Family Office Governance

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Many aspects of family office governance are derived from family business governance practices. However, family  offices have some their own special requirements as well.

Single family and multi-family offices are growing rapidly and it has become widely accepted that a  governance structure is a key element for their success.

In a study conducted at the University of Pennsylvania’s Wharton School, it was found that family office governance is key to ensuring adherence to the family’s value system, its overall purpose and successful trans-generational wealth transfer.  Furthermore, to create value, mutual trust between the owners, the board and family office management is critical. 

It’s important for families participating in a family office to  be clear about their goals, expectations and why they want to work together. Just as mission statements and visions are important in family owned businesses, they may need developed for family offices as well. 

Oftentimes, family office managers need assistance with family business members. Continuity Family Business Consulting can work with the family office and the family members to successfully align their visions leading to long term success.

The Importance of a Family Business Constitution

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It’s natural that in time, family businesses grow over multiple generations, which means the number of individuals involved increases. In addition to the number of individuals increasing, family member's expectations regarding the business may increase as well and related conflicts may arise.

Creating a Family Business Constitution can be an easy way to manage and deal with these conflicts if and when they arise within your family business.

Few family business owners have taken full advantage of this useful business tool. However, those family business owners who have incorporated a Family Business Constitution into their business have found that implementing a constitution has been a helpful instrument in preserving the legacy of the business while helping to sustain the enterprise for future generations.

A Family Business Constitution is not only an extra tip in the businesses success; it also engenders a sense of pride in the family and its business by linking the past, present and future generations with each other.

Here are a couple of tips to help get your Family Business Constitution started:

1. Document the mission, values, philosophy and principles that govern your family and its business, including the struggles of past generations. 
2. Outline the business’s strategy and its long- and short-term goals. 
3. Define a dispute resolution processes to deal with potential conflicts affecting the business and the family. 
4. Define the roles, composition and powers of key governing and other constituencies of the business, including key management, directors, shareholders and family members.

For a more detailed list of what a Family Business Constitution should include, click HERE, or call Continuity Family Business Consulting. For more information, visit ContinuityFBC.com. 

The Bagg Group & Family Business...

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Geoff Bagg never planned to work for his family business. He grew up with the family business ( a Toronto- based employment agency his father started in 1971) surrounding him and promised himself he’d never get involved. However, when Geoff graduated from business school in 1990 in the midst of a horrible recession, his parents convinced him to step in and help out with the company’s struggling temporary staffing division. 

Now more than two decades later, Mr. Bagg is president and chief executive of what’s now known as The Bagg Group and has resisted offers to sell to large multinationals, instead pursuing growth through acquisitions of his own. 

 

After Bagg spent a couple of years working for the business, he refocused the business on the financial services area and expanded to the point where he was able to buy out his parents who retired in 1999. In 2004, the company doubled in size with its acquisition of TOSI Services, another mid-sized Toronto agency, and in November 2011 it snapped up Newmarket, Ont.-based Turn Key Staffing. 

As the company added the new firms and pursued organic growth, it expanded from about 12 employees and $5-million in annual revenue when Mr. Bagg joined, to around 70 workers and revenue expected to top $30-million this year, he says.

The Bagg Group is a mid-sized independent staffing firm in a landscape of hundreds of small shops and a handful of dominant international operations.

Many next generation family members do not want to feel “forced” into taking over the family firm or business, but have an opportunity to do so. Mr. Bagg says remaining family-owned helped foster a more personal culture in his business, which handles full-time placement, temporary staffing and IT consulting.

Rising Gft Tax Urges Small Family Business Owners To Plan for Succession

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Currently, an individual can gift, over his lifetime $5.12 million tax-free. Starting in 2013, the lifetime limits on gift tax will fall from $5.12 million to $1 million. This change in tax exemption rates between 2012 and 2013 could factor into your small business succession plans.

The complicated history of the gift and estate tax dates back to the tax cuts passed under President George W. Bush, starting in 2001. 

Those laws enforced by Bush gradually increased the dollar amount exempt from gift and estate taxes. Congress wrote the law to expire in 10 years, with the exemption reverting back to the old levels in 2011. In December 2010, the Tax Relief, Unemployment InsuranceReauthorization, and Job Creation Acts were signed into my by President Barack Obama as a compromise bill, extending the Bush cuts through 2012 and holding the gift tax exemption at $5 million ($5.12 million in 2012, adjusted for inflation). 

The compromise bill called for the lifetime gift tax exemption and gift tax rates to revert to 2001 levels of $1 million, starting in 2013. 

“Assuming a parent wants to turn over 100 percent of the business to his children, the best year to do it is in 2012,” (BusinessWeek.com). There are many other factors to consider in business succession including managerial roles, how the business assets will be divided up between the children, and whether the company founder is ready to give up complete control (BusinessWeek.com). 

Blair Trippe, Partner and Consultant at Continuity Family Business Consulting, says to also carefully think about voting control when transferring ownership of a family business. You wouldn’t want siblings who own and work in the business to be essentially working for their siblings who also are owners. Those not actively in the business may not be in a position to make good decisions for the business and hence shouldn’t have voting control. 

This exemption on gift tax expiration is the perfect opportunity to decide who will take the reins of the business and put the plan into action. Oftentimes business owners hesitate to make that call because they worry about whether their offspring can handle the money and responsibility, and whether they will be able to withdraw enough funds from the business to live comfortably in retirement. 

Blair Trippe also says it’s not just about saving on taxes. “Be sure not only to consider tax savings, but to consider what will be thought of as ‘fair’ in terms of diving up assets, and what will benefit the family most over the long term. This can be approached in many different way so it’s important to be clear on the intentions behind the transfer of ownership, not just the savings on the taxes.”

Transitioning a business from one generation to the next is probably the most difficult and complex process a family business will face. Contact Continuity Family Business Consulting to assist in the process. We work closely with estate planners, CPA’s, key non-family executives and family stakeholders both in and out of the business in order to develop a plan that works for both the company and the family. Contact us at 877-925-5149 or email us at info@continuityfbc.com.

Conducting Evaluations of Family Members

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FAMILY BUSINESS CONSULTING

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Conducting evaluations of family members in family leadership positions can be extremely challenging.

There are several questionnaires available which assess various aspects of a family including standard psychological tests, values, personality assessments, etc. Some of these can be self-administered and managed via website by the company offering the product. The value in these questionnaires really lies in the personal interpretation of the data, which can only be done reliably if personal interviews by a trained professional are a central part of the assessment feedback.

At Continuity Family Business Consulting, we use tools such as genograms, our stakeholder map and psychological tests to manage the complexity of the business and the family dynamics. The genogram is a family tree/organizational chart that shows the relationships between all family members involved and their personal history’s.  The stakeholder map provides a snapshot of the family and family business systems and illustrates where each member of the family fits into the individual business, family, ownership and governance systems. 

The psychological tests help us figure out what the individual’s skills, strengths and competencies are, as well as what their role could/should be within the business. Some psychological tests can provide results which can be a bit surprising to a family member, so having a trained professional administer the test, evaluate the results and communicate their analysis is key.

Click HERE to download a copy of the Stakeholder Map, and HERE for more information on how Continuity Family Business Consulting and help bring your family business to higher levels of success. 

Dispute Mediation within Family Businesses

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FAMILY BUSINESS CONSULTING 

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Dispute mediation is the process of assisted negotiation.  We believe, however, that conflict in a family business is not about individual disputes, but is systemic and requires a more comprehensive approach to manage not only disputes, but the issues which connect these disputes. 

Dispute mediation is an integral part of our broader approach to conflict management. At Continuity Family Business Consulting, we have on staff trained, certified, and experienced mediators to facilitate negotiations among family business stakeholders as needed.   Our staff also has the depth of experience and training to address the underlying structural and emotional issues which need to be addressed to support the important continuing relationships.
  

 
In cases where litigation is active or threatened, having trained and certified mediators available may provide the additional benefit of an added degree of confidentiality and legal protection from discovery. It is because of this capability that Continuity can and has worked with clients in extreme conflict and those engaged in active litigation. 

For more information on Dispute Mediation within Family Businesses, visit  ContinuityFBC.com.

Conversation Piece: How To Survive and Thrive Despite the Lack of Succession Planning with Carmen Lence

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Transitioning a business from one generation to the next is probably the most difficult and complex process a family business will face, requiring much thought, trust and planning.

Carmen Lence wrote a blog titled “How to Survive and Thrive Despite the Lack of Succession Planning," discussing the troubles Kathleen Thurmond faced when she was forced into managing her family’s business. Often times, family members are obligated to take an active role in the family business when something traumatic happens. 

“After her father suffered a stroke, Kathleen Thurmond had to jump into managing her family business, without previous experience in the business. In this interview, Kathleen shares tips on how to survive and thrive – successfully selling the family business 12 years later, despite having no succession planning, experience, or guidance with running the business,” (NextGenerationRevolution.com). 

Continuity Family Business Consulting’s own Doug Baumoel found the article to be very interesting, commenting, “It shows just how important it is to have people-management experience. Kathleen’s experience was managing people, unrelated to the specific industry of her family’s business. Henry Mintzberg recently wrote a book and several articles about ‘Managers Not MBA’s.’ His point was that the MBA prepares a person with the technical skills required to analyze and understand a business – but only managerial experience truly prepares someone for corporate leadership. Kathleen’s story is an excellent example of this,” (NextGenerationRevolution.com). 

Doug also added, “Too often, founders or other family business leaders try bringing up the next-gen through staff positions. These next-gen prospective leaders are sent to the finest MBA programs and they get involved in many of the most important projects and opportunity evaluations that the company faces. However, they do not get people management experience- or P&L responsibility, for that matter. It sounds like Kathleen had the perfect preparation for managing the crisis she and her family’s business faced,” (NextGenerationRevolution.com). 

To read the interview, and to find out how to relax and get everything done if you’re in a sink-or-swim situation with your family business, click HERE.

Crisis Management within Family Businesses

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FAMILY BUSINESS CONSULTING

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Sometimes advance planning is not possible and family businesses must respond to a crisis. Continuity consultants can help family members make difficult decisions quickly by helping them analyze alternatives and clearly articulating the potential ramifications of different choices. Focused on continued business success, Continuity recognizes the importance of the family dynamics which often become more pronounced in crisis situations. 

Our experienced staff can help pull together a team of both existing and outside or interim professionals to address the crises.  We can also work with individual family members to help them deal with personal crisis which may impact the business.

For more information on Crisis Management within a Family Business, visit ContinuityFBC.com. 

Finance and Wealth Advising

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FAMILY BUSINESS CONSULTING

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Continuity Family Business Consulting does not engage in asset management, we do not sell insurance, we are not estate planners and we do not provide investment advice.   

We do, however, help families better understand some of the choices and decisions they need to make regarding family wealth.

What is the purpose of the family’s wealth?  How will the family manage potential conflict arising from sibling wealth disparity?  How can families of wealth ensure that succeeding generations avoid lives of entitlement and be productive and motivated to build family wealth?  How should family wealth be managed through succeeding generations?  Should the family consider opening a family office or joining a multiple family office?  Continuity helps families answer these questions, and more, to better prepare them to work with estate planners and asset managers. 

Educating succeeding generations about wealth issues is core to our work with families so they understand financial decision making and are clear about the responsibilities, as well as the benefits, that derive from wealth.

 For more information on Finance and Wealth Advising with Continuity Family Business Consulting, visit ContinuityFBC.com.