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To maintain a business in the family past the infamous third generation (“the first generation creates, the second grows, the third dissipates,” as the saying goes), it is crucial to have a shared vision, maintain open lines of communication among a wide range of stakeholders, and address concerns about perceived fairness in a transparent manner.
The members of the fifth generation (Gen5) were already in their twenties when a multi-billion dollar construction corporation asked for assistance in making the transition from the third generation (Gen3) to the fourth (Gen4). Historically, only males in the family had jobs at the company, but several female Gen5 family members were close to earning master’s degrees in business-related fields and were eager to join.
Two Gen3 cousins who survived a turbulent transition from Gen2 maintained ownership in equal shares; the primary source of contention concerned non-working owners who lobbied for more significant dividends and were not happy with the working family owners who also got wages (fair according to market norms). Family owners who were not in the workforce at the time want a greater return on their investment. Working-family owners favored expanding the company for ensuing family generations and devoted, intergenerational staff (some valued employees had grandparents who worked for the firm). After bitter debate and legal fighting, the family ownership tree was cut by purchasing out non-working members, but the act irreparably harmed ties. To prevent future issues, the family decided to make it a policy that only working family members may become owners, advised by technical consultants without a thorough understanding of family business dynamics.
Four boys were born to one of the two Gen3 50/50 owner-cousins and two girls to the other. The cousin with daughters had no descendants in his “family line” to take over his share of the firm since, traditionally, women did not work in the industry. One of his daughters wed a gentleman without prior expertise in their field, and both of his 50/50 cousins agreed to push him into the senior management team out of a feeling of “fairness.” The four brothers who had put in a lot of effort their whole lives to acquire their positions felt burdened and furious by this. The brothers, who usually get along well, were enraged and turned on one another. There was loud, heated arguing.
Cliff was tasked with gathering the information, so he started by speaking with spouses and family members, both those who were employed and not. Family members first questioned the need to include spouses of family members; Cliff responded that choices made about the firm’s management, strategic direction, and the transfer of ownership would significantly affect spouses and, ultimately, children.
Cliff added that it would be beneficial to involve a more significant number of stakeholders and to be clear about the specifics of each stakeholder group’s participation (e.g., what information they would have access to, when they would have a vote, and when they would be welcome to share a respected voice but without a vote). This would help handle disagreements that usually occur in these complicated family circumstances and prevent misconceptions. The Gen2-to-Gen3 transition tale was told due to Cliff’s explanation since not everyone knew all the facts and suffering. Everyone is committed to finding suitable means to include all relevant stakeholders and upholding the highest level of openness feasible given the constraints and limitations of being a publicly traded business.
After doing one-on-one and small-group interviews over Zoom, Cliff created a tailored education and feedback session to assist the family in gaining perspective on their predicament and coping with the complicated factors that led to it. Cliff prioritized challenges and actions in collaboration with the board, important non-family personnel, and the family.
Main themes and interventions:
- The family’s incorrect assumption that a technical policy (allowing only working families to hold shares) would resolve future transition issues was the key learning from the previous Gen2-to-Gen3 transition. Instead, top management brought in a new, inexperienced in-law, which led to a lot of tension. Instead of selecting senior management candidates based only on their potential to contribute to the firm, fairness had been defined as allowing each owner (family line) to choose members of their own families for such positions.
- Cliff led conversations on this subject, some of which became rather hot. The family decided that eliminating arbitrary quotas and turning the company into a meritocracy (where individuals are employed and promoted based on ability) would be in everyone’s best interests.
- He assisted the family members in articulating their desire for the company’s income to be reinvested in its expansion. He encouraged the creation of a dividend policy so that shareholders would know precisely when they might access liquid funds.
- Cliff assisted the family in comprehending the difficulty of blending family and company when they felt humiliated about the level of friction and its repercussions on the business and non-family team members. Although there are many crucial technical factors to consider, they must be combined with family dynamics interventions and forms of governance that are distinctive to families.
- A large portion of Cliff’s work with the family consisted of facilitating family gatherings with creative activities to aid in expressing a shared vision and essential guiding principles for current and future generations. The family agreed with Cliff’s suggestion that these components be reviewed in the future so that future generations would have continual involvement and the freedom to make adjustments.
- Cliff worked with them to ascertain if there was a shared desire for the family to work together or operate a business. Every generation must sit down with the older generation or generations to determine if the family will continue to own and operate as a unit or whether certain members will want to pursue their careers or businesses while still being a part of the family. A compromise must be struck over a new vision if there is no shared vision.
- He visited with them in several groups, including spouses, the next generation over the age of 16, working families, non-working families, and spouses. It became apparent that the four brothers wanted to work together again and were prepared to give off lucrative commercial assets to buy out the other half of the family, with whom they had little personal ties.
- Cliff engaged the board of directors, who were glad to have Cliff as a partner to aid with the complex family relations difficulties outside their area of competence. They were able to add value to the buyout deal, which was successfully concluded in a professional manner. Because there was no shared vision in this situation, the family decided that it was better to make difficult decisions and part ways than to continue to be at odds with one another.
- Cliff helped the four brothers quietly discuss differences and develop solutions while working to enhance their communication. They clarified roles and duties, which led to creating joint development plans that built on their strengths and addressed their weaknesses. The conflict significantly decreased with these actions, combined with the buyout.
- They had a good working relationship and liked each other until the in-laws were imposed upon them. Even though they would eventually manage a lesser firm due to what was sold off for the buyout, they were thrilled to be back together and expand their company. Under Cliff’s direction, these brothers developed a family employment strategy as part of their commitment to teaching and developing Gen5. It explained how the family entered the firm, provided the foundation for how ownership would pass to their wives and children moving ahead, and outlined the rights and obligations of ownership.
Women were not expected to work in previous generations, particularly in the family-run construction industry. Still, everyone engaged acknowledged that women were respected as family members and employees. With Gen5, Cliff worked on the family’s aim to provide chances for women with the necessary education and skills. Several female Gen5 family members gained entry into the company and held essential positions due to their education, extracurricular activities, and abilities.