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November 2012

Fam Biz Quiz #2

Family Systems in Family Business

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Fam Biz Quiz Author

Joe Paul

Joe Paul    

Joe Paul is a partner in the Aspen Family Business Group, owner of Family Business Counsel, an FFI Fellow, and an author.

Greetings!  

 

Succession, leadership development, communiction, decision making -- these are all made more difficult in a family-owned business because of the presence of -- the family!

 

Understanding how families work (or don't work) -- and how they interact with the business -- is an important component of family business success.

 

Many in the field of family business have found that understanding the family as a "system," rather than simply as a collection of individuals, provides deeper and more powerful avenues for understanding and impacting the family.

 

The month's Fam Biz Quiz™ presents six challenging family business situations -- each made more complex by the family system.  With these quiz questions you can "test your knowledge" about family systems, and you can also use the quiz questions (and answers) as a starting point for discussion and learning within your own family business.

 

The "best" answer for each question is indicated at the bottom of this newsletter.  A full explanation of the questions and all alternative answers is provided on the Family Business Wiki Facebook page.  Please feel free to add your comments and perspectives! 

 

Family Business Wiki extends its appreciation to Joe Paul for serving as the author for this Fam Biz Quiz™ -- on Family Systems in Family Business.

Question #1:  Siblings Don't "Play Well Together" on the Board  

Your husband died recently and your three kids inherited a minority ownership and Board of Directors positions for his company. Since the funeral they have been at each other's throats. You own 51 % and the kids each have one third interest in the remaining 49%.  You don't know what to do about their disruptive behavior in the Board meetings. It is so bad that you are afraid that their relationships put the business at risk. All three have successful careers outside the company and conduct themselves appropriately in other aspects of their lives. What should you do first?

  

A. Develop a Code of Conduct for Board members.

B. Find two strong and independent Directors to join the family on the Board.

C. Send the siblings to training sessions for Boards of Directors.

D. Find a mentor for yourself to help you manage the governance process.
Question #2:  The Challenge of a Drug Abusing Family Member  

You are a mother who had developed your own event planning business and your two sons have worked for you since graduating from college. There have been long standing problems with your older son's cocaine use. It all came to a head when your younger son told you that his brother is an embarrassment to the company and it had come to a point that if you don't fire your older son your younger son is leaving the company. 
What should you do?

  

A. Hire an expert in addiction "interventions" to get your son into treatment.

B. Keep the older son at the company so that you can monitor his behavior and beg the younger son to stay.

C. Ask your younger son to try to help his brother the way he has always done.

D. Have the Human Resources person in the company investigate your older son's performance and prepare a report that you will use to pressure your oldest to clean up his act.
Question #3:  Apr�s Moi, Le D�luge 

Planning for succession has made you think about just selling out instead of passing your pride and joy to your kids. You have realized that much of what has passed as policy in your company is just a collage of improvised decisions made in the heat of the moment without consideration for the long term effects. Issues of accountability, compensation, transparency, family employment, etc. made you realize that the company is held together by the force of your personality. And this has made you wonder what will hold it together when you are gone. What should you do?
 
 

A. Don't worry about it. No one showed you how to run a company. You just learned what you needed to know and did what you needed to do.  Your kids should have enough gumption to do the same.

B. Minimize family issues by just making your best decision with the information you have and tell your lawyer to draw up the necessary papers. If the kids don't like it they don't have to play.

C. Put together a Succession Advisory Team that includes at least one founder who has survived succession of his own company. This will be a handful of advisors that will help set the stage and monitor the progress of the succession process and keep it moving.

D. Use the complexities of the succession process as a test to see which of your kids comes out on top.
Question #4:  What You Didn't Know that You Know 

You and Henry are brothers who inherited your father's timber business and you have worked together all of your adult lives. It appears that you two barely need to talk about anything because you know each other so well. You have to discuss issues so briefly that your kids tease you about being telepathic with each other.  But now it is time to start passing on what you know to the next generation and your children have some big knowledge gaps about ownership, governance, and operations.  What should you do?

  
A. Think about how the flow of knowledge in an organization is proportional to the level of trust among the participants.

  
B. Realize that wealth creators often don't know what they know.


C. Understand that your tacit knowledge of an elder leader is often about exceptions to the rules.


D. Look forward to the fact that in the process of making tacit knowledge explicit, new knowledge often emerges.

Question #5:  Can You Trust Your Sister?

You have been the CFO in your dad's manufacturing company for 12 years. Your sister, Beth, is a successful patent attorney. In a recent family meeting your father asked if either of you hoped to be his successor. You were shocked to hear your sister say that she was interested. You are not interested in the job yourself but you were surprised at the strength of your negative reaction to your sister stepping forward. The only thing you could think to say was that you "are afraid to trust this solution." Your mother said "you mean you don't trust your sister? I am shocked!" And that was the end of the meeting. What should you do?
 
  
A. Ask yourself if you think your sister is dishonest.


B. Examine whether or not you have confidence that your sister's law practice has prepared her to run a company.


C. Get in touch with any concerns you might have that Beth will not keep a balance between her own self interests and the interests of the family.


D. Think about whether you are afraid that Beth will not have the courage to make hard decisions that may be resisted by the family. 

Question #6:  Preparing the Next Generation for Their Fiduciary Responsibilities  

You are the oldest of three brothers who are the fifth generation owners of cattle ranch with more than 100,000 acres.  For the last 10 years you all have labored under the massive debt incurred by the previous generation until oil was discovered on your property. Now you are awash in cash from the mineral royalties. You three have a dozen kids from 12 to 24 in the 6th generation. Some members of G-6 want a life on the ranch and others don't.
When asked about your estate plans you only say that "the last man standing will get it all."
What should you do?

  

A. Have a family summit meeting to explain the opportunities and risks that the family has.

B.  Write down what each person wants long term and give the list to the local lawyer who is a family cousin, to draw up estate plans for the three family branches.

C. Create a Family Constitution that will include a Preamble that articulates the purpose of the Constitution, a Family Mission Statement, a Family Employment Policy, a Code of Conduct, a Shareholders Agreement, Rules of Order, etc.

D. Create a 100 year Strategic Plan.
BEST ANSWERS  

1-B

2-A

3-C

4-All

5-All

6-A, C and D


A complete analysis of the questions and all alternative answers can be found on the Family Business Wiki Facebook page.  Please feel free to add your comments!

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