3 Ways Philanthropy Can Benefit Your Business

1. Builds respect and reputation within the community

- When you do good, people notice. Community members are more likely to support businesses that have shown a vested interest in helping the community.

An article on entrepreneur.com used Facebook as an example. When Facebook decided to move to Menlo Park in the San Francisco Bay area years ago, community members worried about the impact the new employees could have on the city's infrastructure.

In response, Facebook spent millions of dollars on infrastructural improvements, such as improving bike trails to reduce traffic congestion created by the throngs of new employees. The company also donated $120 million to nearby schools, which, unsurprisingly, helped boost their public image.

2. Boosts company morale

- Owners often get so caught up in the daily grind, causing them to forget about the little things that contribute to their employees' joy and fulfillment.

When it comes down to it, employees like working with people and companies that understand the importance of giving back. It improves their respect for the owner and company in general, which can increase employee satisfaction and morale. Happy employees are crucial for a thriving and sustainable business.

3. Presents networking opportunities

- Philanthropic organizations are chock-full of business owners who make giving back a priority. Getting your foot into these organizations surrounds you with powerful, like-minded people.

Plus, owners who give back tend to have a deeper trust for one another, meaning they're more likely to solicit your business if they need help with something that pertains to your area of expertise.

If your company hasn't engaged in philanthropic work, it's missing a key opportunity to boost unity, trust and morale. But more importantly, communities and the people within them - like Isabella - need our help. I hope you can find the time and resources to dedicate to these important causes.

Source: http://www.rocklamanna.com/blog-rock-lamanna/help-wanted-3-business-benefits-of-corporate-philanthropy

You may think that the trusting, tight-knit nature of family-owned businesses means they have a lower risk of fraud. But some experts believe the risk and occurrence of misappropriation are actually greater in family businesses due in part to that very environment of trust. Furthering the problem, the perpetrator may not realize his or her behavior is inappropriate.

Research consistently shows that fraud risks are everywhere, and family businesses are far from immune. Certain actions, such as a family member using the company credit card to fuel a personal vehicle or a trusted employee taking unrecorded time off, can start out as "innocent," but if left unobstructed can quickly escalate into bigger, bolder deceptions. While each situation is unique, common factors contributing to inappropriate behavior include a sense of entitlement to maintain lifestyle, trying to live up to performance expectations and inadequate internal controls.

Here are four fraud myths you need to confront when assessing your family business's risks:

Myth #1 — Our people wouldn't commit fraud.

You cannot vouch for all of your employees, regardless of relationship or employment history. The opportunity to commit more extensive and financially devastating fraud correlates with a person’s authority, position and power along with the degree of oversight.

Myth #2 — Fraud couldn't happen to us — we're a stable organization.

Fraud risks can affect any business. As organizations become more decentralized and complex, management must remain vigilant in their endeavors to detect and prevent all types of fraud. These include, but are not limited to, corruption, intellectual property theft, bribery and money laundering.

Myth #3 — If fraud occurred, it would be discovered quickly.

Individual fraud detection mechanisms have limitations. Typically, employees with the responsibility for monitoring the company's internal controls do not have the training or experience needed to properly review these controls. Because of that, though internal and external audits play useful roles, these functions have limited reach when it comes to fraud deterrence and detection.

Myth #4 — Damage wouldn't be significant.

Both the rate of occurrence and amount of loss are greater for private companies than public companies. Rate of recovery tends to decrease based on the size of the damage incurred. Reputational damage to the business and family can be even harder to measure, as the impact is so far-reaching. Remember, insurance coverage is limited to actual tangible losses proven by the company and does not generally account for secondary losses, such as reputational damage or legal and investigation costs.

Take action to prevent fraud now, not later.

Awareness and enforced controls that can prevent and detect wrongdoing are the best ways to reduce your family business's chances of falling victim to fraud. Make the rules about the use of company resources clear to both family and non-family employees, and allow no exceptions.

If you suspect fraud, it's critical that you take immediate action. As fraud is most often detected by other employees, instruct them to raise suspected issues to management, HR or legal rather than taking matters into their own hands. If termination is required, you'll need to protect the whistle-blower, the business and the family.

Remember: the potential of fraud occurring in your organization is a possibility that you must confront. You may never need to execute on a fraud action plan, but like every other aspect of running your business, it's a scenario that should be addressed before it's too late

Source: http://www.forbes.com/sites/ey/2014/06/27/4-myths-about-family-business-fraud/#6d9c61d425d8

In recent months many firms have laid off employees, shelved growth plans and cut budgets as the recession and general pessimism continues to afflict the business world. Amid the deepest and most widespread economic downturn for more than 50 years, international trade is forecast to fall by more than 13% and world economic activity to shrink by 2.7%, according to Paris-based body the Organisation for Economic Co-operation and Development (OECD).

Family-owned companies have suffered along with everyone else, but they have an inherent competitive advantage that can be leveraged to ensure they survive and prosper despite the poor business and financial climate. This advantage encompasses the well-documented benefits of committed owners, a long-term strategy, industry knowledge accumulated over generations and values such as trust, stewardship and longevity. However, such characteristics on their own do not ensure survival or success. More than at any other time, this crisis demands confident leadership and a focus on the competitive advantages created by family ownership and control. The following ideas should help you identify opportunities for improving your family and business leadership.

1. Take the tough decisions

Management's decisiveness is a critical success factor in any organisation's ability to deal with threats and give the employees a sense of purpose and safety. Nowhere is management more second-guessed than in making the tough decisions about closing businesses or divisions, delaying new initiatives, cost cutting or layoffs. Unfortunately management teams often fail to make the tough decisions and instead opt for a process that could best be described as a "death of a thousand cuts." The best recent example is General Motors who, for years, had too many brands and models compared to competitors such as Volkswagen and Toyota. Everyone knew that the right strategy was to close the smaller divisions such as Buick and Pontiac and concentrate resources on the Chevrolet and Cadillac brands, but it never happened. GM, which was the largest corporation in the world, is now bankrupt and has been delisted from the New York Stock Exchange.

During a crisis, management needs to monitor results so that they are ready to take decisions on critical priorities such as controlling assets (cash, inventories and receivables). Sam Walton, founder of Wal-Mart, had a hands-on approach to monitoring his stores competitiveness that allowed him to take immediate corrective action. Sam would ride with the Wal-Mart delivery trucks taking goods to his stores but before arriving at his store he would first stop to check the local competitor's prices. After checking the competitor's prices he knew if his store manager was beating the competition. When pricing deficiencies were found Wal-Mart prices were changed that morning to ensure their price leadership position was maintained.

2. Manage risk and contingencies

Managing risk requires increased attention to financial planning so your firm can continue to exploit its opportunities and strengthen its competitive position. Effective financial management in a crisis demands an aggressive business strategy combined with a shift in focus from growth and the bottom line (P & L) to the balance sheet and cash, debt, inventories and receivables. This financial focus demands considering the impact of different performance scenarios on long-term liquidity and debt.

Pernod Ricard, the French spirits and wine group, is a good example of a market leading family business that is working to balance an aggressive growth strategy with a solid financial structure. Last year the group had the opportunity to acquire Absolut vodka, a world-leading brand, for €9 billion. After the purchase was completed the next action was to complete a €1 billion rights offering to cover the group's financing needs until July 2013. Business risk can never be eliminated but Pernod Ricard is protected if business and credit conditions remained severely impaired. Most important their strengthened financial position ensures that they can weather the recession and still exploit the opportunities created by their acquisition.

3. Share information and communicate

Communication during a crisis serves two valuable purposes, first to inform and second to motivate. Engaged and well-informed employees and shareholders are more willing to make sacrifices that contribute to the business' future success. Listening to people's concerns and fears and allowing them to contribute ideas to creating a new vision for the family business is an important tool for strengthening long-term relationships and building commitment.

Communication in business families can be a logistics nightmare because of growing numbers of shareholders, multiple generations and increased mobility. Maintaining the family's connection is one of the goals of Younited, a web-based multimedia platform that enables business families to use technology to share information and collaborate more effectively. The real benefit is creating cost-effective ways for family members to connect person-to-person to learn more about each other, the business and their family. Edouard Janssen, one of the founders of Younited and a member of the 3000 plus Solvay family, jokingly calls it: "The secured family-centric Wikipedia/Facebook for business families." If he is right this tool is ideal for reaching the younger generation of a business family who may have limited business interest but are strongly motivated by the chance to be a part of a social network.

4. Practice effective family and business governance

If there is one thing the last ten years should have taught all of us it is that businesses need stronger governance processes that focus on leadership, accountability and performance. Effective governance is critical because family ownership shields non-performing management from the market pressures facing publicly-traded companies. If family governance is not effective then there are no forces to counterbalance management and the business can suffer from the owners' complacency. The consequences of limited accountability are missed opportunities and a loss of shareholder value.

The Dow Jones, owned by the Bancroft, family is a good example of ineffective family ownership and governance. While their entrepreneurial ancestors created financial journalism over a hundred years ago, the family's commitment to sound governance and active ownership has faded. For the last 30 years they have taken a very hands-off approach, basically delegating control of the company to management. Unfortunately the management was comprised of journalists and their focus was not on strategy or expanding the business. After the Dow Jones was sold to Rupert Murdoch a Bancroft family member observed: "That had things been run differently [Dow Jones], we might own a $50 billion business today not a $5 billion business."

Family business governance requires two basic elements. First, a capable family ownership group who is willing to constructively demand sound business strategies and long-term value creation and second, a board with a diverse membership that represents all the stakeholders' interests. Cargill, the world's largest agribusiness company, has used a strong board comprised of family members working alongside independent and employee directors as a foundation for their successful governance model. Kenneth Dayton, a member of the Dayton family and the founder of the Target Stores, described effective governance as a partnership between the board and the CEO with great boards supporting great CEOs. I would expand on this to say that effective governance also requires great owners.

5. Demonstrate values and stewardship

Family businesses are driven by values and relationships that reflect long-term commitments to their stakeholders and communities. During times of stress family members and employees need enacted demonstrations of the family's values to create a sense of stability. Continued support of philanthropy is a tangible example of a values driven organisation. It is easy to justify cutting charitable activities in the current environment but unfortunately this is when the needs of the communities we serve are at their greatest.

The Tsao family from Singapore and the Chen family from Hong Kong are engaging heavily in philanthropy by moving forward with important projects despite the current economic conditions. The Tsao family is leading the development of a new Family Business Network chapter for Asia Pacific and the Chen Yet-Sen Family Foundation is rolling out its Adaptive Eyewear programme to correct the vision of the entire nation of Rwanda. As James Chen says: "Beyond the personal benefits of correcting someone's vision is an economic development action because you create new opportunities based on improved productivity. Now is the time for action."

6. Encourage entrepreneurial behaviours in the next generation

Entrepreneurial founders launch the firm, their children professionalise it and their grandchildren expand to new markets or create new enterprises such as a family office or foundation. All of these entrepreneurial acts help the family become enterprising, grow its core business and expand into new activities. A capable and committed next generation is the most important legacy a business family can have. The next generation sustains the family legacy but also act as change agents with new perspectives on business and family. In Asia, entrepreneurship by the second and third generation is often the blending of Western management practices with Asian entrepreneurship to create a powerful hybrid model of business strategy.

BW Group, a world leader in shipping, represents this type of family development. The two succeeding generations – Dr Helmut Sohmen, chairman, and his son, Andreas Sohmen-Pao, managing director – have continued the entrepreneurial legacy of YK Pao to create one of the world's most important transportation groups. Dr Sohmen describes the difference between himself and the founder: "YK liked to receive information through personal discussions and networking, and sometimes acted on spot advice. I, on the other hand, prefer to get systematic input on the broad economic outlook before making any decisions."

Family leadership development is not an optional activity so family businesses need to develop their next generation leadership talent during both good and bad times. The Wates Group, a five-generation UK construction company, started this process five years ago. First they identified a team from the next generation who had the interest and talent to replace the five senior family members leading the firm at that time. Then they hired an outside consultant and proceeded with an accelerated programme of talent development. This included psychological assessments, custom designed executive workshops and participation by the next generation at board level. Of the seven family members who began the process, four have leadership roles, two are serving as executives in the firm and two are on the group board.

This development has given the Wates family a next generation that has the ability to make a positive contribution to the leadership of the business during these difficult times. During a recent lunch the remaining two senior-generation family leaders expressed a quiet confidence and even optimism about the prospects for their business because their next generation is in place working with a skilled non-family chairman/CEO and the board. The crisis may mean a drop in sales but their long-term vision of another century of Wates family ownership is safe. Andrew Wates, former executive chairman of the group, says: "We are at the beginning of our family journey today, not the end of it."

7. Exploit family business culture

Families are driven by values that reflect their shared beliefs, experiences and psychologies. The family's unique values and behaviours as owners and leaders shape how their family business culture develops. In Family Business on the Couch: A Psychological Perspective five family behaviours that contribute to the cultures that give business families an advantage over their non-family competition were identified: networking; goal alignment; control; time frame; and organising structures.

Family business culture is a powerful tool for motivating individual and organisation performance and creating behavioural norms that support the firm's strategy. These long-lasting, shared beliefs about how and why the organisation operates provide stability, shared learning and a unity of purpose. Long-lasting business cultures are reinforced and supported by the organisation's rewards and recognition processes as well as the myths and stories about past successes and employee heroes. The business' goals, values, vision, and strategy also reinforce the culture. The advantage of a strong culture is that it empowers employees and replaces management's dependence on administrative controls or sanctions such as policies, procedures, budgets and employee performance reviews.

A good example of the effectiveness of cultural versus administrative controls is the financial services industry. It is generally accepted that the large banks and their employees, who maximised short-term gains for their own advantage despite administrative controls, caused much of the current economic malaise. A comparison of the large, publicly traded banks and their family business peers demonstrates the impact of family cultures on performance.

Family-controlled banks such as Banco Santander, Julius Baer, C Hoare & Co, Pictet & Cie and Lombard Odier Darier Hentsch & Cie, have experienced fewer asset write-offs from the crisis and are strengthening their market positions. Their cultures, based on long-term performance and accountability, explain the stronger performance. They did not chase the quick profits as they prefer to plan and invest for the long-term. Their strong, family business cultures supported organisations where employees, management, directors and owners were all focused on building their business not their bonuses.

8. Be authentic leaders

Many business executives are facing their first deep recession and leading their firms in new ways is the most daunting career task they have faced. Critical to a leader's success is their ability to use themselves as a tool to influence and motivate others to learn new behaviours and perform at higher levels.

Authentic leadership is a concept that has many advantages to family business executives because it helps them appreciate the importance of both the technical dimensions of their work, such as planning a marketing campaign, and the human dimensions, such as developing more effective interpersonal relationships.

There are no formulas for authentic leadership because leadership is situational, based on the interaction of the leader's style, experiences and personality with the challenges his or her organisation faces. It is a personal activity that requires the leader to recognise how their values and behaviours can influence their followers to move beyond achieving business goals to building a more effective organisation.

The Agnelli family and Fiat are leveraging executive and family leadership to build long-term value. Fiat's non-family CEO Sergio Marchionne has done an excellent job of demonstrating authentic leadership behaviour through the company's acquisition of the bankrupt car manufacturer Chrysler. His empowering personal style is supporting the new Chrysler team in implementing a turnaround and new global business strategy.

John Elkann, vice-chairman of Fiat and a sixth generation of Fiat's founding Agnelli family, is leading on the family side to ensure that the owners are fully committed to a new global strategy for Fiat. The Agnelli family has always publicly supported the idea of consolidation, showing employees that Fiat has the ability to grow despite the tough economic climate. This helps lessen anxiety over the stability of the company and shows their ability to incorporate new business ideas in order to move forward.

Elkann's behind-the-scenes leadership demonstrates an important trait of authentic owner-leaders; they know their talents and roles. Elkann recognises that Marchionne has the industry knowledge and expertise to best implement the new strategy. Authentic owner-leaders resist the temptation to get involved in everything; instead they trust their managers to manage the firm. Authentic leaders support their managers, as Elkann did in June, and recognise their team's successes.

Authentic leaders also recognise the emotional impact of their leadership style on the firm and its stakeholders. Most families and their employees are experiencing anxiety about the economic crisis and it is the leader's responsibility to help contain and redirect these often-destructive emotions.

One tool family leaders can use is a new vision of how the business will succeed in the future. Leaders also need to be alert to their own fears and uncertainties to avoid slipping into a default command and control leadership mode rather than a more effective coach and control pattern that combines listening and learning with goals and accountability.

According to Napoleon Bonaparte: "A leader is a dealer in hope." If family business leaders can practise this simple idea in their interactions with employees, family members and stakeholders they will not only emerge from these challenging times with stronger organisations and more committed families, but the family business community around the world will once again assume its larger leadership role based on long-term performance, value driven leadership and stewardship.

Source: http://www.campdenfb.com/article/how-lead-your-family-business-out-crisis

Below you will find a great success story on how Bernard Loughran joined his Family Business after years of working with General Electirc. It is good practice to work away from a family business to get a broader perspective on business and one brings more knowledge & experience back with them.

While size is vastly different between multinational conglomerates and Irish SMEs, the fundamentals of running them is the same, according to Bernard Loughran, managing director of Sixt Ireland.

He should know. He was among the most senior members of staff at General Electric in the United States, before he left to join his family business, County Car Rentals in Dublin.

"At General Electric, I learned there is very little difference between running a large corporation and a small business, except for size. The fundamentals are all the same, so you shouldn't fear expansion."

Loughran got a scholarship to study engineering at UCD, before being hired by General Electric in the US. There he worked his way up to the position of management consultant in strategic planning at GE.

GE encouraged him to do an MBA at Harvard but he talked them into letting him do it at Trinity, so he could spend some time at home.
"I was promoted within the company to corporate staff. Everyone else in corporate staff had an MBA.

They registered me to do an MBA in Harvard. I had applied to do one in Trinity and got accepted there, so I did it there. I was 26."

Loughran spent 11 years with GE in the US before returning home in the late 1980s to join the family business.
"I'd never taken my eye off the family business as it was there. I saw the potential of developing it."

His parents had set up County Car Rentals in 1952, bringing "strong family values of hard work and integrity into the business," he says. His mother Kay, who is in her 90s, is still a working director in the business.

"My mum has always been very good at figures, and over the years she always looked after the books. There is a wealth of knowledge in older people. It could and should be tapped."
"She works in administration now. She has two certified accountants and four account assistants on her team. They run all accounts and operations."
He says the County Car Rentals franchise operation initially targeted traffic coming off the ferry, but later set up a branch at Dublin Airport, and began marketing itself in the long-haul flight markets, winning inbound car rentals from Australia, New Zealand, the Far East, South Africa, the UK and the US.

"We were based in Dún Laoghaire and took advantage of traffic coming off the ferry. Then Ryanair changed everything and we had to move operations to Dublin Airport. We kept our headquarters in Dún Laoghaire but opened up a branch at Dublin Airport."
In 2012, County Car Rentals won the Sixt franchise for Ireland, something Loughran says gave the company an international brand.
"Our fleet at the time of signing was overwhelmingly out of Sixt's specification, with many vehicles approaching four years of age. We needed a much larger and newer fleet."

"We had to bite the bullet and dispose of our out-of-spec fleet and acquire vehicles that met Sixt's specifications. This required large financing, a difficult task in Ireland's difficult economic climate.

"We had to convince the bank we are not in the car industry, like car dealerships are: we are in the tourism industry."
As part of the partnership, all rental offices and operations have been rebranded with a fresh new Sixt Rent a Car corporate imagery.
Marketing Ireland in other countries, Loughran showed photos of Ireland's motorway system as well as sites such as the Aviva Stadium, Grand Canal Theatre and Croke Park. He says there was a perceived image abroad that Ireland was full of tiny, winding roads – people didn't realise the country had motorways.

"We targeted Germany, Austria, Switzerland and Hungary. They brought us most of our business. We promoted Ireland as well as our car hire company."

The car rental business has taught Loughran a lot about collisions and road safety.
"Renters have different types of accidents that non-renters. A lot of accidents that renters have relate to the fact they are not used to driving on the opposite side of the road.

"We put an arrow on the windscreen, with a reminder to keep left," he says, adding that it has greatly helped to reduce collisions among car renters.
He said the idea came from a project he had previously worked on which was classified at the time. In that project, a "head- up" display was developed for aircraft, to help pilots. It was a transparent display that reminded the pilots without requiring them to look away from their usual viewpoint.

"The patent on that head-up display ran out. I used a simple version of that to tell people what side of the road to drive on. It was an immediate success. We took away the patent we had on ours, and allowed anyone to use it."
He says other companies copied every aspect of his head-up display.

"I made a spelling mistake in the Italian translation of 'drive on the left'. Some competitors did the same, funnily."
Comparing the second half of 2014 with the second half of 2015, he says the rate of serious accidents among car renters was reduced by 66 per cent.
"We work very closely with Sixt headquarters in Munich on everything.

They're a family business too. It's run by Mr and Mrs Sixt. I learned from them that if I wanted to be successful I had to have a very good team around me, so I did that."

Source: http://www.irishtimes.com/business/work/family-values-drive-growth-of-sixt-ireland-car-rental-business-1.2670034

One sensitive issue for midsize companies, particularly family-owned businesses, is succession. How does one generation pass on control to the next?

MR. KEYT: Family business, when leveraged correctly, can actually be a great opportunity for millennials. Millennials love to have meaning and purpose in what they do, and when a family is behind the business's values and its vision for the future, it can be really empowering to a millennial.

MR. BERMAN: It doesn't make much sense for a family business to be passed on to family. It should be, at least in theory, passed on to the person with the best economic outcome for that enterprise.

MR. KEYT: The best family businesses have that approach. Family businesses, when working well, understand that we have to do what's right for the business, and to balance that with what's right for the family and the family's economic interest.

MR. BERMAN: What percentage of businesses have that enlightened view on the world?

To read the full article, go to: http://www.wsj.com/articles/the-difficulty-of-succession-for-family-businesses-1464832923

Nearly 75 years ago a charismatic Brazilian entrepreneur named Enrique Rosset started an eponymous textile and apparel manufacturing company in São Paulo. Some 40 years later he and his oldest son decided to diversify by acquiring Valisere, an upscale but failing lingerie business.

Over the decades, Enrique and his four sons transformed their operation into one of South America's leading textile and apparel manufacturers. During the 1990s Grupo Rosset expanded into swimwear, with great success. But the family knew the business faced critical strategic challenges.

The rise of shopping malls was weakening the small Brazilian retailers who'd made up Rosset's primary distribution channel. Chinese imports were beginning to pose serious competition.

The advent of digital fabric printing would undercut Rosset's core manufacturing strength unless the company adopted the technology itself. Enrique's sons, who'd led the firm for 20 years, had to make a crucial decision about which of the five members of the third generation should assume the leadership role.

In the United States, a familiar aphorism—"Shirtsleeves to shirtsleeves in three generations"—describes the propensity of family-owned enterprises to fail by the time the founder's grandchildren have taken charge. Variations on that phrase appear in other languages, too.

The data support the saying. Some 70% of family-owned businesses fail or are sold before the second generation gets a chance to take over. Just 10% remain active, privately held companies for the third generation to lead. In contrast to publicly owned firms, in which the average CEO tenure is six years, many family businesses have the same leaders for 20 or 25 years, and these extended tenures can increase the difficulties of coping with shifts in technology, business models, and consumer behavior.

Today family firms in developing markets face new threats from globalization. In many ways, leading a family-owned business has never been harder.

The high failure rates of family businesses may seem unavoidable. They're not. In our work advising these types of companies, we see them repeatedly caught in the same traps. Recognizing and learning to avoid those traps can boost the odds of long-term survival.

Trap #1: "There's Always a Place For You Here"

Some proprietors of family-owned firms make their children feel obligated to join the company, which can backfire by creating a crop of managers who aren't interested in being there. More often, though, we see parents emphasize that their offspring are free to join the business if they so choose. If the company is successful, those children are likely to have been raised amid wealth, which broadens their choices as adults. Generally this situation translates into an unspoken promise that "there's always a place for you here," which can lead children to treat the business as a fallback option. We've encountered many companies that are populated by next-generation members who failed in other businesses or spent their 20s (and sometimes their 30s) as aspiring athletes, artists, or musicians before signing on to the firm as unprepared 40-somethings. Despite their lack of experience, these offspring may ascend to leadership positions because of the family connection, increasing the chances that the business will fail.

To escape the trap: Insist on proper training and screening.

It's natural for a family business to welcome members of the next generation, and it's healthy to expose them to the company at an early age, so that they can make an informed decision about whether to pursue a career there. But a job with the company shouldn't be an entitlement. Those who want to join deserve no special accommodation. We now see an emerging best practice in which families formally require any child who wants a job to (a) earn a university degree—and in some cases a graduate degree, (b) gain several years of relevant professional experience outside the family business, and (c) apply for open positions in competition with nonfamily applicants. At one European firm we know of, family members applying for a job must be at least 26 years old, have earned a master's degree in business or engineering, speak three languages, and have won two promotions within five years at a nonfamily firm. And they are given only one opportunity to apply: If they're turned down, they must go elsewhere.

Even firms that already employ many family members can benefit from rigorous performance and potential assessments. At Gerdau S.A., the four brothers in the fourth generation of the Johannpeter family had run the business very profitably for more than 20 years when they began thinking about succession, in the mid-1990s—long before they planned to step aside. They hired a search firm to evaluate Gerdau's top 60 executives, including five next-­generation family members, for appointment to a newly created executive committee. They used this objective assessment to encourage some family members to pursue careers outside the business. Those people left gracefully and did well in other endeavors.

Four years later the family worked with another set of outside advisers to identify five candidates for CEO. Among those recommended were two fifth-generation cousins with extensive experience in the business. The company sent the two for advanced executive training at leading U.S. business schools and subsequently put them in charge of key business units for several years. In late 2006 the top-­performing family member was appointed CEO, and his cousin became COO. Today four of the five CEO candidates remain with Gerdau, and the company's revenues have grown from $13 billion in 2006 to $20 billion in 2010.

Trap #2: The Business Can't Grow Fast Enough to Support Everyone

An underappreciated problem is that families often grow more quickly than their businesses do. If a company founder has three children, each of whom marries and produces three more children, each of whom marries, within three generations there could be 25 people or more (including all the spouses) working or looking to work at the company. Many businesses simply don't have enough work to employ every family member.

To escape the trap: Manage family entry and scale for growth.

Families that have avoided Trap #1 by ensuring that only committed, qualified relatives are allowed to join the firm have already reduced the magnitude of Trap #2. Another solution is to develop strategies to grow the business and create responsibilities for additional family employees.

Mitchells, a high-end clothing retailer in Westport, Connecticut, took this approach. Jack Mitchell and his brother, Bill, inherited the store from their father, Ed, who'd founded it in 1958. A decade ago, as Jack and Bill anticipated handing leadership to their seven children (each of whom had graduated from college and obtained relevant experience before joining the store), they realized that the business would have to grow to provide enough high-level roles to go around. Mitchells' key strength is a customer relationship management system that helps salespeople bond with clients and suggest suitable products for them. In 1995 Mitchells bought a failing men's clothier in nearby Greenwich and utilized its own CRM system to turn the store around. Since then it's acquired retailers on Long Island and in northern California and has dispatched members of the next generation to run the stores in those locations. This strategy not only provided sufficient revenue to support the various family employees but also gave all of them their own operations to lead.

Trap #3: Family Members Remain in Silos According to Bloodline

One of the most striking things we've noticed about family businesses is the tendency of fathers and sons (and increasingly daughters) to specialize in the same aspect of the business, whether it's finance, operations, or marketing. This can be problematic for several reasons. First, by staying in specialized silos, next-generation managers fail to gain the cross-functional expertise needed for executive leadership. Second, when close family members supervise one another, the personal dynamic can prevent candid feedback and interfere with coaching. Together these factors can create a leadership vacuum in the up-and-coming generation. This may prompt the current generation to stay in the top positions too long, limiting the company's adaptability to change.

To escape the trap: Appoint non­family mentors.
In a small enterprise, it may be impractical to prohibit family members from supervising one another. But even in these cases, companies should minimize the time that employees spend working for immediate relatives. Some companies assign an experienced non­family mentor to each younger family member, to provide the objective performance evaluation and critical advice an employee in a nonfamily business typically gets. For this to work, the coach must operate under a protective umbrella, immune from retribution by the family.

It's unrealistic to think you can create a nepotism-free family-owned business, and it's important to recognize that family enterprises will always operate by different rules. For instance, even the largest family-controlled, publicly traded firms manage dividends differently from the way non-family companies do. It's also worth recognizing that family ownership can provide a welcome counterbalance to the short-term incentives offered to most managers. To survive over the long haul, however, family firms need to adopt formal policies about whom to employ, whom to promote, and how to balance family and business interests. If more companies take these steps and survive the treacherous transitions from one generation to another, everyone will benefit.

Source: https://hbr.org/2012/01/avoid-the-traps-that-can-destroy-family-businesses&cm_sp=Article-_-Links-_-End%20of%20Page%20Recirculation

The statistics on the unhappy fates of family businesses are well known in the wealth-management world.

Only 30 percent of family businesses make a successful transition from the founders to the second generation, 13 percent make it to the third generation, and just 3 percent make it to the fourth.

Those statistics don't reflect the fact that many families choose to sell their businesses and/or successfully enter new businesses and new markets, but they do highlight the very difficult path that families have in maintaining ownership of a business.

"Family businesses account for a big percentage of [gross domestic product], but they are inherently fragile and subject to fragmentation," said Douglas Box, founder of Box Family Advisors. "That's borne out by the data on the lack of successful successions. Even those lucky enough to make a transition will still have major challenges," he added.

The thousands of family businesses run by baby boomers approaching retirement age have some big decisions to make. And with thin and increasingly volatile markets this summer suggesting that the time to sell is running out, those decisions are all the more crucial to a family's well-being.

"A lot of people regret not selling [their businesses] before the great recession of 2008," said certified financial planner Bob Klosterman, founder of White Oaks Wealth Advisors.

All families are unique, with their own dynamics and dysfunctions, and there is no ideal fix to optimize the management of a family business and protect the family's wealth. Business owners typically need the full array of professional services, from lawyers and certified public accountants to financial advisors, estate planners and family psychologists.

However, it's not the tax strategies or the trust vehicles, the investment programs or the estate-planning tricks that matter most for owners and members of a family business; rather, it's the "soft" stuff, like communication, emotional honesty and a willingness to consider the perspectives of all family members.

"There can be multiple good choices for families owning businesses," said Judy Green, president of the Family Firm Institute, which conducts education for owners of family businesses. "It's about how families will agree to come to decisions. It's a process, and being willing to engage in the process is the biggest thing," she explained.

While wealthy families aren't likely to get a lot of sympathy for their troubles, the truth is, businesses can often become a major source of conflict, uncertainty and general fear and loathing among family members. Rivalries and resentments, and unresolved issues between parents, children and siblings can and do destroy wealthy families.

The key to avoiding that, say advisors, is to give a full airing of the family's dirty laundry and to consider basic questions about the importance of the business to family members.

"The odds are against high-net-worth business owners from the get-go," said Jim Brennan, a senior family wealth advisor for GenSpring Family Offices. "Families often address complex planning issues first instead of determining the wishes of the second and third generations. They need to do the family stuff first."

Here are three basic questions family business owners need to address before getting into details about how best to manage a transition in the business and preserve their wealth.

The statistics on the unhappy fates of family businesses are well known in the wealth-management world.

Only 30 percent of family businesses make a successful transition from the founders to the second generation, 13 percent make it to the third generation, and just 3 percent make it to the fourth.

Those statistics don't reflect the fact that many families choose to sell their businesses and/or successfully enter new businesses and new markets, but they do highlight the very difficult path that families have in maintaining ownership of a business.

"Family businesses account for a big percentage of [gross domestic product], but they are inherently fragile and subject to fragmentation," said Douglas Box, founder of Box Family Advisors. "That's borne out by the data on the lack of successful successions. Even those lucky enough to make a transition will still have major challenges," he added.

The thousands of family businesses run by baby boomers approaching retirement age have some big decisions to make. And with thin and increasingly volatile markets this summer suggesting that the time to sell is running out, those decisions are all the more crucial to a family's well-being.

"A lot of people regret not selling [their businesses] before the great recession of 2008," said certified financial planner Bob Klosterman, founder of White Oaks Wealth Advisors.
All families are unique, with their own dynamics and dysfunctions, and there is no ideal fix to optimize the management of a family business and protect the family's wealth. Business owners typically need the full array of professional services, from lawyers and certified public accountants to financial advisors, estate planners and family psychologists.

However, it's not the tax strategies or the trust vehicles, the investment programs or the estate-planning tricks that matter most for owners and members of a family business; rather, it's the "soft" stuff, like communication, emotional honesty and a willingness to consider the perspectives of all family members.

"There can be multiple good choices for families owning businesses," said Judy Green, president of the Family Firm Institute, which conducts education for owners of family businesses. "It's about how families will agree to come to decisions. It's a process, and being willing to engage in the process is the biggest thing," she explained.

While wealthy families aren't likely to get a lot of sympathy for their troubles, the truth is, businesses can often become a major source of conflict, uncertainty and general fear and loathing among family members. Rivalries and resentments, and unresolved issues between parents, children and siblings can and do destroy wealthy families.

The key to avoiding that, say advisors, is to give a full airing of the family's dirty laundry and to consider basic questions about the importance of the business to family members.

"The odds are against high-net-worth business owners from the get-go," said Jim Brennan, a senior family wealth advisor for GenSpring Family Offices. "Families often address complex planning issues first instead of determining the wishes of the second and third generations. They need to do the family stuff first."

Here are three basic questions family business owners need to address before getting into details about how best to manage a transition in the business and preserve their wealth.

1. What's the purpose of the business?

It may be self-evident that a family business is intended to support and sustain its family members, but business owners need to address the basic issue of what the business means to the family.

"One of the biggest questions owners need to answer is why ... they [are] in business," said Joan Ridley, a certified financial planner and president of Business Wealth Solutions. "Is the purpose of the business to keep family members employed, or is to grow family wealth?"

The answer to that question can and likely will differ depending on which family members are asked. It's crucial that the desires and expectations of all members of the family are understood, and in most cases it will require the help of an outside counselor or psychologist to get there.

"It can get ugly," said certified financial planner Grant Rawdin, founder and CEO of Wescott Financial Advisory Group, which has an organizational psychologist on staff. "There can be a lot of hard feelings, and it's important for them to come out," he explained, adding, "Sometimes they can be petty grievances or childhood issues, and sometimes they can be smart and important to the business."

2. Do you have a 'family constitution'?

Once a full airing of family issues is undertaken, the next step is to draft a "family constitution," or mission statement, that can serve as a blueprint for making important decisions.

"Everyone has opinions about how things should work," said Klosterman of White Oaks Wealth Advisors. "With a lot of people involved, it's very difficult without a process. It's crucial that families develop a unifying message about running the business and about their interaction with their community and each other," he added.

GenSpring's Brennan starts the process with anonymous surveys of all family members to determine the values that are important to each of them. From there, he looks to build a structure for a business plan to fit those family values. "We try to make a compilation of shared family values and not focus on disparate values of family members," he said. "Consensus is the goal."

3. Succession or sale?

Once the answers to the first two questions are determined, business owners will be in a much better position to decide whether a business should remain in the family or be sold to outsiders.

Business founders may want their children to succeed them, but their children may not have the qualifications or desire to take over the business. In some cases, family conflicts may be so bitter that an internal transition may be impossible.

Box at Box Family Advisors suggests families go slow and make sure they consult all members about their views of the business and their aspirations. "The worst decisions are usually made when Dad and a lawyer cook something up without consulting anyone else," he said. "This is where families blow up."

"Families often don't realize they're held together by a business, and when they sell it, they fall apart."

Box also said that selling a business is usually his last suggestion to clients. "Families often don't realize they're held together by a business, and when they sell it, they fall apart."

When Box's father, former professional football player Cloyce Box, died, he and his three brothers went through a bitter conflict that ended up in a forced sale of the oil business their father founded.

"The family enterprise had kept us together; now we don't have as much to talk about," he said. "There's a bond that will never be there again because of what we went through."

Source: http://www.cnbc.com/2014/08/25/advisors-help-small-biz-owners-keep-it-in-the-family.html

Here's a sobering fact for entrepreneurs passionate about their business creations: Most family-owned businesses lose that creative spark in subsequent generations.

The reason is that the personality traits that spur a founder to create something unique—passion, hunger, obsession and others—disappear over the years. The company either crumbles quickly or lingers on as growth sputters and the family lives off wealth accumulated by previous generations. Often, they end up pouring more and more money into the failing enterprise or treat running the business as a lifestyle choice rather than a way to bring in money.

But it's not impossible for family businesses to keep the entrepreneurial fire burning. Some companies not only last a long time, but keep growing and evolving.

We decided to investigate that question, along with our colleague Sabine Rau from King's College in London. We studied 21 family-owned wineries in Germany that were ready to make a generational transition. The average winery was founded 11 generations ago in the 18th century, and the oldest started passing the torch 33 generations ago in the 10th.

We interviewed the current generation's leaders and their children, who were in the process of taking over. About half claimed to have maintained a spirit of entrepreneurship and innovation across generations, being among the first in their industry to take steps such as growing new grape varieties, introducing new products and adopting the latest production technologies.

We called the other half of the wineries "traditional." They were stable or growing slowly, but they never claimed to be particularly entrepreneurial, and the current generation followed rather than led, only adopting new technology or entering new markets after competitors paved the way.

Our conclusion? Five factors distinguish the very entrepreneurial families from the ones that were following a well-trodden path.

They pass along family history.

The innovative families have what we call an "Entrepreneurial Legacy" that is passed from each generation to the next: a narrative about the family's achievements and how it survived tough times, such as the great-great-great-great-uncle who rode his horse to Paris to repurchase the family winery at auction after it was seized by Napoleon. Stories of how the family overcame theft, natural disasters, economic hardship and war are told repeatedly at the dinner table and family gatherings. They give meaning to today's entrepreneurial actions and put current risks and problems in a broader context. It is hard to complain about losing a customer knowing your great-grandparents overcame war and starvation to build the business.

In contrast, both generations in the less entrepreneurial "traditional" wineries either lacked knowledge about their history or played it down as a product of chance. They lacked pride in their ancestors' achievements.

They get the youngsters started early.

Entrepreneurial families immerse their children in the business from an early age. From planting and pruning vines to packing and shipping bottles, the children—and members of the extended family—are involved. These families actively resist the view that childhood is foremost a time to play and explore.

Children in the traditional wineries, on the other hand, didn't make their children work regularly in the family business, and some parents even considered it harmful. As a result, the children didn't develop the same kind of emotional attachment to the business.

They insist on practical education.

Both entrepreneurial and traditional families encourage secondary education. But while the traditional parents encouraged their children to find their own paths, entrepreneurial parents endorsed attending the best colleges in the world and encouraged studying topics that are relevant to winemaking, such as business and law. After college, before joining the family business, most children from entrepreneurial families went to work for competitors or in other wine-related businesses around the world.

Both groups came home well educated, but only the entrepreneurial children were also multilingual global citizens, poised to grow the family business. For children from traditional firms, taking over was "an obligation" and a "family tradition," but not an "entrepreneurial passion."

They learn from the younger generation.

As a result of embracing the family's entrepreneurial legacy, childhood immersion in the business and a strategically focused world-class education, entrepreneurial families enjoy "entrepreneurial leaps" when a child comes home and re-enters the business.

Traditional family firms use a "relay" succession, where the parent and child work together so the child can learn the business. In entrepreneurial families, though, the child is the teacher. The parents run day-to-day operations while the children use what they learned outside the family firm to develop new product lines, enter new markets and adopt the latest winemaking technology.

They have one owner.

Period. Finally, entrepreneurial families protect their businesses from being sold or split by giving ownership to one child. The successor inherits a social obligation to take care of his or her siblings, but the philosophy is that the family is better off with a successful winery that benefits everyone, even if it means that the children receive unequal inheritances.

Also, because all siblings grew up the same way and were offered the same educational advantages, even those who don't take over the family business still benefit from their entrepreneurial legacy.

In fact, siblings in entrepreneurial families regularly pursued educational paths similar to the designated successor. Although the siblings weren't given the family business, they were given financial and emotional support for their own entrepreneurial ventures, most of which were in the same or in related areas, such as wine stores, restaurants and hotels.

A related step is that entrepreneurial families actively integrate future in-laws into the family by including them in family retreats and shared holidays. A few even hired consultants to help them improve family communications. Good relations with in-laws help cultivate the next generation of entrepreneurs, while poor relations often fuel the demise of entrepreneurial families.

Can the same strategies work in today?  A number of trends may make it difficult. Families are getting smaller, as well as less cohesive and less stable—which means fewer potential successors and a tougher transition from one generation of ownership to the next. Childhood is also increasingly viewed as a time for play and innocence, not a time to work. And the idea of giving one child more than another strikes many parents as unfair.

Still, families can share stories, and the evidence we found suggests that telling and retelling tales about the family's entrepreneurial legacy inspires children toward entrepreneurship, both inside and outside the family firm. If there is an entrepreneur in your family, tell his or her story. It might become the steppingstone toward an entrepreneurial legacy that lasts for generations.

Source: http://www.wsj.com/articles/how-to-keep-a-family-business-alive-for-generations-1448045760

In a family business, the impact of any profits are seen and felt daily by those involved in the business, as well as those affected by the business' performance. A good turnover means those extra lessons for an owner's child, or a new home for a family member.

The business is borne out of the family's need, and its main responsibility is to look after those involved in it.

So how is profitability measured in a family business?

True profitability in a family business is not just about the figures and bottom line – but is rather measured in the goals and lives of the family behind the business.

Family Stakeholders must see the profit going towards the right expenses.

The firm can get buy in from stakeholders when they can first see that family members within the business are looked after properly in terms of salary and benefits, and how family members affected by, but not directly involved in the business, are treated by the company's Related Party Transaction Policy.

Lastly, the Philanthropic Expenditure Policy is also of high importance to stakeholders – showing that money is being spent on the right causes that are close to the family's values.

A family business is still a business

As much as the context and qualitative element of the profit is important to the business, so is the quantitative results to discern just how well the business is performing.

In order to know if the year's profit is good or not, it must be measured against the following:

Last year's profit yield
Expected profit
Return on owner's equity
Profit margin
Return on assets

These factors gives the profit true context and meaning to determine the health of the business in its own right, and not against the family's needs. As important as it is for the business to serve the family, it can only do that successfully when it is treated as its own free-standing entity, with its own needs, when it is assessed.

Who gets to decide on the profitability goals?

Considering the sometimes differing goals of these two entities – the family and the business – within a family business, it's important for a middle ground to be struck.

While the voice of the family in the different levels of the business are important, at the end of the day decisions regarding the business should be left in the hands of shareholders and shareholders alone. They are the ones with feet in both camps and will have the needs of both the family and the business at heart.

No decision should be made in a vacuum though, as for the family to continue to support the business, they need to understand and buy into the profitability goals of the business at all times.

Source:http://www.kpmgfamilybusiness.com/profit-is-personal-for-a-family-business/