Week 4 Flashcards
The process
Gathering the issues:
The issues that are present or that are likely to present themselves will be identified during the individual
interviews
Important that family members feel comfortable sharing the issues
Confidentiality is key!
Management
succession challenges
Employment for family members
Who can work in the business and what are the requirements for employment?
Who will be hired?
How will the employee (family member) be evaluated?
How do you deal with a family member who is not performing?
How much will the employee (family member) be paid?
Compensation for family members
Other than succession, compensation is one of the
topics that creates the most conflict amongst
family members
Should all family members be paid equally?
What exactly constitutes a family members
compensation?
Housing, use of recreational property and
vehicles, travel, conferences, education costs,
promise of future ownership?
On the flip side, founders sometimes say they pay
the next generation so low because it will be
theirs one day
This lowers motivations and creates some
rather impatient successors
Grooming
Often, the next generation is not ready to be
part of management or ownership yet
Grooming plans should be based on the management succession timeline (to ensure they are ready in-time)
It also allows the founders or exiting generation to see the progress made and those gaps filled so they can be comfortable and confident in the next generations leadership abilities
Important to have mentors both inside and
outside of the family
Grooming Plan Template
1) Identify the areas that need work
Consider management, leadership and ownership skills
Need both the technical skills and the soft-skills
Can be great at a job, doesn’t make a great owner
2) Select the skills that are the most pressing or important
Often a combination of technical and soft-skills
3) Identify a time and event schedule that will outline how the skills be developed
Can include internal and external training
Can include rotations in different positions or departments
Performance reviews for family members
Regular feedback about an employee’s performance is one of the most effective tools managers can use to increase productivity
All family members need to be assessed (often not the case)
Family members may be reluctant to evaluate one another
Parents may not be able to be objective with respect to their own children
Nonfamily may also be reluctant to report negative reviews of family members
Essential in validating next gen improvement towards management and ownership
Management succession challenges
Professionalization (or lack thereof)
Often entrepreneurs do not place emphasis on formal structures and policies such as:
Organizational structures
Compensation policies
Performance review policies
Often lack detailed reporting mechanism
May not produce financial statements
May not track profitability of projects
Leadership
Need to determine if there will be only one leader or if
there will be co-leadership
Co-leadership can be beneficial as it minimizes conflict about who gets to lead the company (as long as all leaders competent and meet criteria)
Need a test of compatibility
Just because we are siblings doesn’t mean we
will work well with each other
Need a conflict resolution process to be determined
Important to retain key non-family managers
Provide critical skills to the business
Establish benchmarks for managerial
performance
Provides grooming and mentorship to next gen
Help govern the relationship between family
and management
Are essential to the health and continuity of
family-owned businesses
Can play an important part in the management
succession process
Motivating non-family managers
Communicate career advancement opportunities
Involve them in business planning (strategic and
succession)
Create mixed management teams (family and non-
family managers)
Offer fair market value (FMV) compensation and benefit
plans
Evaluate performance
Educate the entire family
Highlight their contributions
Why consider a
non-family CEO?
No qualified next generation successors
The ownership group is not capable of choosing a CEO from among the children, nieces, nephews they love
and want to treat equally
More common in a family-first business
Large ownership groups can hinder decision-making
