Amongthosewhocontributeto“strategyjam”sessionsinafamilybusinessmaybe
familymemberswithcontrollingownershipandkeynonfamilymanagers.Contributors
mayalso includedirectorsoftheboard oradvisoryboardmemberswho reviewthe
strategy developed d by y management and d controlling g family members. . Crafting g a
strategy from the accumulated wisdom of the e current t generation n of f owners and
managers,thedreamsandaspirationsofthenextgeneration,andthetimelesswisdom
ofloyaltytoone’scustomersleadstoinnovationandhealthygrowthforthebusiness
acrossgenerations.
Generalsystemstheorysuggeststhatasenvironmentsbecomemoreturbulentor
fast-changing,thechallengeforbusinessesistobuildtherequisiteabilitytodealwith
variety.
20
Asanincreasingnumberofnewandunpredictableeventsoccur,companies
eitherdeveloptheabilitytodealwiththatvarietyorfailtorespondappropriatelyand
thusfailtothriveinthenewenvironment.AlthoughtheRoyalDutch/ShellGroupis
notafamily-controlledcompany,itprovidesagoodexampleoftheabilitytomeetnew
challengesbecauseitdidwhatseemedatthetimetobeimpossible:Itthrivedduring
theoilcrisisofthe1970s.Itsapproachto strategicplanningwasrootedin creating
multiplescenariosofcompetitiveconditionsintheworldmarketplace.Ineffect,Shell’s
top management bet on n “preparedness,” as s the e military calls it, , discussing g many
alternativescenariosratherthanfocusingonthemostlikelyscenarioandthenbuilding
a strategy y to fitit. Shell used d the e strategic-planning process not t as an exercise in
predictability,butasawaytoincreasetheskillsoftopmanagementindealingwith
variety.
DespiteShell’ssuccess,notmanycompanieshaveincreasedtheiragilitybyadding
therequisiteabilityto deal with varietythroughstrategic-planningefforts.Afterall,
developing a budgetto o supportthe e chosen strategy isthe next t step, and d budgets
require some degree of certainty and d predictability. Indeed, in many y corporations,
MINICASE
Theveteran jazzmusician Dave Brubeckandhis s wife, Iola, have e five sons s and d one
daughter.Fourofthesonshavechosentopursuemusicalcareers.Daveinsistedthatthe
childrentakepianolessonswhiletheywereyoungsothattheywouldacquiremusical
competency,buthehadnointerestintheirlaunchingmusicalcareers.Althoughthey
usuallyworkasindependentmusicians,Daveandhisfoursonshavecollaboratedon
severalmusicalprojects,includingthe1974albumTwoGenerationsofBrubeckandthe
1997albumIn Their Own SweetWay.Intheircollaborations,familymembers tendto
welcome exploration and discovery.
18
Dave’s oldest son, , Darius, commented, “Even
thoughthemusicisdeeplyfamiliar,almostsubconsciouslysoforme,rehearsalstakea
longtimebecauseweallcontributeideas—anythingisworthatry—andbecauseDave
keeps astonishingmewiththedepthandbreadthofhiscreativity.Thereis probably
overallmorehumorandrisktaking.Intwowords:It’sfun.”
19
20
Miller,J.,LivingSystems:BasicConcepts,BehavioralScience,10(3),July,1965,pp.193–237.
18
Litz&Kleysen,op.cit.
19
Gloyd,R.,NotesfromtheProducer,fromtheTelarcrecordingInTheirOwnSweetWay,CD-83355.
184
FAMILY BUSINESS
How to convert pdf to html code - Convert PDF to html files in C#.net, ASP.NET MVC, WinForms, WPF application
How to Convert PDF to HTML Webpage with C# PDF Conversion SDK
convert pdf into webpage; convert pdf to website
How to convert pdf to html code - VB.NET PDF Convert to HTML SDK: Convert PDF to html files in vb.net, ASP.NET MVC, WinForms, WPF application
PDF to HTML Webpage Converter SDK for VB.NET PDF to HTML Conversion
attach pdf to html; converting pdfs to html
predictabilityinthefaceofchangesorvariancesarewhatbudgetsandstrategicplans
areallabout.
For CEOs of f family-controlled companies, one of the essential aspects s of pre-
parednessissuccessionandcontinuityplanning.Theywillleadthesuccessionprocess
only once e in n their r lifetimes,and d they must t prepare for itthrough h sound strategic
thinking.Succession isnotan event.Rather,itisaseriesofnewand unpredictable
experiences having to do with the managementof the business, the leadership p of
shareholders,andthepromotionoflong-termfamilytrustandunity(Figure6.6).Shell
Oilbetonpreparednessinthefaceofunpredictableeventsbyinvestinginincreasing
topmanagement’smasteryofvarietyandunpredictability.Bydoingso,itgaveitstop
managementandoperatingsystemstheskillsnecessarytoimprovise,tobenimble,and
towin whathasbecomeforallbusinessesan increasingly unpredictable competitive
warforcustomers.Family-controlledcompaniesmustemphasizepreparednessintheir
strategicplanning—orbepreparedtofail.
THEUNIQUEVISIONOFFAMILY-
CONTROLLEDCOMPANIES
Auniquevisionandbusinessmodelareneeded tolead an enterpriseto competitive
fitness.However,after25yearsasanobserverandadvisortofamily-controlledcom-
paniesaroundtheworld,Ibelievethatitispossibletolistasetofpreferredstrategies
used by family-controlled companiesto createvalue forcustomersin differentiated
ways.The listthatfollowsisnotmeantto be ashortcutto creatinga uniqueand
creativestrategyoranenticementtousecookie-cutterstrategies.Developingstrategy
ishardwork.Strategyisaboutmakingchoices,andchoosingtobedifferent.Com-
panies,particularlytheoftenlesswell-capitalizedfamilycompanies,cannotaffordtobe
allthingstoallpeople.
Whatthislistismeanttoreinforceistheideathat,howeverfragilefamily-controlled
companiesmayappearin afast-changingcompetitiveenvironmentseeminglydomi-
natedbyglobalbehemoths,regeneratingandgrowingtheenterpriseintheinterestof
continuity is s neither easy y nor r quick, but it is eminently y doable. . Family-controlled
figure
6.6
StrategicPlanningintheFamilyBusiness
Leadership of Change
Leadership
Succession
Financial &
Estate Planning
Strategic Planning
Family
SOURCE: Robert Kauer, professor of banking and finance, Weatherhead School l of Management, , Case Western n Reserve
University,2001.
CHAPTER CREATING G THE E STRATEGY
185
VB.NET PDF Convert to Tiff SDK: Convert PDF to tiff images in vb.
RasterEdge.XDoc.TIFF.dll. Use corresponding namespaces; using RasterEdge.Imaging. Basic; using RasterEdge.XDoc.PDF; Demo Code to Convert PDF to Tiff Using VB.NET
convert pdf form to html; convert pdf into html online
VB.NET PDF Convert to Word SDK: Convert PDF to Word library in vb.
using RasterEdge.XDoc.PDF; Convert PDF to Word Document in VB.NET Demo Code. This is an example for converting PDF to Word (.docx) file in VB.NET program.
convert pdf form to web form; convert pdf to html
companieshaveturnedthefollowing competenciesintovaluecreatorsfortheircus-
tomersand,thus,intocompetitiveadvantagesfortheirfirms:
l
Rapidspeedtomarket
l
Flexibilityandnimblenessinresponsetocustomersandcompetitors
l
Strategicfocusonproprietaryproductsandspecialtynichesthataffordmore
protectedprofits
l
Concentratedownershipstructurethatprovidesmorepatientcapitalandcom-
mitmenttothelongterm,enablingthecompanytobuildbrandequity,promote
customer loyalty, and sponsor r continued d reinvestment in family unity and
uniqueorganizationalcapabilities
l
Lowertotalcostsderivedfromreducedagencycosts—forexample,inadmin-
istration,supervision,andfinancialcontrols
l
Highqualityofproductand/orservicethatbuildsbrandequity,reputation,and
higherprofitability
l
Capacityforcustomization
Creating something differentthathasvalue for the customer is at t the heartof
achievingcompetitiveadvantage.Family-ownedandfamily-controlledfirmsfrequently
relyonthesetofcompetenciesjustdiscussedtogaincompetitiveadvantage.Clearly,
for a family y business, strategic c planning that focuses on organizational capabilities
rootedinintangibleassets,includingvalues,familyunity,andthenatureofthefamily–
business interaction, , plays s a a critical role e in developing a a unique, hard-to-replicate
strategyandbusinessmodel.
SUMMARY
1 Theprimaryobjectiveofstrategicplanninginanycompanyistocreatevalueforitscustomers.
Onlyinthiswaycanitcreatevalueforitself.
2 Time e lags s can n be significant, , especially when n an ownership-first t orientation n replaces s a
customer-firstorientation.
3 Thezero-sumdynamicisa a precursor to businessfailureand disharmonyamongfamily-
businessmembers.Intheabsenceofgrowth,familybusinessesbecomevery vulnerable
duringthesuccessionprocess.
4 Asteepdeclineat t theendofasuccessful product linerun ortheendofa generation’s
leadershipcanbetheresultofthesmallsizeofafamilybusiness,itspropensityforzero-
sumfamily dynamics, limited access tofinancial assets, and/or theparalysis ofbusiness
operations.
5 Strategic c planning increases owners’and managers’awareness of changes in thecom-
petitiveenvironment and promotes much-needed communication among shareholders.
Withitsnaturalbiastowardgrowth,strategicplanningisagreatantidotetothechallenges
ofthelatematurityanddeclinestages.
6 Thesevenprimarysourcesofvalueforfamilybusinesses,givingrisetoauniquebusiness
model for r each family business, are (1) ) financial resources, (2) physical l assets, , (3) ) the
product,(4)brand equity,(5)organizationcapabilities,(6)customer–supplier integration,
and(7)thefamily–businessrelationship.
7 Competencies s thatcreatevaluefor customersandfirms includerapid speed to market,
flexibilityinresponsetocustomersandcompetitors,strategicfocusonproprietaryproducts
andspecialtyniches,concentratedownershipstructure,reducedagencycosts,highquality
ofproductand/orservice,andcapacityforcustomization.
186
FAMILY BUSINESS
Online Convert PDF to HTML5 files. Best free online PDF html
library control is a 100% clean .NET document image solution, which is designed to help .NET developers convert PDF to HTML webpage using simple C# code.
embed pdf into webpage; conversion pdf to html
C# PDF Convert to SVG SDK: Convert PDF to SVG files in C#.net, ASP
PDFDocument pdf = new PDFDocument(@"C:\input.pdf"); pdf.ConvertToVectorImages( ContextType.SVG, @"C:\demoOutput Description: Convert to html/svg files and
pdf to html conversion; best website to convert pdf to word
CHAPTER
7
P
LANNING
THE
E
STATE
RelianceIndustriesisaconglomerateearning$15billioninannualrevenues(and
the subject of Reliance Industries s and the e Ambani Family y case onpage e 355).
DhirubhaiAmbani,itsfounder,diedattheageof69withoutawill.Histwosons,
Anil and Mukesh, , faced successionwith a large measure of sibling rivalry and
almost brought t the business down. . Thanks largely y to o a timely y and influential
interventionbyKokilaben,theirmother,thesiblingsnegotiatedanagreementthat
splitthecompanyintwo.
Estateplanningisafamily-businessowner’sfavoritetargetofprocrastination.Planning
theestatehasthepotentialtosaveabusiness-owningfamilyhundredsofthousands(or
millions)of dollars and d to o allow w forcontinuity y ofthe business,both h of f which are
importanttomostentrepreneursandbusinessowners.Still,carryingouttheplanning
isseldomdeemedurgentenoughtobemadeapriority.Theabsenceofestateplanning
puts at risk what has taken a generation or two to build, often doing g irreparable
damagetothebusinessandtofamilyrelationships.
Giventheimportanceofthesubject,whyisestateandownershiptransferplanning
often avoided, delayed, or done e without t comprehensive e outside professional help?
Whenitisfinallydone,whyisitoftendonewithoutconsultingthosemostaffectedby
theplananditsimplications?
While time pressures,the costofprofessional advisors,andaversiontoinsurance
products and agents are e often blamed, , irrational optimism m is more fundamentally
responsibleforthefailuretoplanone’sestate.Thelikelihoodofillnessandtheinev-
itabilityofdeathloomlargelateinanowner’slife.Notwantingtodiscussillnessand
death—and theirimplicationsforthefamily andthebusiness—isan understandable
reasontoprocrastinate.WoodyAllenoncequippedthathedidn’tminddying;hejust
didn’twanttobetherewhenithappened.
Lossofcontrolisanotherreasonpeopledelayplanning.Researchonentrepreneurs
andsuccessfulCEOshasfoundthattheyhaveawidelocusofcontrol,whichfewlook
forward to giving up. . Letting go of the very y control l that has s been a source e of
advantage,success,autonomy,andpersonalfreedomisnotasimplematter.Inaddi-
tion,althoughsuccessfulbusinessbuildersseemtohavenotroublefocusingonthings
theyknowwell,theyarequiteaversetocommittingtimeandenergytoasubjectwith
whichthey are completely unfamiliar.And asiftheseinherentsourcesofresistance
werenotenough,manyCEOsfearfamilyconflict.Theymaybeconcernedthatthis
kindofplanningwillrequiresuchdifficultconversationsamongfamilymembersthat
187
C# PDF Convert to Jpeg SDK: Convert PDF to JPEG images in C#.net
Output.jpg"); Following demo code will show how to convert all PDF pages to Jpeg images with C# .NET. // Load a PDF file. String
convert pdf to html code c#; converting pdf to html email
C# PDF Convert to Text SDK: Convert PDF to txt files in C#.net
other industry-leading methods to convert target PDF document to other editable file formats using Visual C# code, such as, PDF to HTML converter assembly, PDF
best pdf to html converter online; how to convert pdf to html code
open warfare will eruptamong them.Somemay worry thatthe outcomesof these
difficultdiscussionswillbetoouncertainand/orunpleasanttocarryout.
Afamilybusinessisoftenafamily’sprincipalassetoratleastasignificantportionofa
family’snetworth.The1997AmericanFamilyBusinessSurveyfoundamajorityof
respondentssayingthatapproximately60percentofthefamily’swealthwaslockedup
inthebusiness.One-fifthofallrespondentssaidthat80percentofthefamily’swealth
wasin the business.
1
The mostrecent t survey y (2007) found that t 71 1 percent t of all
family-businessownerswereveryoptimisticaboutthefuture.Theiroptimismappears
well-founded, as revenues rose e 74.4 percent between 2004 and 2007. . And many
reported growing more e quickly y (27.1 percent) ) than n their competitors. . (Only
15.4percentreportedgrowingmoreslowly.)
2
Becauseoftheimportanceofthebusinesstothefamily’seconomicwell-being,the
owner’s estate plan n must t treatthe e business asan n ongoing concern n and d not just a
collectionofassets.Thecontinuedsuccessfulmanagementofthebusinessisapriority
both forthebusinessto surviveand foreconomic c returnsto o the owning family to
continue.Thus,planningfortheestateandownershipconstitutesastrategicdecision.
The timely transfer of equity down n a a generation n represents not only y a a tax-saving
transferoffinancialresourcesbutcouldalsorepresentthestepnecessarytokeepthe
businessin thefamily.Thischapterisprimarily written with theU.S.estate-tax law
provisionsinmind.Fortunately,mostcountriesinEuropeandafairnumberinAsia
and Latin n America have e already y abandoned estate e taxes on n the e premise e thatthey
discouragecapital formationand capital flows,hurttheeconomy,and are an unfair
formoftaxationonassetspreviouslytaxed.
THEFAMILY-BUSINESSOBITUARY
Afamily-ownedcompanyinOhiomanufacturedautoparts.Newtechnologiesand
the need for precision n mold making g made ita very capital-intensive business. The
familyconsistedoftheparentsandfivechildren,onlytwoofwhomwereactiveinthe
business.Thecompanywassuccessfulandrepresentedabout75percentoftheparents’
networth.Theparentsowned95percentofthesharesinthebusiness.Theremaining
5percentwasownedbythelawyerwhohadoriginallyincorporatedthebusinessand
tooksharesinlieuofhiscustomaryfee.
MomandDad’slifelongintentionwasforthebusinesstostayinthefamily.They
hadnotdoneanyplanningtowardthisendbecausetheywerebothyoung(53)and
hadstillnotdecidedwhichoftheiractivechildrenwouldeventuallybetheonetorun
thecompany.Theyhadstandard“me-to-youandyou-tome”wills,withtheremainder
going equallyto thekids.Thecompany owneda$9millionkeymanlifeinsurance
policyonthefatherandCEO.Thecompanyhadnoworkingboardofdirectors.
Onaskiingvacationbothparentsandoneoftheinactive(married)daughterswere
killedinafreakaccident.Thelifeinsuranceandamajorityofthenonequityassetswere
usedtopaytheestatetaxes.Whatthefoursurvivingchildreneffectivelyinheritedwas
aninterestinthecompanyofalmost20percenteach,withtheinterestofthedeceased
sistergoingtoherchildren.
1
ArthurAndersen/MassMutualFamilyBusinessSurvey,1997.
2
MassMutual/KennesawState/FamilyFirmInstitute,AmericanFamilyBusinessSurvey,2007.
188
FAMILY BUSINESS
C# PDF Convert to Images SDK: Convert PDF to png, gif images in C#
x86. C# Sample Code for PDF to Png in C#.NET. You can use this sample code to convert PDF file to Png image. // Load a PDF file.
how to add pdf to website; convert from pdf to html
C# PDF Annotate Library: Draw, edit PDF annotation, markups in C#.
This page will guide C# users how to add text comments on PDF page using C# demo code in Visual Stuodio .NET class. C#.NET: Add Text Box to PDF Document.
best website to convert pdf to word online; convert pdf to webpage
Fouryearsafterthetragicaccident,thecompanywentoutofbusiness.Otherthan
themoneytakenoutassalariesbythosewhohadpreviouslybeenactiveinthebusi-
ness,theheirsgotnothing.Firsttherewasafightbetweenthetwoactivechildrenover
whoshouldbeCEO.Then,although familymeetingswerebeingheldonaregular
basis,thesewereneverabouthelpingthecompanysucceedbutratherabouthowthe
fivefamilies,sincetheywereequalowners,couldgetmoneyoutofthebusiness.And
moneytheytook.Eventuallythecompanywassued—bythe5percentstockholder—
overself-dealingandcorporatewaste.Thehusbandofthedeceased sisterconvinced
theothertwoinactivesiblingstojoinwithhimandvotethetwoactivesiblingsoutofa
job.Oneoftheactivesiblingsthensuedthecompanyforwrongfultermination.
Totalchaosinthebusinessandconflictinthefamilyoccurred becauseofsolittle
planning.Theparentsknewwhattheywanted,buttheyneverputaplaninplaceto
makeithappen.Thisfamilyhadcreatedmillionsinwealthoveragenerationandthen
lostitallin4years.
ESTATETAXES
OnJune7,2001,PresidentGeorgeW.BushsignedintolawtheEconomicGrowth
andTaxReliefReconciliationAct,whichchangedfederalgiftandestate-taxprovisions.
Thisactislikelytobechangedagaininthenearfuture,astherehavebeennearly100
tax-codechanges affecting giftandestatetaxesin n thepast20 years.In any case,it
currentlyhasasunsetprovisionthatmakesitapplicableonlythroughDecember31,
2010.In2010,andthatyearonly(asofthiswriting,anyway),therewillbenoestate-
taxliability,andthereforebusinessownerswillhavethefreedomtotransferownership
atdeathwithoutregardforestate-taxconsequencestoheirsortothecontinuityofthe
familybusiness.Betweennowandthen,federal estate-taxrateswillfallgradually.In
2007,themaximumestate-taxratefellto45percent.The45percentestate-taxrateis
alsoeffectivein2008and2009andthenwillvanishin2010.
Theunifiedcreditexemption—which,in2002–2003,wasincreasedto$1million,
willgrowto$3.5millionby2009(Table7.1).Thismeansthat,by2009,amarried
couplecouldtransferupto$7millionoftheirestatefreeofestatetaxes.
Stateinheritancetaxesareanotherfactorthatfamily-businessownersmustconsider
inestateplanning.Untilthe2001lawwaspassed,100percentofstateinheritancetax
liabilities,uptoacertainlimit,couldbecreditedagainstfederaltaxes.Startingin2005,
inheritancetaxespaidatthestatelevelwereallowedonlyasadeductionandnotasa
credit. This change, which h is s not widely known, meantthatsome estates faced an
increaseratherthanadecreaseintheirtotaltaxliability(combinedfederalandstate
estatetaxes).Becausethespecificimplicationsforindividualfirmsandfamiliesvaryby
stateandbythesizeandparticularsoftheestate,thereisnosubstituteforconsulting
professionaladvisorswhoknowthedetailsofthesituation.
table
7.1
Estate-TaxExemptions
Year(s)
UnifiedCredit
2006–2008
$2.0million
2009
$3.5million
2010
Unlimited.Zeroestatetaxduring2010only.
CHAPTERPLANNING THEESTATE
189
THEESTATEPLAN
Businessownerswhoplan theirestate with onlytaxminimizationinmind get what they
deserve—areducedtaxbillandabusinessthatwillnotcontinueacrossgenerations.
LèonDanco,firstfamilybusinessconsultantintheworld.
Theveryprogressiveandsubstantialnatureoftheestatetaxhasdrivenmanyfamily-
businessownerstofocusontaxminimizationastheessentialelementoftheirestate
planning.Certainly,theestateplanneedstoensuresufficientliquiditysothat,uponthe
deathofthecurrentgeneration,theestatetaxesandanyoutstandingdebtscanbepaid
withoutsellingorunfavorablymortgagingthebusiness,orsellingitsassetsatdistressed
prices.Estatetaxesaregenerallyduewithin9monthsaftertheowner’sdeath.Because
equityinacloselyheldfamilybusinessisbothhighlyilliquidandunmarketable,
3
and
because the U.S.Treasuryexpectsthetax billto bepaid in cashandon time,high
estate-tax liabilitiesposeasignificantthreatto familybusinesseswhoseownershave
procrastinated.
Given the complexityofthetax lawsandthetendencyofbusinessownerstobe
pressedfortimeandpronetomaintainingcontrolandsecrecy,itisnowonderthattax
reductionistheprimarysubjectaddressedinestateplanning.Thislimitedfocusinthe
estateplanrepresentsariskybutfrequentturnofeventsforfamilybusinessesfacing
generationaltransitions.Anditisestimatedthat40.3percentoffamilybusinesseswill
changeleadershipacrossgenerationsinthenext10years.
4
Many owners consider their estate planning completed when theyhave selected
sometransfer-of-wealthapproachwith theiraccountantortaxattorney.Theyfail to
addressotherimportantaspectsofgenerationaltransfers,includingthefollowing:
l
FinancialandretirementneedsoftheCEOandtheCEOspouse
l
Strategicneedsofthebusinessversusfinancialneedsoftheestate
l
Ownershipsuccessordevelopment
l
Relationshipsamongfamilymembers
l
Day-to-daymanagementofthebusiness
l
Corporategovernanceandvotingcontrolinthenextgeneration
l
Next-generationexpectationsforthebusiness
l
Needsanddreamsofindividualheirs
l
Stewardshipcapacityofnext-generationmembersaseitherownersormanagers
l
Willingnessoffamilymembersnotactiveinthemanagementofthefirmtobe
loyalshareholdersandrepresentpatientfamilycapital
l
Economicvalueofthebusinesstofamilymemberswhodonotparticipateas
employeesoftheenterprise
l
Liquidityneedsofinactiveorminorityshareholders
l
Retentionofnonfamilytopmanagersandtheircontinuedcommitmenttothe
enterprise
Estate plans mustalso consider the possible need for restructuring of corporate
forms and d assets s in n orderto maximizewealthretention forheirsand forcharitable
3
Author’spersonalconversationwithPhilipDawson,June2002.
4
Op.cit.,MassMutual/KennesawState/FamilyFirmInstitute,AmericanFamilyBusinessSurvey,2007.
190
FAMILY BUSINESS
giving,if theowner isphilanthropically inclined. Somecorporateformsandestate-
planningtechniqueswillbereviewedlaterinthischapter.
Becauseoftheappreciationinthevalueofshareholderequityovertime,estatetaxes
makeacompellingargumentforanearlierratherthanalatertransferofaccumulated
valuetoheirs.Over10years,arathermodest6percentannualgrowthrate(including
inflation)inthevalueofafamilybusinessproducesanassetwithalmostdouble(1.8
times) its formertaxable value.Similarly, abusiness growing ata healthy, but t not
extraordinary,12 percentratewill triplein valuein adecade.Thedilemmaisthat,
during those e 10 years over r which the value of the estate is s growing, , the current
generationisprobablywellservedbyretainingvotingcontrol.Thatway,thecurrent
generationcanprovideoversight(“nosein,fingersout”)whilelearningmoreabout
thenextgeneration—howtheyperformwhentestedbycompetition,recession,peri-
ods of fastgrowth,union n negotiations,and in some cases s even n challengesto their
leadershipbyotherfamilymembers.
A successful l entrepreneur in n the product-identification industry efficiently trans-
ferred hisPacificNorthwestfirm to one son preciselyas s itwasaboutto o growsig-
nificantlyinrevenues,profits,andvalue.Hepursued thistransferofownershipwith
tremendousexpediency,convincedthathissonhadtestedpositivelyforhisabilityto
lead the company. He was s concerned d that gift and d estate e taxes would d make e the
accomplishmentofhisdreammuchharderinacoupleofyears.Sohecommissioneda
third-partybusinessvaluation,giftedalmostallofhisstock(freezingthevalueofhis
estatebeforeequitygrowthwreakedhavoconit),andpaidtheappropriategifttaxes,
allattheageof54.Hekeptthecompanybuildingandotherpropertiesasincome-
producingassets(leasedatmarketratestowhatwasnowhisson’scompany)andthen
proceeded to o startworkin a a nearby office suite turned d laboratory. . He had d a a new
producthewantedtodevelopandanewbusinesshewantedtogrow—hesetouttobe
an entrepreneur r all over again. Seldom m are transfers s of f equity ownership, , income
sources,andcontrolasstraightforwardasthisonewas.
Anestateplan thatencompassesafamilybusinesshastoaddresstheappropriate
allocationofincomesourcestothefounder,hisorherspouse,andnonactivefamily
shareholders,aswellastheinheritanceorbeneficialequityinterestoftheheirs.Italso
hastoaddressfinancialcontrolofthecorporationviabuy–sellagreements,thetransfer
ofvotingandnonvotingstock,andtheallocationofstocktotheappropriatelyqualified
heirs(and,insomecases,employees).
Asdiscussedinpreviouschapters,family-businessleaderswearmanyhats—thoseof
parent,spouse,CEO,chairmanoftheboard,principalshareholder,andphilanthropist,
tonamejustafew.Succession andcontinuityplanningisthemostintellectuallyand
emotionallychallengingfacetofbalancingthesemultiplehats.
P
RESERVING
S
PEED AND
A
GILITY
Speedandagilityareamustforongoingconcerns.JackWelch,duringhistenureas
CEOofGeneral Electric,establishedasaprimary mission getting themulti-billion-
dollar,multi-million-employeeconglomeratetobehavelikeamuchsmallerfirm.He
championedorganizationalinnovationsliketheWork-Out,sixsigmaprocesses,anda
high-performanceculturetomakespeedandagilitycorefeaturesofGE.
Many family businessesbegin asentrepreneurial firmsthat t exploitthe e speed-and-
agilityadvantage.Thesecompaniesarecapableofturningonadime.Whenfacedwith
competitionfromalargemultinationalcompanythatneedsmultiplelevelsofapproval
CHAPTERPLANNING THEESTATE
191
foranewproduct,system,orapproachtothemarket,familybusinessesconsistentlywin.
Unfortunately,anumberoftheseentrepreneurialcompaniesdiscoverthecostsoflosing
thisspeed-and-agilityadvantage.ThedepartureoftheCEO/entrepreneurmaycreatea
powervacuum,leadingtoinactionorparalysis.Oracumbersometrustarrangementor
consensus-dependentcopresidency,oftenreferredtoasanofficeofthepresident,may
leaveacompanyunabletomakestrategicoroperatingdecisionspromptly.
Ownership-transferpoliciesmotivatedbyadesiretoloveandtreatallheirsequally
orexpectationsofequalitybyfamilymembersarelikelytopromoteanimpasse,much
tothedetrimentofcontinuedcompetitiveness.
G
IVING
S
UCCESSORS THE
C
APACITY TO
L
EAD
Leadersofenterprisesfindthatdistributingvotingsharesequallyamongshareholders
oftenerodestheleader’sabilitytolead.Stockownershipbycomplicatedtrustscanalso
beaproblem,unlessownershipandmanagementhavebeensufficientlydifferentiated
throughthepresenceofnonfamilymanagerswithinfluenceinthetopteam,boardsof
directorsthatincludeindependentoutsiders,andemploymentpoliciesthatspellout
theprerequisitesforfamilymembersworkinginthebusiness.Byaboutage40orso,
eventhemorepatientsuccessorsbegintochafeatnothavingsufficientvotingstockin
abusinessthattheyhavepresumablyshowntheycanruneffectivelyonaday-to-day
basis.To successors s in n thissituation,itseldom matterswhetherthe stockwas s pur-
chasedorreceivedasagiftfromthecurrent-generationCEO.
Unlikeownership,authorityisearnedratherthaninherited.However,transferring
ownershipwithoutaneyetowardcorporatecontrolmakesitmoredifficultforthenew
ownerto acquire the authority to o lead, which h has s to be earned d slowly y and d in n the
trenches.Asdiscussedinearlierchapters,next-generationleadersneedtobeableto
lead,whetherthroughdirectcontrolorthroughthecreationofalliances,asiftheyhad
51percentofthevote.
5
Considerthefollowingshorthistoryofafamily-businessconsultingassignment.A48-
year-oldpresident(butnotCEOorcontrollingowner) of aheavy-equipmentrefur-
bishingcompanywasathiswit’send.Hehadtriedtotalkwithhisfatheraboutsuc-
cessionandabouthisgettingtheauthoritytotrulyleadthebusiness.Hehadalreadyrun
thebusinessin6-monthincrementswhilehisfatherwinteredinFlorida.Thefather,who
was70yearsoldatthetime,didnotconsiderhissonreadytorunthebusinessyetand
would not t transfer any voting stock. . As s is often the case, , both h parties had sound
argumentsfortheirposition,buttheson’sinabilityto getfullauthorityto lead,with
managementandownershipstructuresupport,resultedinhisdecidingtoretireearly.He
moved withhisspouseandkidstotheirfavoritevacationspotintheCaribbean.And
Dad,whowasnothavingasmuchfuninsemiretirementashehadhoped,wentbackto
workfull-time.Thecontinuityofthisbusinesswasnowinjeopardy.
Withholdingtheauthorityto lead—eitherbynottransferring votingstockatthe
appropriatetimeorbyrequiringthatavarietyofnext-generationshareholderswith
equalamountsofstockreachaconsensusonimportantdecisions—islikelytolimitthe
lifespanofthecorporationtothatofthecurrent-generationCEO.Anotherpossibility
isavetobyanupsetminority.(Aperfectexampleofthisconundrum,istheBingham
family, owners s of the Louisville Courier-Journal, , in its s decision n to sell the family
5
Author’spersonalconversationwithJohnDavis,June2001.
192
FAMILY BUSINESS
business,asdiscussedinChapter2.)Neitherthebusinessnorthefamilyiswellserved
ineithercase.
C
ORPORATE
S
TRUCTURES AND
C
LASSES OF
S
TOCK
Asabusinesspassestosucceedinggenerations,theever-expandingnumberofowners
makesitnaturallymoredifficultforfamilymembersactiveinthebusinesstoefficiently
manageit.Thisisanunavoidableconsequenceofhavingafamily-ownedcompanyin
whichtherearebothactiveandinactiveshareholders.Boththehealthofthecompany
andfamilyrelationshipsmaysufferifthispotentiallyexplosiveissueisnotaddressed.
Onetechniquethatisfrequentlyusedistorearrangethegovernancestructureofthe
companybyrecapitalizingitsstock.Forexample,recapitalizingthecommonstockinto
twoclasses(votingandnonvoting)allowstheseniorgenerationto dividetheestate
equally among g their r heirs in n terms s of value, but differently in n terms s of corporate
control.Theninheritorsofnonvotingstockcanbegivenawaytomaketheirinheri-
tance liquid through buy–sell l provisions.This effective method d of using corporate
governancetodeal withactiveandinactivenext-generationinheritorsisavailableto
anyformofbusiness,bothCcorporationsandScorporations.Ifthefamily-business
assetsareownedbyalimitedliabilitycompany(LLC)orafamilylimitedpartnership
(FLP),variationsonthismethodcanbeusedtoachievethesameresult.
Anotherstock-governancetechniqueusedsuccessfullytotransferownershipdowna
generation is s preferred d stock k recapitalization.Thistechnique is availableto o both C
corporationsandfamilylimitedpartnershipsinwhich significantgrowthisexpected.
Thevalueoftheseniorgeneration’sownershipisfrozen,andallsucceedinggrowthin
thevalueoftheenterpriseisrealizedbytheheirs.
BUY
SELL AGREEMENTS
Buy–sell agreements s are contractual l arrangements s between n shareholders s and d the
company. They are typically used d by family-business s ownersto o facilitatean orderly
exchangeofstockinthecorporationforcash.Topreventthestockfromendingupin
unfriendly hands—or even the handsoffriendly in-laws—suchagreementstypically
includeaprovisionthatthestockwill befirsttenderedto thecompanyortofamily
membersthrougharightoffirstrefusal.
The most t obvious benefit of f a a buy–sell agreement is s that t it allows s some family
memberstoremainpatientshareholderswhileprovidingliquiditytofamilymemberswith
otherinterestsorgoals.Inthisway,familiescanprunethecorporatefamilytreeacross
generations.A buy–sell agreementis often the primary vehicle through which family
shareholders can n realize value from their r highly illiquid d and unmarketable wealth—
companystock.Theabilitytosell,whetherexercisedornot,oftenmakesthedifference
between feeling fortunate to be able to o participate e in a family enterprise and d feeling
enslavedandcontrolledbyit.
Whilemostbuy–sellagreementsarewrittensothatonlydeathordiscordtriggers
theiruse,somearecreatedtoprovideliquiditywindowsforyoungerfamilymembers.
A30-year-oldfacing theprospectofpurchasingherorhisfirsthome,forinstance,
couldconvertsharestocashatapredeterminedvalue.
VALUATION OF THE E BUSINES
Determiningthevalueofabusinessisasmuchartasscience.Abusinessvaluationis
renderedinareportwrittenbyaqualifiedappraiserforavarietyofpurposes,including
CHAPTERPLANNING THEESTATE
193
Documents you may be interested
Documents you may be interested