Keeping the Family Together

Fractured family relationships are certain outcomes for family business owners who fail to plan for and manage the challenges of generational transition of ownership.

Passing over the ownership and management baton in family and privately-held firms creates risks and presents often far greater challenges to the owners than they have ever before faced in their business lives. CAD Partners (www.cadpartners.co.nz) have joined the linchpin group, who are leaders in succession planning in Australia.

CAD Partners NZ Principal, Paul Vlasic recognized the important role advisers can play in assisting their clients through this very difficult period. However, what Vlasic also found appealing in the linchpin group's approach to its clients was the multi-disciplinary approach which lies at the heart of their advice.

"Advisors working successfully in the field of generational transition are confronted by a whole range of complexities" says Vlasic. "When we first started to look closely at finding the right solution for our clients, we knew that we needed to be well-equipped to deal with what we recognized as two sides to family businesses - the 'hard side' and the 'soft side'" Vlasic explains.

As experienced SME and family business advisers, Vlasic's team was well used to dealing with the 'hard side' of their clients' business - the vision, the business model, and the financial issues. Says Vlasic, "What we needed, however, was an approach which gave us the tools and insights to be able to deal with the 'soft' side - the people side - as well.

Bill Hovey, the CEO of the linchpin group australia approached us seeking an expression of interest in dealing with this issue here in New Zealand. We've evaluated their methodologies, been trained in their processes, and are delighted to be able to present to our New Zealand family business owners what is undoubtedly the best example of a holistic and comprehensive approach to generational transition in business."

Vlasic feels that the multi-disciplinary approach - which sees an integration of advice from the client's existing advisers as well as a range of external experts - offers family business owners the greatest chance to succeed in the generational transfer of their business. "Our starting point is to help our clients maximize the capital value of their business at a time which best suits them"."We integrate our own advice and recommendations with those of a broad range of professionals - including lawyers, financial planners, psychologists, tax specialists, debt specialists, and so on."

"Our clients know that by enlisting the expertise of others, the many issues arising from generational transition are professionally handled Those issues usually range from planning for the succession itself, wealth transfer, ownership structures, and family dynamics." Vlasic knows that the linchpin approach also best prepares him, his team and his clients for dealing with conflict and balancing the agendas of all family and non-family members who are involved in the transition. The result is a leading edge approach known as Business Transitions that straddles all of the above issues.

A Case Study
Barry and Kerry Barclay are the founders and principals of a manufacturing company. Recently, Barry and Kerry reached an important milestone in the life of their company. The company, which was founded in 1984, started with only three employees and has grown to employ almost 100 people. Barry and Kerry realized that they did not have a plan in place to ensure the future of the company.

With two children, both of whom have entered the business, and a highly skilled management team to consider the Barclays knew the time had come to address the issue of how the management 'baton' might be passed on a how the company would grow into the future.

"At my age (61) you start thinking of what happens when you retire, or die or become incapacitated," said Barry Barclay. "I knew I only wanted to work a few more years and wanted to make sure that the company was in good hands. I wanted to continue in a role as a consultant, and to contribute to the R&D effort which had been such an important part of our previous success." "It was important to me to know that our sons would take over the management of the business as joint managing directors. Both have been in the business since they left school, and they have both chosen to stay," added Kerry Barclay. "Another major concern to me was our estate planning, I was also aware and concerned that neither of the boys had adequate insurance cover - or even a will! By putting together a comprehensive plan we were able to address all of these issues."

The Barclays sought the advice of their accountant who introduced them to Bill Hovey, of the linchpin group , whom they engaged to assist with the issues. "We find that many business owners wait until succession and generational transition is upon them. For those people, succession is a crisis. Our view is that succession and generational transition is a process which should be planned, implemented, and reviewed over a number of years prior to the owners' exit. With the luxury of time, the decisions the Barclays made were well thought-out and based on a unified approach," said Hovey.

Hovey has developed a multi-disciplinary approach to the issue of business generational transition which is a model that any family or privately held company can utilize. His model is also just as relevant to professional firms and partnerships where the issues and agendas are often quite similar to those experienced in family and private business. Hovey and his linchpin group is as much at home in a manufacturing plant as in a chartered accounting or law or architectural firm.
The key to the linchpin group's approach which is appealing to Vlasic is that the group does not try to be all things to all people. In fact", says Vlasic, "we explain to our clients that our role is to facilitate, co-ordinate, and deliver best advice. And we do that with the client's existing advisers as well as others who can 'top up' the expertise pool."

Vlasic sees his role as mentor and 'conductor'. The course with the client is often set during a comprehensive discover process where everything about the business and its people is turned over. Other professionals (lawyers, accountants, financial planners, and so on) are asked to participate in the process at various points. The discovery process starts with a series of interviews conducted by Vlasic with owners, family members, management, staff, and even customers to establish each of these groups' unique perceptions of the company. An important focus here is on the risk associated with a change of management or ownership. A family retreat and/or an executive retreat will provide a valuable set of insights. The purpose of each is to clarify the goals and strategies, and to work though any perceptible barriers to those goals and strategies being met. For the family members, their retreat also allowed them to develop their own personal career plans, create a family mission statement, and define their future roles in the company.

"One of the best things to come out of the family retreat was the opportunity to ask many of the unasked questions of our children - did they really want to take over the business? Did they think that they could jointly fill the role of managing director? Was each of them up to the task? What were the ambitions of their wives for their children in relation to some future role in the business?" said Barry.

"Both boys and their wives were able to use the retreat as a forum to put to the table a number of issues and concerns. We were able to address those issues and concerns right there and then. The opportunity to recognize - and avoid - some of the future pitfalls which arise due to poor communication has been invaluable," he continued. One of the outcomes of the management retreat was a willingness - even keenness - by the executive to become actively involved in a structured mentoring program for the managing directors-elect.

One important outcome here was the recognition by the Barclays of the need to retain the talent and intellectual capital of the executive team. To do this, they took steps to develop and launch to the executive a generous executive share option plan. They later repeated this with a general share plan which was opened up to all staff. With the framework for generational transition in place, the next step was to review and refresh the business' strategies, tactics, and resource allocations.

The result was a strategic plan based on the collective best thinking of the executive ad the family. "We found this whole process to be confronting - and exhilarating!" enthuses Barry. "We have now got a focused strategy, a rejuvenated team, and a fresh confidence in our future - as a company and - for Kerry and I - as exiting owners."
Kerry agrees. "The linchpin Business Transitions process is structured, logical, and well-planned. We were always reminded of our destination - and the things we needed to do to get there. One of the things I really appreciated was the bridge that Bill Hovey created for us between the operational side of the business and the strategic (thinking) side."