ELEMENTS OFFAMILY BUSINESS SUCCESS This page intentionally left blank A Proven Formula for Improving Leadership & Relationships in Family Businesses ELEMENTS OF FAMILY BUSINESS SUCCESS Allen E Fishman New York Chicago San Francisco Lisbon London Madrid Mexico City Milan New Delhi San Juan Seoul Singapore Sydney Toronto Copyright © 2009 by Allen E Fishman All rights reserved Manufactured in the United States of America Except as permitted under the United States Copyright Act of 1976, no part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written permission of the publisher 0-07-164164-5 The material in this eBook also appears in the print version of this title: 0-07-154841-6 All trademarks are trademarks of their respective owners Rather than put a trademark symbol after every occurrence of a trademarked name, we use names in an editorial fashion only, and to the benefit of the trademark owner, with no intention of infringement of the trademark Where such designations appear in this book, they have been printed with initial caps McGraw-Hill eBooks are available at special quantity discounts to use as premiums and sales promotions, or for use in corporate training programs For more information, please contact George Hoare, Special Sales, at george_hoare@mcgraw-hill.com or (212) 904-4069 TERMS OF USE This is a copyrighted work and The McGraw-Hill Companies, Inc (“McGraw-Hill”) and its licensors reserve all rights in and to the work Use of this work is subject to these terms Except as permitted under the Copyright Act of 1976 and the right to store and retrieve one copy of the work, you may not decompile, disassemble, reverse engineer, reproduce, modify, create derivative works based upon, transmit, distribute, disseminate, sell, publish or sublicense the work or any part of it without McGraw-Hill’s prior consent You may use the work for your own noncommercial and personal use; any other use of the work is strictly prohibited Your right to use the work may be terminated if you fail to comply with these terms THE WORK IS PROVIDED “AS IS.” McGRAW-HILL AND ITS LICENSORS MAKE NO GUARANTEES OR WARRANTIES AS TO THE ACCURACY, ADEQUACY OR COMPLETENESS OF OR RESULTS TO BE OBTAINED FROM USING THE WORK, INCLUDING ANY INFORMATION THAT CAN BE ACCESSED THROUGH THE WORK VIA HYPERLINK OR OTHERWISE, AND EXPRESSLY DISCLAIM ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE McGraw-Hill and its licensors not warrant or guarantee that the functions contained in the work will meet your requirements or that its operation will be uninterrupted or error free Neither McGrawHill nor its licensors shall be liable to you or anyone else for any inaccuracy, error or omission, regardless of cause, in the work or for any damages resulting therefrom McGraw-Hill has no responsibility for the content of any information accessed through the work Under no circumstances shall McGraw-Hill and/or its licensors be liable for any indirect, incidental, special, punitive, consequential or similar damages that result from the use of or inability to use the work, even if any of them has been advised of the possibility of such damages This limitation of liability shall apply to any claim or cause whatsoever whether such claim or cause arises in contract, tort or otherwise DOI: 10.1036/0071548416 Professional Want to learn more? We hope you enjoy this McGraw-Hill eBook! If you’d like more information about this book, its author, or related books and websites, please click here Dedication To Judi, who understands all too well the challenges of being married to an entrepreneur We married young and had to carefully watch our dollars Dinners out were rare, and the book 165 Ways to Cook Hamburgers got a lot of use! Judi has understood and supported the financial risks that business founders often have to take and the time that needs to be dedicated to both launch a business and make it successful It isn’t always easy being married to someone who, at times, obsessively focuses on creating something new or solving a challenge Thank you for your love and support and the great gift of our two wonderful daughters Copyright © 2009 by Allen E Fishman Click here for terms of use This page intentionally left blank In Memoriam Many of us would feel blessed to have trusted relationships in our lives—people in our camp to support us, defend us, and believe in us with a depth of passion reserved only for ourselves I was lucky to have this relationship with my brother, Jack Fishman Jack and I were not only able to share the simple pleasures of life together such as movies, swimming in New Zealand, and wearing outlandish outfits in Mexico, but as a family-member employee of businesses I ran for over 35 years, Jack and I had the dual roles of being brothers and being in business together Yes, balancing familial and business roles can be awkward at times But family business relationships can also be greatly enriching by allowing family members to share something that is meaningful Jack shared a sincere enthusiasm for the businesses During our frequent phone calls, walks, or workouts together, he often voiced his concerns over business issues as well his excitement regarding achievements—his and mine When I started TAB, we talked about the many people we knew who didn’t believe that the business would ever launch successfully Jack believed in the idea—and in me—and he was incredibly proud of TAB’s increasing success He showed an immense sense of accomplishment when something he participated in was achieved and acknowledged He demonstrated the kind of dedication that is rarely seen by someone other than a relative in a family business He always showed unwavering support of my business vision for TAB He generously expressed to me his love for me I miss his terrifically harsh slaps on the back and the strength of his bear hugs as he kissed me goodbye This page intentionally left blank a p p e n d i x     265 Threats • Potential for major displeasure and resistance from both franchisees and current TAB employees to position appointment with their thinking that the appointment is strictly the result of nepotism without first viewing my ability to perform Exhibit B Information to Be Shared with the Successor • A financial summary of the status of the business and a projection of its financial future Support for the assessment should be provided via financial statements for the current and recent years Although it should include a cash flow chart, in the case of most small businesses, there will be no cash flow projections The summary should include the names of the company’s bankers, the lines of credit, and average balances It should also list the names of your company insurance carriers and types of coverage • A legal and administrative profile giving information on the structure of the business such as Family Partnership Agreements, corporate records, buy and sell agreements, and royalty agreements This profile should include all information on patents, licenses, contracts, and leases It should also list the names and addresses of attorneys, accountants, and any other outside professionals retained by the company • An operations report containing an inventory of major equipment, manufacturing specifications, and process and scheduling procedures as well as quality control measures and production standards This report should include a brief analysis of the efficiency of plants and equipment currently in use This information should be given in an informal presentation by the FBL 266 appendix and include the FBL’s operating philosophy and state the Company Vision • Sales and marketing overview This information would include such things as current and future plans involving major clients, advertising programs, and information about competitors This overview should outline your basic buying procedures and list inventory levels, present contracts, and suppliers • Management systems information overview This information would include such things as the IT procedures manuals and flowcharts • Human resources overview This information would include an organizational chart with positions, titles and names, and job descriptions The overview should include a list of needs for potential new position hires with brief job descriptions and the skill levels required FBLs need to make sure that the successors are familiar with the basic responsibilities of the people with whom they will work the closest and that they know the strengths and weaknesses of all employees Exhibit C TABenos Exercise One family provided the following answers to the first TABenos question, “What does communication armor look like?” Trying to control the discussion Combative, unreasonable, or argumentative Negative body language Disingenuous Hurtful sarcasm Not listening or disengaging Anger a p p e n d i x     267 Condescending Defensive Disrespectful Abusive language Deflection Arrogance Repetition Blame game Reacting to the messenger, not the message Excessive humor Throwing things Crying Questioning for reasons other than understanding the person Being political Dominating Lying or withholding material information “You” messages versus “I” messages Accusing Boredom Denial Trying to manipulate Fear of retribution or retaliation for expressing views Impatience Interrupting Attacking style The same family responded as follows to Question 2, “What causes or triggers you or other family members to put down your armor defense mechanisms?” Confidentiality Trust Not viewing the same set of facts differently No yelling 268 appendix Positive tone No threats of reprisals No one’s trying to take advantage of you Others’ respect for your self-esteem Ability to compromise Shared positive experiences No presumption of malice No hidden agendas Nonjudgmental Desire for win-win No sarcasm Being factual Sincerity Empathy Being open to the outcome Being fair Desire for synergy Compassion No history of passive-aggressive behavior Knowing role Honoring needs of others Balance short- and long-term objectives Mutual Vision for future of business Allowing time to process Not taking things personally Knowing commitments will be kept Respect Nonterritorial No negative body language Patience Not overreacting Collaborative Supportive attitude Honesty a p p e n d i x     269 The same family responded as follows to Question 3, “What would be gained if the family communicated within a TABenos environment?” Greater growth and prosperity for the family business Ideas and suggestions of family members will be heard to a   greater degree Will enjoy being around each other more, whether inside or   outside the business Business initiatives will be executed in a timelier manner and   with greater clarity Greater fairness More teamwork Will feel more respected Enjoy life more Greater collaboration Better understanding of short- versus long-term objectives Family members will present their ideas, views, and interests   without being intimidated Needs of other family members will be honored More respect to family-member employees from non-familymember employees This page intentionally left blank Glossary DISC  An acronym for a behavior profile: Dominance, Influence, Steadiness, and Conscientiousness A high D personality would be demanding, driving, ambitious, and competitive A high I personality would want to work with people and would be enthusiastic, inspiring, and demonstrative Someone relaxed, resistant to change, predictable, and consistent would be a high S personality High C personalities would be careful, dependent, neat, and systematic People who score low in any of these areas would have very few of the traits that define that particular personality type Dynastic Stage  The third-generation, or more, ownership of the business; usually at least one family member is acting as the family business leader (FBL) or is being groomed to become the FBL if there is an interim CEO family business  Any business employing more than one family member 271 Copyright © 2009 by Allen E Fishman Click here for terms of use 272 glossary family business leader (FBL)  The leader of a family business family-member employee (FME)  An employee of a family business usually related to the family business leader (FBL) family partners  When I refer to “family partners,” I am referring to situations in which more than one family member has ownership of the business, and I am not limiting this term to legal partnership relationships I include, for purposes of this book, ownership of the company as a corporation or any other legal entity Founder’s Stage  When the founder of the business is the family business leader (FBL) and he or she is actively involved in the business non-family-member employee (non-FME)  A family business employee who is not a family member partner  When I refer to “partner,” I am using the term conceptually, not legally, so that stockholders may be referred to as “partners.” Personal Vision  Your long-range dreams of success and happiness These aspirations should remain relatively constant for to 10 years into the future Second Reign  The second-generation ownership of the business; usually the business is being run by siblings or a child of the founder spouse  I am including domestic partners within the term “spouses” or “couples” when I talk about couples that work together in the family business Index Alignment, 168–170 Allen Fishman Business Consultants (AFBC), Amon, Larry, 47 Apple, Harold, 136 Aptitude, 99–101 Armstrong, Kevin, 84, 184 Behavioral survey, 44–45, 177 Big picture vision ability, 102 Blended families, 187–189 Buy/sell provisions, 245–250 Caretaker–interim COO, 136–138 Co-CEOs/copresidents, 107 Co-FBL, 24 Company culture (see Culture) Company culture statement, 220 Company SWOT statement, 128 Company vision statement, 20–24, 176 Compensating FMEs, 59–85 bonus incentive compensation for nonowner FMEs, 78–80 checklist, 84–85 desires for FME material lifestyle, 66–71 equal pay policy, 60–64 excessive FBL compensation, 80–83 family council, 74–75 family premium, 65 FME compensation underpayment, 75–78 image benefits, 66–71 investor family members, 71–75 spouses of FMEs, 74 written compensation policy, 64–66 Controlling interest vs nonvoting interest, 232–233 Crawford, Carol, 47, 61 Culture, 143–172 alignment, 168–170 checklist, 171–172 clear policy for evaluating FMEs, 163–164 disparaging other family members behind their backs, 169–170 family culture statement, 165–168 273 Copyright © 2009 by Allen E Fishman Click here for terms of use 274 inde x Culture (Cont’d.): FBL’s unwillingness to accept FME’s innovations, 150–153 female FMEs, 153–154 FMEs/non-FMEs interpret communications differently, 144–148 lending to/borrowing from business, 154–156 parent failing to show respect for child, 164–165 sibling rivalry, 156–158 split-personality culture, 158–159 what business discussions are not allowed, 148–150 work ethic expectations, 160–163 Davies, Steve, Dini, John, 37, 180, 181 Dini, John and Leila, 176–177, 180–182, 187 DISC behavior survey, 44 Divorcing spouses, 195–197 Double standard, 221, 224–225 Drzewiecki, Jan E., 60, 145, 150 Dynastic stage, 14 Emotional rewards, 16–18 Employee compensation (see Compensating FMEs) Equal control problems, 230–232 Equal pay policy, 60–64 Estate taxes, 242–245 Everybody Loves Raymond, 114 Excessive FBL compensation, 80–83 Executive vice president (EVP), 201 Family business, 5–6 Family business leader (FBL), Family council, 74–75 Family culture statement, 165–168 Family-member employee (FME), Family partner, 24 Family partnership agreement, 246, 247 Family premium, 65 Female FMEs, 153–154 Firing (see Hiring and firing) Fishman, Allen: grandchildren, 261–262 readers’ personal stories, 262 Gernaey, Jackie and Bruce, 185 Gift taxes, 242–245 Glossary, 271–272 Grandchildren, 261–262 Greek myth of Icarus, 130 Grooming the successor, 113–142 allow successor to make mistakes, 130–132 caretaker–interim COO, 136–138 checklist, 141–142 giving up control, 123–127 information to be shared with successor, 265–266 investing sufficient resources in successor’s training, 138–140 mentoring, 116 strategic planning involvement, 127–130 successor development plan, 119–123 i n d e x     successor’s failure to develop, 132–135 talking shop, 117–118 transferring wisdom of FBL, 114–119 weekly update and review meetings, 115–116 Healy, Bruce, 122 Hiring and firing, 31–57 behavior surveys, 44–45 checklist, 57 dismissal of FME, 45–48 eligibility for reentry after departure, 40 evaluation of new hires, 41–45 firing the spouse, 189–192 FME eligibility, 33–40 FME qualifications, 35–36 intelligence testing, 43–44 minimum age requirement, 39–40 minimum education requirement, 40 outside employment experience, 36–39 personal SWOT statements, 42–43 should I employ any family member?, 34–35 (See also Joining the business) Icarus, 130 Image benefits, 66–71 Intelligence testing, 43–44 International Franchise Association (IFA), 138 Investor family members, 71–75 275 Jason Zickerman’s SWOT analysis, 263–265 Job description, 54, 158 Joining the business, 48–56 bias against nepotism, 55–56 character of FBL, 50–52 character of other FMEs, 52–53 finances of the business, 55 life balance/work role, 53–54 motivation, 49–50 (See also Hiring and firing) Keener, John, 95 Key person insurance, 244 Life balance/work role, 53–54 Mediator, 186 Mentoring, 116, 152–153 Minimum age requirement, 39–40 Minimum education requirement, 40 Non-FMEs, 199–227 career development opportunities, 199–205 checklist, 226–227 double standard, 221, 224–225 financial incentives, 203–205 FME reporting to non-FME, 209–215 job security, 205–209 resentment over privileged treatment, 220–225 sale of business to outsiders, 207–209 working with family dynamics, 215–220 276 inde x Nonvoting interest vs controlling interest, 232–233 Oelklaus, Harlan, 105 Operations team meeting, 129 Ownership of business (see Transitioning ownership to family members) Passion for the business, 96–99 Passive-aggressive actions, 222 Patriarch/matriarch motivation, 151 PAVE, 97, 99, 101, 103 Peer board, 139–140 Percentage split of ownership, 230–234 Performance evaluations, 46 Personal SWOT statements, 42–43 Personal vision statement, 7–29, 174–176 checklist, 28–29 co-FBLs’ personal vision statements and, 24–27 company vision statement and, 20–24 emotional rewards, 16–18 material desires, 10–12 pocket vision, retirement, 18–20 role in family business, 14–15 time commitment, 12–14 work-life balance, 12–14 Phantom stock, 204 Planning team meeting, 129 Pocket vision, Psychological reward, 16–18 Readers’ personal stories, 262 Retirement, 18–20 Right-of-first-refusal clause, 248 Schlueter, Don, 209 Second reign, 14 Selecting the successor, 87–112 aptitude, 99–101 birthright, 92–94 checklist, 111–112 co-CEOs/copresidents, 107 communicating with FMEs, 94–96 objective evaluation resources and tools, 104–105 objectivity, 90–91 once candidate chosen, other FMEs may leave, 106–109 passion for the business, 96–99 PAVE, 97, 99, 101, 103 personality/behavioral type, 103–104 procrastination, 89–90 vision of big picture potential, 101–103 when no qualified successor, 109–110 Seller financing, 235, 238, 253 Seller’s personal guarantees, 250–251 Seven Secrets of Great Entrepreneurial Masters (Fishman), Sibling rivalry, 156–158 Split-personality culture, 158–159 Spouses as business partners, 173–198 areas of spousal authority, 176–177 blended families, 187–189 i n d e x     277 checklist, 197–198 children and their spouses working together, 194–195 commingling business role responsibilities, 177–179 disagreement about firing an FME, 192–194 divorcing spouses, 195–197 firing the spouse, 189–192 harboring different views on who should be in charge, 184–186 letting business become center of relationship, 179–182 letting problems at home spill over into working life, 182–183 making time for themselves, 186–187 vision statements, 174–176 Spouses of FMEs, 74 Strategic business leadership (SBL), 128 Strategic planning, 127–130 Strategic planning review meeting, 129 Succession planning (see Grooming the successor; Selecting the successor) Successor development plan, 119–123 SWOT statement, 128, 178, 263–265 Time commitment, 12–14 Transitioning ownership to family members, 229–260 buy/sell provisions, 245–250 checklist, 259–260 controlling interest vs nonvoting TAB culture statement, 220 TABenos, 146–148 TABenos exercise, 266–269 Talking shop, 117–118 The Alternative Board (TAB), Vision of big picture potential, 101–103 Vision statement, 174–176 (See also Personal vision statement) interest, 232–233 equal control problems, 230–232 estate taxes, 242–245 family partnership agreement, 246, 247 financing terms, 234–238 gift taxes, 242–245 income to support retirement lifestyle, 238–242 negative repercussions from family members passed up as owners, 254–257 percentage split of ownership, 230–234 purchase price, 234–238 right-of-first-refusal clause, 248 seller financing, 235, 238 seller’s personal guarantees, 250–251 terms unique to ownership transitions to family members, 250–254 Triangulation, 218 Trust agreement, 252 278 inde x Weekly update and review meetings, 115–116 Wolf, Steve, 76, 174, 247 Work ethic expectations, 160–163 Work-life balance, 12–14, 53 Zickerman, Jason, 10, 22, 43, 46, 49, 55–56, 64, 115, 116, 118, 122, 131, 138–139, 149, 263–265 Zickerman, Lynette, 194–195 About the Author Allen E Fishman is the bestselling author of Seven Secrets of Great Entrepreneurial Masters: The GEM Power Formula for Lifelong Success He is the founder and CEO of his family business, The Alternative Board (TAB), the world’s largest business peer board and coaching franchise system As a noted expert on privately held companies, he has been featured in numerous media venues, including CNBC, Bloomberg, The Wall Street Journal, and USA Today, and he is a featured speaker at engagements around the world Copyright © 2009 by Allen E Fishman Click here for terms of use .. .9 ELEMENTS OFFAMILY BUSINESS SUCCESS This page intentionally left blank A Proven Formula for Improving Leadership & Relationships in Family Businesses ELEMENTS OF FAMILY BUSINESS SUCCESS. .. make or break the family business The Nine Elements of Family Business Success will not only keep your family business on the fast track moving forward toward increased business success, it will... the family- related problems that keep so many family businesses from achieving success I provide an arsenal of tools for family business success tools that allow everyone connected to a family business