| |
| |
|
|
| |||||
| HOME | SUBSCRIPTIONS | BOOKSTORE | FB LISTS | ARTICLES LIBRARY | CURRENT ISSUE |
| |||
| E-NEWSLETTER | ADVISER DIRECTORY | ADVERTISING | CONTACT US |
| ||||
|
Business-Building TipsHere are ideas from our current issue that may be helpful in running your family business. Subscribers can access the full text of these articles in the Summer 2008 issue of Family Business or in our online archives. Visit our online circulation office to order a subscription. Protect your business from economic woesHere are some steps you can take to ease the impact of today’s tough economic climate on your company:• Research your customers and your suppliers. It’s critical to track the credit standing of your largest customers and suppliers, using online sources and other research tools. For example, at the moment your customers may be keeping current on their accounts with you, but that does not mean they are paying other creditors on time. You also want to know if they are in good standing with their bank. Their credit standing can change quickly, so you want to track this regularly. • Offer incentives, such as discounts or extra features, to customers who pay earlier or who pay cash. This can reduce your exposure and even increase sales. • Diversify your group of customers, suppliers and bankers so one large account, or one dried-up bank line of credit, will not be able to drag you down. Instead of shrinking your marketing budget, this is a good time to intensify your marketing effort to develop new customers. It’s also a good idea to shop around for fallback suppliers and bankers. • Double your communication with employees. Make them understand there’s an open door if they need to talk about any financial difficulties they are experiencing. Consider offering personal finance workshops to employees as well as shareholders. —From “The current credit crunch: An equal-opportunity crisis,”
Who should be your ‘chief emotional officer’?In the last year or so, more family firms have recognized the need for a “chief emotional officer.” They understand that their company’s emotional health is just as important as its financial health. As the family grows and interpersonal issues become more complex, they realize someone should be the point person for providing emotional support and ensuring that family traditions and closeness are preserved.The CEmO is often an informal position filled by a family member or close adviser. But you shouldn’t give this title to your Aunt Tillie just because she’s a good listener. Here are the character traits you should look for: 1. Someone with a high degree of emotional maturity 2. Someone with a healthy ego and self-confidence who does not require ongoing affirmation and external reinforcement. 3. Someone who is trustworthy and maintains boundaries. 4. Someone who respects family traditions and supports family values. 5. Someone who understands the difference between being in the “middle” of things and being the “center” of things. 6. Someone who will step up and speak out when irregularities occur. 7. Someone who is a skilled and savvy communicator and can deliver authentic messages in a way that can be understood by the recipients. 8. Someone with excellent listening skills. 9. Someone who has experience in playing a similar role. 10. Someone who can tailor his or her approach to a given situation and set of participants. —From “‘Chief emotional officer’ role involves daunting challenges,”
Trust trade-offsCountless family businesses have placed operating family businesses under the control of trusts. They have good reasons for doing so.Trusts can reduce or, in some cases, even eliminate estate taxes. They can protect business assets against claims arising from divorce, creditors or lawsuits. They can allow business leaders to take care of heirs who are too young, not business-minded or otherwise incapable of managing the affairs of the company. Yet trusts involve trade-offs. They can become complex entities that may require the help of professional advisers to set up and maintain. Trusts may involve a loss of direct control of the assets. Third-party management can range from meaningless to absolute. This issue is often very important to the family business leaders who are often the grantors of the trust. Problems sometimes occur if later generations feel they are competent to manage their affairs. The next generation may resent the presence and activities of a trustee. Trusts may serve as focal points for discontent and conflict among family members who view the trust and its management as anything but a benefit. The potential problems in such cases can be tough to overcome, especially in the cases of dynasty trusts intended to preserve assets across multiple generations. For instance, trusts may last much longer than people, requiring the replacement of the original trustees with new ones. Trustees often have very broad powers, and they may take actions that the current beneficiaries — and even the original grantors — would disagree with strongly. —From “Grantors must act to clarify the personal side of trusts,”
An evolutionary perspective on business governanceAt the entrepreneurial stage, governance of the business is accomplished at the kitchen table by the founder and his or her spouse. A family business’s first advisory group often consists of longtime friends whose loyalty and deference can be counted on. Later, a founder may add independent advisers with specialized business experience.With each new level of formalized business governance, a founder’s willingness to share information, to be held accountable and to be evaluated on the basis of financial performance and leadership is challenged. In a family business, this is a significant test. At some point in the evolution of a family company, the value of establishing a board of independent directors overrides the advantages of less formal governance. The timing of this shift depends on the growth in size and complexity of the business, the ownership configuration and progression from founder to second generation and beyond. One of the board’s critical roles, for example, is to manage risk. Outside stakeholders — bankers, vendors and strategic partners — view a family business with a well-qualified independent board as a more desirable corporate partner. Thus, as a family business grows, highly skilled outside advisers or directors become ever more important for creating better business relationships. And as the number of owners increases in succeeding generations, the board’s fiduciary obligation grows. It is no longer sufficient to have advisers solely in support of the CEO. Instead, the board should have a majority of truly independent directors whose foremost responsibility is to represent the interests of all the owners. A well-structured board can also assist in selection, evaluation and mentoring of next-generation and non-family leaders. When a family company has reached the mature stage of development, its board should have a majority of independent directors, each of whom has been carefully selected based on the skills and experience needed to help the business achieve its strategic direction. To ensure strong links among the board, family and management, the CEO and another family member should also serve on the board. —From “Good governance is essential for a family and its business,”
| |||