, Frank Blethen -- fourth-generation publisher and CEO of The Seattle Times Co. -- lamented the changes in his industry. Blethen wrote:

Since I first spoke out against newspaper and media consolidations in 1988, there has been a steady erosion of diverse and local ownership. With ever-increasing consolidation and decreased emphasis on journalism, we have a less informed and less engaged society.

Blethen wrote that he is optimistic that the purchase of the Washington Post by Jeff Bezos and the acquisition of the Boston Globe by John Henry signal "that public interest stewardship may be returning, and with it a renewal of local family newspaper ownership."

Yet Blethen -- whose newspaper is one of only five locally owned family newspapers remaining in the top 50 markets -- urged American citizens to be vigilant. "The lack of quality, accessible education and the loss of a once diverse and robust system of independent newspapers," Blethen wrote in Family Business, "are the key drivers of our wealth and opportunity gaps."

Where are the women directors?

The Wall Street Journal recently reported that the U.S. trails a number of other countries in the percentage of women serving as directors on the boards of large public companies.

A study last year by Catalyst, a non-profit research group, found that 16.9% of board seats at Fortune 500 companies in the U.S. were held by women, the Journal report noted. That compares with 36% in Norway, 26.8% in Finland and 20% in the U.K., the article said.

How do family business boards compare? A U.K. study by researchers from the business schools at Imperial College, Leeds University and Durham University, cited last May in Real Business, found that 80% of the private family companies examined had at least one female director.

But U.S. family firms lag behind their British counterparts. In March and April 2013, Deloitte Growth Enterprise Services conducted an online survey of U.S. family businesses (see Openers, FB, July/August 2013). Two-thirds of Deloitte's respondents said women constituted less than 30% of their board membership, and 28% said their companies had no female board members at all. Among companies with revenues between $200 million and $500 million, 48% had no women directors.

One reason for the lack of diversity in U.S. family firms may be the inability to remove sitting directors from family business boards. The Deloitte study found that 82% of respondents' boards had no term limits, and a whopping 89% had no age limits. Small wonder that more than three-quarters (78%) of those queried by Deloitte reported 0 to 5% turnover in any given year.

All-male boards may be hurting a company's bottom line. Real Business, referring to findings from the U.K. study, noted that a board with diverse membership is better able to address potential threats to business survival and is more likely to closely examine a company's spending and risk taking.

Altering the composition of your board -- to include not only women, but also people of color, younger people and more non-family members -- can provide fresh new perspectives, lessen the likelihood of groupthink and increase your company's survival odds in today's global marketplace. The world's companies are diversifying their boards. It's time for American family firms to catch up

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New trend: The succession bonus

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Hardly working, or working hard?

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Where are the women directors?

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