Home' Trinidad and Tobago Guardian : November 20th 2014 Contents NOVEMBER 2014 • WEEK THREE www.guardian.co.tt BUSINESS GUARDIAN
FAMILY BUSINESS | BG11
Last week, we discussed exit options for family businesses
with intention to follow up with a look at emotional value
and how this affects the sales process.
This week, however, I decided to exercise some journalist
freedom and change the topic that was planned for this
last article in our family business series. Instead of sharing
more insights from an advisor s point of view, I invited
one of my team members, who joined EY instead of returning
to his family s business after graduating from university,
to relate his own experience.
This young man continues to impress our team not only
with his intelligence, but also with his work ethic and team
spirit. His attitude is not typical of someone who does not
need the salary or career advancement.
His story illustrates the priceless experience and insight
that one can attain from working outside of the family
business before returning to it.
THIS IS HIS PERSONAL STORY:
The average person has a 0.17 per cent chance
of dying while hang gliding; a 0.1 per cent
chance of dying while motorcycle racing and
a 12 per cent chance of contracting cancer if
The average family business has a 97 per cent chance of
failure past the third generation, according to the Family Business
As the eldest member of the third generation of my family s
business, picking up smoking seems like a good idea right now.
The first time I learnt of that 97 per cent statistic was at
the start of my then one-year internship in the transaction
advisory service line at EY Caribbean. The number scared me.
I always imagined that I would spend a year or two at EY,
return to the family business and, at the right time, assume
the leadership role. I envisaged that sometime later, my siblings
and cousins would join in to support me. The statistics, however,
gave me a reality check. I realised true leadership is not so easy
; about 97 per cent difficult, to be exact.
In my introspection, I began to question what the differ-
entiating qualities of the elite three per cent were. Not knowing
the answers at that time, I ignorantly consoled myself with
the belief that I was destined for greatness and was bound to
be part of that elite group.
A few months into my internship, I was afforded the oppor-
tunity to attend the EY Junior Academy. This is EY s global
one-week training program in Fountaine Bleu, France for next
generation family business members. The participants came
from over 18 different countries and represented various gen-
There was a mix of experiences and ambitions, as many had
no interest in working in their family business while others
only had family business experience. We were mentored by
top business professionals and successful family business owners
on innovation and its impact on business. One of these mentors
was the CEO of a global conglomerate that manages billions
of dollars of wealth. He shared a story that stuck with me
months after the trip.
In 2008, his company was months away from being insolvent.
He was asked by the family shareholders to take charge after
the former CEO of 25 years stepped down unexpectedly. He,
as the new CEO, managed to restructure the company and
lead a turnaround to bring them back to profitability. He
identified two key factors in accomplishing this:
• Outside experience: this allowed him to let go unprofitable
investments that the previous CEO had been emotionally
attached to, and come up with a new objective investment
strategy for the group that was based on emerging markets.
• Reuniting the family: in order to execute his strategy, he
needed to have the support of all family shareholders. He imple-
mented a policy for frequent family events in order to reconnect
and redevelop family relationships.
• He also made it mandatory for all shareholders to attend
the annual shareholder meeting where he would explain his
vision for the company going forward.
Afterwards he received feedback from family members so
that the entire family could have a unified vision for the future
of the company.
After hearing this story, the reality of becoming part of the
elite three per cent really hit me and humbled my family
business expectations. I acknowledged how unprepared I was
to work in the family business, let alone lead it. I learnt that
for my family business to be successful and to endure for gen-
erations to come, it required a governance structure.
According to Joachim Schwass, professor of the International
Institute for Management Development, family businesses are
divided into three categories:
• The "I": the founder and dominant personality of the business,
• The "US": the children;
• The "US and Them": the cousins and thereafter.
The real struggles usually arise in the "US and THEM" generation
due to conflict of interests between the business and the diverse
family members. Balancing the individual needs, wants and ideas
of entitlement with business success becomes more difficult with
each successive generation.
As outlined in our previous articles, this gives rise to money
becoming "thicker than blood."
The values that create a successful family structure are not
always in tandem with the values that underpin a successful
business. Family is about unconditional love, respect, sacrifice,
acceptance of flaws and forgiveness. Business is about growth,
success as measured by wealth, and being the best. This is where
the opposing dynamics can create family disputes and the core
family values that bind families together are replaced by conflict,
if not properly managed.
The two sets of values need to "dance" together, not only to
ensure success of a business, but to ensure unity. I have learnt
that one of the most powerful tools to achieve this is a family
constitution. This creates the structure; the rule book that governs
the code of conduct during and outside of business hours. A
family constitution is thus intended to protect the legacy created
by the founder.
A family constitution illustrates a family history, with a mission
and purpose, along with values and rules that govern the behaviour
of each family member. A successful constitution should include:
• Family history, vision and philosophy
• Governance of shareholders
• Family representation on the holding company board
• Family employment policies
• Family personnel policies
• Family human capital policies
• Conflict resolution mechanisms
• Emergency planning guidelines for family or business crises
A year has passed since joining EY and I often think about the
disaster that could have happened had I gone with my original
plan to join the family business without the relevant knowledge,
or even a constitution in place.
The family business could have suffered from loss of key
employees due to the undeserved role I may have gotten, poor
decision making due to my lack of experience, and potential con-
flicts of interest with other family members due to the lack of
defined roles. This may have just been the beginning as the con-
fusion would have grown when other cousins joined in and we
just might have been another 97 per cent statistic.
This brings me back to my original question; what is it that
separates the three per cent of successful third generation family
businesses from the 97 per cent?
After intense deliberation, I have come to the conclusion that
it comes down to primarily two factors:
• Preparation: this allows you to put the structures in place
to manage the competing forces between family and business,
such as a family constitution.
• A unified family vision: this allows for family members to
put their self-interest aside and act for the greater good of the
family and the business.
Marrying these dynamics allows you to unlock the greatest
strength that family businesses have over regular corporations:
longevity. Corporations tend to think within five- to ten-year
horizons, whereas family businesses think toward generations
I came to EY with a plan of leaving after a year to return to
my family business. After my exposure to the potential challenges
of leading a family business, my plan has changed. My time away
from the family business will be extended until I believe I have
reached the right level of professional maturity and can really
add value on my return. This decision rests upon my great-
grandfather s words:
"If you do not have the capacity to be, then you should not
In summary, as the bloodline thins and more generations
share the "pot", the longevity of the family business becomes
increasingly challenging. Wealth should not replace the core
values that make families special. The keys to arresting disputes
• Prepare and govern the family business with a structure
that can guide, lead and unify all members with an agreed
• Focus on what is best for all members
• Structure dispute resolution mechanisms, exit options and
buy out triggers
• Bind yourselves with a legal agreement that is signed by
all members so that disputes can be resolved
Family businesses are a valuable segment of our business
landscape. With an investment in preparedness, they can con-
tinue to contribute to the growth and success of our regional
economies and have a fighting chance to increase the three
per cent statistic.
This is the third and final article in our family business series.
For more articles and insights on global and Caribbean family
businesses, contact Maria Daniel at email@example.com.
About the author
Maria Daniel is EY Caribbean's family business leader and a
partner in its transaction advisory service line. She has more than
20 years of experience as a chartered accountant and financial
analyst and has led several high-profile engagements. She has
provided clients, from multinational corporations to family busi-
nesses, with advice on raising both debt and equity capital as
well as strategic options analysis towards maximising shareholder
value. She specialises in business valuations, transaction support
services on both the buy-side and sell-side, mergers, acquisitions
and divestitures, independent business reviews, restructuring,
strategic advisory services and turnaround advisory.
She is a chartered financial analyst charterholder. She is also
a fellow of the Association of Chartered Certified Accountants.
Insights from the third generation:
WHAT IT TAKES
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