The challenges and dynamics of change and succession in a family owned business. W. (Bill) McArthur
Grandad did you fire dad? Grandad, did you fire dad? � Extra variables in a family owned business. � A system of values must be inculcated early and consistently early and consistently. � Benevolent dictator or autocrat?
Grandad Grandad – you fired Dad! you fired Dad! � Family not always the right answer to the F il t l th i ht t th business question. � The extra family dynamic overlaid with the Th t f il d i l id ith th work dynamic can be dynamite. � Difficult in separating decisions into “family” Diffi lt i ti d i i i t “f il ” and “business” � It became clear an independent director It b l i d d t di t was needed. � Son tendered resignation S t d d i ti � New CEO appointed
The CEO Perspective The CEO Perspective � Decision to sell part of a wider plan D i i t ll t f id l � Governance/Board essential in the sale process. � Overall main issues were: � Poor performance of some Board Members � Significant different agendas for buyer and g g y seller � Impact of confidentiality on the process. � Emotional impact as a family owned business.
Poor Performance of some of the Board Members � Attendance at Board Meetings is essential. � Even the best pedigree doesn’t guarantee a great fit guarantee a great fit. � The culture has to be open, fair, and honest honest.
Board Members – Lessons learned � All Board Members should be remunerated � Commitment to attendance, being prepared and participation is essential prepared and participation is essential � Board members need to be comfortable challenging the o ner and the CEO challenging the owner and the CEO � A great pedigree and great references are no guarantee of successful directors.
CEO Perspective: Different agendas of the Buyer and Seller � First offer fell over at the 11 th hour � Second (successful) offer from outside ( ) the metal industry � Sale based on 2008 figures buyer � Sale based on 2008 figures, buyer bought based on YTD 2009 � Weak Due Diligence – buyer wanted the business ASAP
Agenda of Buyer and Seller – Lessons Learned � Senior Management and owners need challenging by their advisors and board. � Choosing advisors and board is the single biggest (and hardest) job for the single biggest (and hardest) job for the owner. � Poor decision making on the part of the � Poor decision making on the part of the buyer has huge impact on the seller and th i their ongoing business decisions. i b i d i i
CEO Perspective: Impact of Confidentiality � Metal fabrication in Hamilton is very porous � Knowledge of the sale would have had serious consequences serious consequences � External participants didn’t all have great s stems to manage confidentialit systems to manage confidentiality � Internal confidentiality and timing was a significant issue.
Impact of Confidentiality – Lessons Learned � Clear expectations for confidentiality for Cl t ti f fid ti lit f ALL participants must be communicated and maintained throughout the process. d i t i d th h t th � Have your business ready for sale internally to minimise this issue. � Plan in advance how to manage staff if g they become difficult (assume they will) � As CEO ensure the guidelines and g boundaries from the Chair are clear and documented.
CEO Perspective: Emotional Impact as a family business � Staff attachment to the owner was far greater than understood � Succession and selection of Directors had family and personal influence had family and personal influence � A sale process is a bad time to have to deal deal with governance issues ith go ernance iss es � The choices the buyer makes for advisors/directors will impact the seller
Emotional Impact – Lessons Learned Learned � Governance doesn’t have to be big, but it is essential that Board composition is right. � Not all governance decisions are made � Not all governance decisions are made with a wide enough view to future requirements requirements. � Owners must not be afraid to be challenged by the Board – must be h ll d b th B d t b brave.
Conclusion Conclusion � In porous family businesses the workable governance model is difficult to achieve. � Governance cannot address all the � Governance cannot address all the issues of a family business, but it is an essential part of success and essential part of success and succession. � The whanau model for governance is Th h d l f i where the future lies.
Four Principles Four Principles � Kaitiakitanga – Stewardship and protection. � Tau utuutu – reciprocity. � Taunga tuku iho � Taunga tuku iho – Recovering and Recovering and holding on to the treasures and kno ledge knowledge. � Pakeha tanga – financial literacy.
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