Seeking Succession

Entitled Family Member Employees – A Threat to Succession Success

2012-02-15T10:00:00.001-05:00

As a family business succession planner I am intrigued with the ten interdependent factors of the Succession Matrix℠: Owner Motivation and Perspective; Successor Identification and Development; Key Manager Motivation and Retention; Strategic Planning; Business Structuring; Management Synergy and Teamwork; Business Performance; Financial Planning; Family Harmony and Family Governance. According to the International Succession Planning Association^® (ISPA^®), each of these factors independently and interdependently impacts the successful continuation of a closely held family business through the next generation of owners and managers. Each of these factors can be an asset or a liability to the achievement of business succession planning goals.

Of late, I am most curious about the two factors relating to the family, Family Harmony and Family Governance. As I move around the US and a few countries serving clients and visiting prospects, I seem to find myself in an entitlement zone. It is sort of like what happens with the weather; for apparently no verifiable reason patterns evolve generating predominately wet, dry, hot or cold weather. For reasons beyond my understanding, the succession planning pattern I have been experiencing recently has showcased a significant number of “brats” and “bratesses”. For those of you who are unfamiliar with my lingo, “bratess” is a Rawlsism describing the feminine gender of a nonsensical, commonly embarrassing and typically deplorable entitlement minded family member employee [FME] who has been unofficially recognized by key employees, managers, vendors and advisors as a buffoon. For those of you who are unfamiliar with this term, the definition of a buffoon includes “a jackass who lacks the presence of mind to recognize that they are a jackass”. Fundamentally, these presumed heir-do-wells are profoundly impressed with themselves, disrespectful of others and notably, they don’t have a clue as to what it takes to operate a successful family business. As I watch these aspiring successors bumble their way through the business, I am forever amazed with the damage they can do to a precious family business culture. They serve as role models for undesirable behaviors. They frustrate key employees. They infuriate managers. They discourage vendors and advisors. Single handedly, an entitlement minded family member can put the entire business under stress. As I witness this disturbing course of events, I am in constant wonderment as to how this can happen. Considering how these family business buffoons usually follow a humble, hard working, unassuming founder, I question what it is that blinds a business owner to the obvious and allows his/her child or in-law to become so out of touch with reality. How do they become on one hand a joke and on the other hand a terrorist seemingly committed to undermining my mission to facilitate business succession?

I will try to answer these questions next week in my post, Entitled Family Member Employees – Who is to Blame?, as I examine the cause and possible cure for entitlement.

What do you usually find to be the biggest issue when it comes to dealing with family member employees who have an inflated sense of entitlement?

Going Outside To Look For a Coach

2011-12-29T09:48:00.001-05:00

If you read my partner, Dan Schneider's, post last week about coaching and have realized that this may not be a role meant for you, Dan gives some times on how to find a coach.

Performance coaching produces results that many organizations find wanting in the traditional performance management and appraisal culture. The major difference is that coaching occurs in real time; and performance appraisal is retrospective and occurs – usually – well after the fact. The practical impact is that coaching is appreciated and performance appraisal is resented.

Theoretically, every manager/leader should also be a coach to direct reports. Maybe, someday, that will happen. Imagine the impact on the organization from a personal and professional development standpoint if managers understood how to be an effective coach.

To develop a coaching climate within your organization, there are specific skill sets, experience levels, and behavioral attitudes you need to champion among your key managers. The impact on your bottom line and your ability to recruit, retain, and develop star players will be profound if you make this investment and sustain the effort.

Until you have the internal skills, you might want to consider these factors in selecting an external coach. The person/people you bring in to work with your key people should have the following abilities and capabilities:

1. Knowledge of goal setting. This requires knowledge of organizational direction, individual position outcomes, and some interviewing skills so that the right questions are asked.

2. Ability to give encouraging feedback. Corrective feedback is more than what we generally call constructive criticism. This requires a level of straight forward tact and diplomacy that is foreign to many position based leaders.

3. Skill in questioning to encourage self-appraisal and goal setting. Effective coaches know how to help people increase their awareness of what works and what doesn’t by pulling it out of those being coached rather than telling them all about it.

4. Empathy and patience. We are all works-in-progress.

5. Ability to build and maintain rapport. Rapport is the key to overcoming resistance and gaining commitment.

6. Ability to look at options. Sometimes the coach has to guide someone into creating options that did not seem possible when first looking at the challenge.

7. Recognition of self-imposed, personal and organizational limitations. People seldom exceed their self-imposed limitations. Effective coaches help others see the world of possibilities and move them toward implementation.

8. Sensory acuity. In short, an effective coach knows that communication is more than verbal and notices incongruent signals and unease. .

Interview a potential coach just as you would any other employee. If you hear what sounds like jargon and psychobabble, you might want to keep looking. The one you need is still out there.

What is the main quality you look for or would want in a coach?

The Successor Coaching Cycle: What are the key steps to this critical component of Succession Planning?

2011-12-22T10:04:00.002-05:00

Today I have a post to share with you from one of my partners, Dan Schneider, in which he discusses the key steps to coaching your successor.

There are as many coaches running around today as you can imagine. There are performance coaches, life coaches, business coaches, parenting coaches, relationship coaches, and on and on. Some of them are qualified to do what they do, some will be in the future, and some will be doing something else in the future.

What are the key steps to making coaching work? Whether you decide to take a stab at it yourself or bring in someone from the outside, here is the coaching system most likely to produce long term, positive results.

Identify the opportunity to coach. It might be to accelerate orientation to a new level of responsibilities, to provide a critical new hire to the organization’s culture, or to improve performance. In any case, you are taking advantage of opportunities to educate rather than tell, train, discipline, avoid, or overlook everyday situations.
Establish rapport. Commit to helping people succeed. Without rapport, you will get resistance.
Discuss and agree on outcomes. What does each of you expect to gain from the coaching relationship? Discuss broad impact as well as immediate needs.
Explore current performance, recognize steps already taken, and agree on a goal. The goal should take the person being coached out of her/his comfort zone and be realistic at the same time.
Offer support. Encouragement gets people to keep trying. Discouragement gets people to quit.
Link the goal to higher level aims. Tie the coaching to personal and professional development. Where there is neither connection nor alignment between personal and professional goals, there is limited progress.
Test commitment to the goal. Ask “On a scale of 1 – 10, how would you rate your ability to achieve this goal?” If you get 7 or below, then ask “What can we do to make that number higher?”
Test assumptions and beliefs. Be particularly sensitive to beliefs about what is or is not possible, other people, and relationships.
Encourage self-improvement. This increases motivation and commitment to achieving goals, especially when things seem to go backwards.
Offer your experience - subtly. Offer your experience as an option to consider rather than giving a dissertation on how well a particular approach worked for you. Leave it up to the person you’re coaching to make the experience their choice rather than your mandate.
Do a “dress rehearsal”. Have the person envision how the goal/objective/change is going to occur and describe the steps necessary to make it happen.

Finally, develop a coaching culture so that everyone in the organization gets the benefit of a living in ever-increasing comfort zones.

If you have come to the decision that you need to look elsewhere for your coach, come back next week for some tips from Dan on "Going Outside to Look for a Coach".

What was the best advice you ever received from a coach?

Succession Planning and The Missing Piece and the Big O: How Do I Identify My Successor??

2011-12-15T12:42:00.001-05:00

One of my partners, Dan Schneider, gives the following insight on how to identify your successor.

Shel Silverstein writes children’s books. In one called The Missing Piece Meets the Big O, he covers the role of succession development with a simplicity and singleness of purpose. For our purposes, the Big O is access to the legendary corner office; and the missing piece is the person who sits in that office after you are finished with it.

But, before there can be successor development, there must be a successor identification program in place. That successor could be a family member, a key manager, or a partner. Regardless of which, the person chosen must also be a leader.

On a national, governmental level, the U. S. American people go through this process every four years. Sometimes the chosen successor gets to serve for four years; and sometimes for eight. But sooner or later, a successor identification program kicks in, and people begin talking about who’s going to be next in line.
How can you develop something like a primary system within your own organization? You probably already have something like that in place, you just haven’t thought of it in those terms. Here are some suggestions for identifying potential successors and testing them in a primary process.

Identify the key behavioral characteristics and level of business knowledge required by your successor. Be very specific about what you want in terms of leadership skills. Leadership involves the use of power and influence to produce results. There are variables in how people wield power (positional and personal) and how effectively they can influence – or, if you prefer, motivate - others.
Lock on to the notion that non-family employees may be better suited to lead the business than family members. One of our clients has not had a family member as President since the founder stepped down 18 years ago, even though the founder’s three sons are all actively engaged in the business.
Provide opportunities in business meetings, vendor meetings, planning sessions, and family councils for potential successors to demonstrate their leadership and business skill sets. Look for indications that show whether others follow them willingly or maliciously.
“Vet” the candidates thoroughly with respect to owner motivation and perspective. In The Godfather I, Michael Corleone was always going to have the family go completely legitimate within the next five years. Along the way, he left more than a few dead bodies. While your successors probably wouldn’t go to that extreme, there are all kinds of ways to kill people and their spirits.
Only settle for what and whom you want in the corner office. I’m not speaking of whom as a specific individual manager, partner, or family member, but as someone who gets your vision of where the business can go and how you want it to get there. That individual may or may not be a family member.

Once you have found a successor, it is crucial to coach and lead them. Check out the blog next week for Dan's post, "The Successor Coaching Cycle: What are the key steps to this critical component of Succession Planning?", to make sure your successor is being lead in the direction of success.

If you had to chose your successor based on one characteristic only, what characteristic would you use?

Family Business Issues: Letter to a Successor – Warnings about family member and non fire-able employees

2011-11-23T10:14:00.001-05:00

Now, for the conclusion of my letter to Successor. My straight talk concludes with a focus on his “good guy” leadership style, especially in regards to family members working in the business...

On the subject of a culture of tolerance versus teamwork, I am concerned about your “good guy” compulsion to expand the list of family member employees who are effectively, non fire-able employees. You may argue that you could fire anyone, but understand the definition of a non fire-able employee: someone, including but not limited to a family member employee, who will not be held accountable to the point of termination barring significant brain damage that impairs the attitude of the leader, harmony of employees, harmony of the family and/or a combination thereof.

I strongly believe that in the current absence of clearly expressed and practiced performance expectations, every non fire-able employee with over a year on the job understands their privileged standing. Subsequently, the implied or demonstrated lack of genuine accountability creates a disease that handicaps synergy, morale and productivity. Your reluctance to set policies regarding the hiring and accountability of family member employees is demoralizing. While a few may think you are a “good-guy”, the majority, who are those outside the protected group of non fire-able employees, resent both you and those you are enabling for the actual or perceived handicap you are placing on their own effort to achieve your favor and recognition through honest, hard work. Furthermore, any manager who allows you to protect your “pets” by hiring your son right out of college or the service, paying non fire-able employees more than they are worth, not establishing and enforcing accountability, etc. is demonstrating their pleasure with the existing culture of mediocrity that is hiding their underperformance or over compensation.

You do not seem to recognize that family member employees set the standard for attitude and performance for all other employees. Anytime a fire-able employee is put under pressure for not fulfilling your expectations, the presence of an undisciplined family member or non fire-able employee gives them a silver bullet. They are just waiting and hoping you will hold them accountable so they can finally get a whack back at you for making their work environment so confounding. To add to this mess, behind your back, the non fire-able employees are best known for gloating, boasting and coasting. The assumption of these organizational terrorists is that if you don’t stand for something then maybe you will fall for anything, so why don’t we just go ahead and tell everyone “we are running this place.” The translation as I expressed in our meeting last week is that the inmates are running the asylum.

Again, I regret my perceived need for straight talk. Please assume that I would not be challenging your ways and means if I did not care. However, I appreciate that you are growing weary of my rebuff. As such, I fully anticipate that if you don’t begin to appreciate that which I offer and begin to see the business more from the perspective of myself and the fellow board members, you will dispense with us beyond our commitment.

Thanks for allowing me to vent my frustration and share with you a common issue that happens when successors aren’t prepared properly prior to the succession. Now, bring on the next Board!

What do find works best in encouraging mutual respect and commitment by both family and non-family member employees?

A Lesson from Football – Take a Half-Time Break

2011-11-21T10:15:00.001-05:00

Here is the last post in my partner, Jeff Faulkner's, three part series on reviewing your estate and business succession plans. I hope these posts have encouraged you to take a look at and review your own plan.

In my previous two posts, I’ve discussed a couple of situations in which significant changes occurred that necessitated updates be made in the succession planning arena. Fundamentally, succession planning is a strategic planning process. Just as in your annual forecasting for your business, you have to review your plan on a regular basis to determine where you are relative to where you want to be, and make adjustments as necessary.

As an example, one of the things that many of our clients need to do is build up more liquidity apart from their operating businesses. It is a truism that you will find it hard to let go of your business if you are financially dependent upon it. So, in the planning process, we help our clients identify and define what personal financial security means to them and then help them develop a plan for achieving that security apart from the operating business over a period of time. If they say I want $1 million in liquid resources and they are currently at $200,000, then we develop a plan to get them there and then we hold them accountable to that plan.

What I have learned over the years is that with any type of strategic planning like this, the plan never, I repeat never, works out in a linear process. It’s a dynamic process with ebbs and flows. What I’ve also learned is that if you don’t follow this type of approach to planning and just hope it happens, the ebbs and flows will always, I repeat always, keep you from achieving your objectives. This is one of the reasons I love the way football games are structured with a half-time break. It gives the teams and coaches an opportunity to evaluate their game plan, what’s working, what’s not working, and sort out what needs to be done differently.

So, if you have put a plan in place but have not reviewed it in a while, do yourself and all who are depending on you a favor, and take a half-time break to evaluate your game plan, what you’re doing well, areas you need to improve, and update your game plan.

How often do you think is best to take a "half-time break" and review your estate and business succession plans?

Family Business Issues: Letter to a Successor – Being a leader means you can’t always be the “good guy”

2011-11-16T10:05:00.001-05:00

Let’s continue with my letter to the “Successor,” reflecting my frustrations with his recent performance. We pick up where my straight talk begins to focus on “Successor’s” effort to buy affection and respect...

I hope you found our recent Board meeting worthwhile. As I expressed leaving the meeting, I regret the need for my grinding in regard to you establishing and communicating reasonable performance expectations and formal protocols for expenses, 401k match, profit sharing, pets and hiring family members. All these things continue to support my concern about your compulsion to be known as a good-guy and a propensity to attempt to buy respect and favor from family and employees.

Although it may seem bizarre, I assure you that the most effective pathway to respect and admiration is to confirm, communicate and demand compliance to well thought out, reasonable (but sometimes unpopular) policies that are in the best interest of the business, the golden goose that serves the family, managers, employees and community. Unfortunately as a leader and manager, you are required to make decisions that due to the diversity of opinions and perspectives, will sometimes be deemed unfair, bad-guy or wrong. Fundamentally, that’s the role of a leader and manager, to make the difficult decisions that are in the best interest of the business and the organization, not the whims and needs of every employee. The imperative is, “business first.” If the business does not perform above average and provide a stable, long term, predictable, principled, challenging and fair opportunity for everyone involved your business will be vulnerable to the cycles in the economy and ultimately give way to predators and competitors who are more committed and disciplined.

Now, back to the straight talk. As you did not ask our permission when you did this, I want you to understand my feeling that if you offer any form of profit sharing or 401k match for ordinary, mediocre profitability, you are sending a resounding message that just being ordinary is your goal. On that note, William (my fellow Board member) and I feel strongly that if your business continues to slip into mediocrity, it will become road kill and all of your good-guy giveaways will be for naught. Your concern that your employees would take issue with you changing the funding formula to an above-average benchmark reflects that your compulsion to be liked is clouding your judgment. Assuming you are fair and reasonable, your employees will understand that expectations change with time and circumstances. They want to grow and have pride that they have accomplished something, not receive welfare. And it has been my experience that they can only be better if you expect better and demand better. Your employee’s natural instinct is to stay within their comfort zone. All forms of teams are the happiest when they are being pushed out of their comfort zone and challenged to perform at an extra ordinary level. To award them for an ordinary performance is an embarrassment to those who care and a joke to those that don’t. If you don’t demand extra ordinary performance which prepares your business for the inevitable challenges of the future, you are in effect, not fulfilling your responsibility to your employees, managers and family. Another way of looking at this is that if you are not making some unpopular decisions, if you are not being challenged regarding your decisions, if you are not under pressure to validate the direction you have chosen, you are not leading.

Next week I will post the conclusion of the letter, Warnings about family member and non fire-able employees, in which I discuss Successor’s ineffective means of dealing with family members working in the business.

Have you every tried to be the "good guy" and had things take a turn for the worse?

Change of Heart Leads to Change in Plans

2011-11-14T10:11:00.001-05:00

Here is the second post in my partner, Jeff Faulkner's, three part series on the importance of reviewing your estate and business succession plans.

Another situation I dealt with recently during an annual review of planning involved what I refer to as a “five minute bomb.” Five minutes before the end of the meeting with a client, when I’m preparing to leave and go home, he says to me “oh, there’s something else I forgot to tell you” and it is inevitably an intense subject that requires much more than five minutes to handle.

“Oh no! Here it comes,” I think. Sure enough, it’s a big, hairy issue. Whereas I used to feel anxiety about these bombs, I have come to rely on these as opportunities for further engagement and building client reliance upon me as an advisor.

In this particular case, the business owner has three sons, two of whom have been involved in the family business since a couple of years after they graduated college – about 15 years now. The third son worked in the business early on, but got sideways with one of his brothers and decided to pursue a different career. All of this had been successfully worked through several years ago with family relationships successfully restored and the third son finding success in a new industry. All was well.

Well, in the economic downturn, the third son ended up losing his job and was out of work and looking for a new position. As most dad’s who care about their kids would do, he wanted to offer this son the opportunity to return to the family’s business. However, being sensitive to the relationship issues that had occurred previously, the father was hesitant to do so without a lot of guidance.

The good news is that we were able to meet with the brothers and achieve alignment, with all three of them being able to put the past behind them, and bring the third son into the business. We defined his role and clearly communicated expectations. He’s been doing well and performing to expectations.

Consequently, now that all three of the sons are active in the business, dad appears to be having a change of heart with regard to how stock in the business should be allocated between them.

Looks like it’s time for some more work to be done: revising covenant agreements, updating shareholder agreements, recapitalizing the business into voting and non-voting stock, creating appropriate buy-out provisions, calls and puts, etc., etc. Reviewing your plan regularly will help you stay on top of these changes in family circumstances and changes in your feelings.

Next week, Jeff will discuss the need for reviewing your succession plan periodically in A Lesson from Football - Take a Half-Time Break.

What has been the biggest curve ball to your succession plan to date?

Family Business Issues: Letter to a Successor – Empowering Key Management

2011-11-09T09:47:00.001-05:00

Some clients appreciate what I offer more than others. In many cases this occurs when a very social child follows a task master parent into the CEO position of a business without appropriate experience, effective accountability, mentoring or coaching.

In the absence of working for another business, successors lack the understanding or empathy of an employee. If a successor has never been a common law employee, it is very difficult for them to effectively lead or manage employees. Furthermore, if a successor is never provided employment performance guidelines and held accountable to those metrics, it is very difficult for them to manage and lead those who are aspiring to make their mark on the business world, gain status and gain security.Read More

The ultimate double-edged sword of succession is that enabled family member employees serve as role models for complacency as well as being the targets for resentment of the managers they ultimately are going to be asked to lead and manage.

I have agreed to serve on the Board of Directors for several family businesses that found themselves with the frightening need to transfer business ownership and management responsibility to a successor who was not adequately prepared. In an attempt to put a band aide on the situation, , the parents search for someone who will provide the accountability, mentoring and coaching that they were unwilling to provide. These Boards are usually very interesting frustrating because I am forced to be an advocate for common succession planning and business management practices that are perceived as counter cultural.

Recently, I had a difficult meeting when I learned that the successor and now CEO had made some decisions in regards to employees, profits and family that were from a succession planner’s perspective, nonsense. Allow me to share in this and the next two blogs my follow up letter to a newly installed successor CEO expressing to him my thoughts and frustrations regarding his leadership style; with the names changed to protect the guilty.

Dear Successor,

Thanks for the comments on your six month performance review memo I sent to your dad. I personally regret that the report was not more favorable. However, I am pleased that you sense that there are changes with respect to senior manager attitudes. Since you have heard them express that they are running the business, this is where I will begin with my advice as their attitudes are very important to the culture and success of the company...

With regards to senior management, what’s happening with John? As a 30 year, key manager who has stepped back versus forward, he’s the one I am currently thinking can make the biggest difference. I feel very fortunate that my meeting with him to “call him out” on his regression went well. Apparently he is very sensitive and no doubt my straight talk can offend some. I suggest that you continue to encourage him (he needs attention) with “Thanks for stepping up; you are going to make a big difference.” I also suggest that you step back and let him run with the Business Development Center while giving him your full endorsement. Let him train, evaluate and coach Susan. Let him develop and deploy the processes that he will then press his fellow managers to accept and promote.

Check back next week for the second part of the letter, Being a leader means you can’t always be the “good guy”, that addresses Successor’s desire to be liked by all.

If you had to choose one key thing to teach your successor, what would it be?

When Tax Laws Change, Estate Plans Need Review

2011-11-07T10:00:00.002-05:00

Over the next few weeks, I will be sharing with you a few posts by one of my partners, Jeff Faulkner, on the importance of reviewing your estate and succession plans. Here is the first installment of Jeff's three part series.

I sat down with a long-term client earlier this week and was reminded once again of the importance of regularly reviewing your estate and succession planning. This client is the majority owner of a family owned company and has his children involved in leadership roles. He is in his second marriage to a woman who is not his children’s mother.

As you are most assuredly aware, high net worth estate planning usually involves putting trusts in place to take advantage of tax laws and minimize the amount of taxes that the family will have to pay Uncle Sam. Under most circumstances, the assets are simply divided into a couple of different trusts for estate planning purposes, but the surviving spouse retains the right to income and principal from the various trusts. When we put this particular clients estate plan together several years ago the estate tax exemption amount was different than it is today. As it turned out, the client wanted to designate a particular amount to go to his spouse that just so happened to coincide with the exemption amount at the time.

When we reviewed his plan recently, we realized that with the current estate tax laws, his wife would now be receiving a substantially larger portion of the assets through income and principal rights. This would unfortunately necessitate, at this point, the wife sharing ownership of assets related to the businesses his sons are running. With this realization and through my following discussions with the client, it became clear that he now believes it would be best to have zero strings attaching his wife to his sons in the estate plan which is going to require wholesale changes to his estate planning documents.

What made sense to this gentleman a few years ago, no longer makes sense. Perhaps it’s time for you to review your planning to make sure it still makes sense for your situation.

In Jeff's next blog, Change of Heart Leads to Change in Plans, he examines how a change in family dynamics can create a need to reevaluate your current succession plan.

Anyone here experienced a change in law that turned your estate plan upside down without you touching it?

Hub and Spoke Eventually Chokes

2011-11-01T09:31:00.002-04:00

Being an involved leader is a positive thing, but being too involved can lead to trouble. David Ciambella, one of my partners, shared with me this post he wrote on some of the pitfalls of an over involved leader.

Last year while reading the Orlando Business Journal I came across a one liner that read, “the sign of a good leader is when the business runs as smoothly when the leader is in the business as when he or she is out of the business.” As a succession planning professional dedicated to impacting lives and perpetuating family business legacies, this quote resonated with me. While it occurred to me that the title of this article sounds like a quote from Johnny Cochran, the hub and spoke approach to management and leadership impedes the business’ ability to operate smoothly when the business owner (the hub) is away from the business. And from a succession planning perspective, this can be devastating!

The term “hub and spoke” refers to a management or leadership style whereby all information flows through and decisions are made by one individual, the hub. The spokes represent the employees who come to work every day, fulfill a specific role and contribute to business success as defined by the hub. Hub and spoke management is customary in fledgling businesses where the business owner is forced to wear several hats in an effort to survive. However, the hub and spoke approach is also prevalent among business owners who want and feel the need to be in control. These individuals believe no one can do things as well as they can and often times subscribe to “if I want it to be done right, I am better off doing it myself.”

As with most things in life, there are pros and cons to managing and leading via hub and spoke. Some of these repercussions include:
•    Business growth is limited to the owner’s capacity
•    Business decisions do not get made in a timely fashion when the hub is away
•    People development is inhibited since employees are not empowered to make decisions
•    Employees are reluctant to make decisions without seeking permission
•    Hubs have a tendency to overextend themselves and get bogged down in operations
•    Hubs tend to micro-manage which results in a perceived lack of trust among employees
•    Business frailties are masked

Throughout my career, I have encountered many successful businesses that have been quite profitable and have thrived while the hub was actively engaged in the business. However, when the hub is no longer available (premature death, disability or mental incapacitation) the sustainability of the business is in question. So is the value of the business which could have a profound impact on the owner’s family’s financial security. If you are one of those hub and spoke, bullet proof business owners who intends to sell your business and ride off into the sunset, think again. You represent much of the value of your business so it is highly likely the purchaser of your business will require you to stick around for two to five years to assist in the transition. In order to maximize the value of your business, you must begin to effectively delegate to your employees. Develop specific job descriptions for each key employee which will enable you to coach, train and mentor several important people to take over your responsibilities. Just as a wheel will not turn without a hub holding together the spokes, you must replace yourself with an equally effective hub. The new hub may be made up of one key person or several key players.

So, ask yourself today, how well does my business run when I am away? Perhaps this is the time to make your business less dependent upon you. Begin making strategic and deliberate changes that will help take your business to the next step in the succession ladder. Don’t be the hub and spoke that chokes!

Share your experiences with Hub and Spoke leaders below. It's always great to hear how others have handled situations such as these.

Not Every Collaborative Team Decision Has to Be Built on Consensus

2011-10-27T09:24:00.002-04:00

Many people think that for a team to make a decision, there needs to be consensus. Dan Schneider, one of my partners, puts forth the idea in his post below that not every collaborative team decision has to be built on consensus.

One of the great myths of the late twentieth and early twenty-first centuries is that collaboration stems from consensus.

The common approach to collaboration suggests that engagement is not possible unless people have an opportunity to participate in the decision making. My experience as a Certified Succession Planner® leads me to believe something somewhat different. The behavioral assessments we use in helping select the right people for groups such as operational teams, family councils, and various types of boards suggest a great many people want to be involved in the decision making process without necessarily having the responsibility for actually making the decision.

Some business and family leaders do not fully grasp this concept. As a result, they will go into private or group meetings knowing what the outcome is going to be, but act as if the outcome were still in doubt and will be influenced by the will and persuasiveness of the group. Group members have a negative view of such leadership behavior, and they generally leave feeling manipulated rather than motivated.

So, what approach works better when the decision is not in doubt? Here’s a model that has worked well for our clients:

Acknowledge that the decision is already made, is non-negotiable, and will not be changed as a result of any additional input from the group. The outcome is determined.
Indicate that the group does have an opportunity to influence how the decision or strategy will be implemented, if, in fact, that is true. Assuming that there is sufficient time, form a team to develop an implementation plan for executing the decision.
Assuming that competent people have been placed on the team, when they come back with a plan that achieves the desired outcome, resist the temptation to improve on their plan. Such improvements generally do not add a material level of improvement.

If the decision is in doubt, then by all means take advantage of working with a diverse team to reach a decision. Here are some questions to ask the group to consider in making the decision:

What will happen if we take an action?
What will happen if we do not take an action?
What will not happen if we take an action?
What will not happen if we do not take an action?

So, if you are confused and puzzled over how and when to use teams to make decisions . . . Good! We don’t really begin to learn until we realize that we are confused.

Please feel free to comment below with your team decision making experiences.

Maintaining a Healthy Balance

2011-10-25T10:11:00.001-04:00

With the holidays right around the corner, family demands tend to increase. Unfortunately, just because our family demands are rising, doesn't mean our business will slow down to accommodate the festivities. One of my partners, David Ciambella, wrote the following post on how essential it is to maintain that ever elusive healthy balance between family and business.

When I think of the word balance, one of the images that come to mind is a gymnast carefully and bravely performing on the balance beam. As a sports enthusiast and competitive person, occasionally when I am channel surfing (which my wife loves), I come across a gymnastics competition and find myself captivated by the athletes and their level of focus, commitment and talent. Although I have never been a gymnast, it is apparent that becoming a successful gymnast and performing well on the balance beam requires an incredible amount of mental and physical preparation. Naturally, it also requires the athlete to have great balance. Like gymnastics, owning and working in a family business requires a tremendous amount of dedication and effort in order to achieve a healthy balance between family and business.

Working in a family business is an incredible opportunity but at times is not an easy task. The fact is, you cannot run a family like a business, and you cannot run a business like a family. The demands of family and the demands of business create daily pressures requiring each of us to make sacrifices and compromises. It is common for business owners and dedicated employees to be so focused on achieving the business mission that they neglect the important things in life such as their marriage, family and friends. Business success at the expense of family and friends can be devastating. Unfortunately, I have witnessed this on countless occasions throughout my professional career. Picking up the pieces of fractured relationships, dealing with the implications of a divorce, or coping with a chemically addicted child are some of the situations I have encountered while working in the family business arena. Conversely, there are also wonderful examples of families who have successfully managed the dynamics of family, which represents unconditional love, and business, which represents conditional performance. My experience has impressed upon me how critical and beneficial it is to maintain a healthy balance between business and family.

How well are you balancing the demands of your business with the demands of your family? Are you taking adequate time off from the business to spend quality time with your spouse, children and friends? Is there a general feeling of contentment and achievement in your workplace and at home? Are you holding everyone accountable regardless of their relationship with you? As you ponder these questions, I encourage you to be honest with yourself and identify a few things you can do differently in the future to ensure you are able to achieve and maintain a healthy balance between family and business.

How do you maintain a healthy balance between work and play?

How to Design Team Collaboration

2011-10-20T10:17:00.002-04:00

Everyone who is forming a team wants to make sure that the team created will accomplish its goals. One of my partners, Dan Schneider, wrote this excellent piece below on how to design a team that collaborates effectively.

Teams are a puzzle to me. Individuals with unequal talent, different experiences and education, and sharing only a commitment to a common goal come together in ways that pull them together or push them apart. The elements that make them succeed or fail have certain characteristics that repeat over time; and even replicating those that are successful is no guarantee of success the second time around.

There are, however, certain characteristics and patterns that consistently lead to successful outcomes and results. Here are some of the pieces that I consider most important in designing team collaboration.

The “Goldilocks” Effect. Teams have a “just right” size. In most cases, team dynamics have their greatest pull when the team includes five to nine members. Outside that parameter, the dynamics get strange and teams either don’t come together or they fall apart.
Competence. The team must have a threshold level of ability to meet the challenges they were formed to face. No matter how well intentioned, a team of incompetents is still incompetent and cannot be successful.
Shared Mission. Relationships are important to how the team functions, but the task is more important than the relationships. Team members are not obligated to like each other; but they must have mutual respect, tolerance, and trust.
A place to play. The team members must have a form of shared space. It could be a webinar; it could be a flipchart. The playground is where they interact and exchange ideas.
Ability to disagree. Disagreement among team members is healthy. It usually leads to an increased number of ideas and/or options for possible solutions. In a classic example of “group think”, or the absence of disagreement, the Kennedy Administration launched the “Bay of Pigs” invasion of Cuba in 1961. It was a failure brought on in part by the total agreement of all the team members involved.
Continuous Communication. Effective teams communicate with each other early and often, but not constantly. Great teams develop their own communications rhythm and pattern, usually one that maximizes both flexibility and spontaneity.
Diversity. Effective teams have a balance of unilateral decisions makers, inspirational visionaries, practical planners, and systems and process people. They may or may not be a diverse group in terms of political correctness; but they will definitely be diverse in their psychological composition.

These characteristics rarely occur by accident. So, as the leader of the group, it’s your responsibility to put all the right pieces into play. If you do, you will probably witness an awesome display of power and human initiative.

What's the key thing you look for when designing an all-star team?

In Dan's next blog, Not Every Collaborative Team Decision Has to Be Built on Consensus, Dan explains how a collaborative team doesn't always need to have consensus to be effective.

That “Oh, So Enticing” Spirit of Healthy Internal Competition

2011-10-13T10:28:00.001-04:00

With football games, baseball playoffs, hockey season starting, and the NBA season soon to start (hopefully!), competition is all around us. One of my partners, Dan Schneider, wrote this great post on internal competition, that I think will really open all of our eyes to what truly is healthy competition.

On more than one occasion, a client has openly crowed about the “healthy competition” that goes on within the company. You can hear their jaws drop when I respond “Gee, that’s too bad.” You see, I don’t know that I’ve ever seen healthy internal competition; so, from my perspective, that concept is just as much an oxymoron as “family business”. Perhaps Walt Kelly, who wrote the famous and well read comic strip “Pogo”, summed it up best in an often quoted frame: “We have met the enemy, and he is us.”

Many successful business owners and leaders are competitive spirits, confident risk takers, creative and innovative people who believe that employee engagement in the business – family or otherwise – and personal respect are rewards that must be won. As a result, they set up incentives, rewards, promotions and other forms of personal and professional advancement so that there can only be a few winners – possibly as few as one – and multiple losers. All of this effort is made to honor the rationalized belief that “Healthy competition is good for us.”

Competition has its place. And, it’s not within the organization. At its best, I don’t know what internal competition teaches that cannot be learned in a less adversarial setting. At its worst, internal competition generates a host of negative behaviors, including:

    • Turf wars and sibling rivalries;
    • Lack of commitment to the success of others;
    • Broken trust among colleagues and family members; and,
    • Focus on personal gain rather than collective well-being.

In short, compete externally and collaborate internally. Save your competitive zeal for those who want to capture a larger share of your market. That’s where it pays dividends. Internal competition is essentially assertive and uncooperative behavior. It’s the “let me show you how much power I have” behavior that drives us toward our own concerns, usually at some other person’s or the organization’s expense. It’s particularly oxymoronic if one of your stated values is “Teamwork”.

Internal collaboration on the other hand, is essentially assertive and cooperative. It’s an approach used by mountain climbers who believe that those who stay at the base camp are just as valuable as those who actually make it to the top of Mount Everest. When properly used, collaboration helps:

    • Develop integrated solutions to problems too important to be compromised;
    • Test assumptions that may be blocking learning and progress;
    • Gain commitment for “buy-in”; and,
    • Focus on business and/or family goals rather than individual aspirations.

Collaboration is not weakness. It’s actually quite hard, and that’s why there’s so little of it. It’s much easier to throw everyone into the ring and see who comes out alive. That might be more fun to watch, but it probably won’t take you where you want to go.

Check back next week for Dan's helpful tips on Designing Team Collaboration.

Power Up Your Organization – From the Inside Out!

2011-09-22T09:30:00.002-04:00

Last week I shared with you a post by one of my partners, Dan Schneider, on the types of motivation. Here is Dan's follow-up to his original post that discusses how to use intrinsic motivation.

If your overall compensation package is at least competitive and provides a reasonably comfortable life style for your employees and family members, then it is going to take more than additional money to bring out the creative and productive energy that your staff carries around with them. It’s going to take INTRINSIC motivation.

Intrinsic motivation is the compelling desire to do and be better because we want the satisfaction that comes from doing something simply because we love to do it. In his book, Drive, Daniel Pink tells us that there is a “mismatch between what science knows and what business does.”

That black hole of knowledge happens because some of us have already made up our minds that Fear (intimidation and bullying) and/or Extrinsic Motivations (contests, special programs, bonuses – token or substantial) are the only ways to pull extra effort out of the people who work with and for us. Intrinsic motivation, the least used method of motivation, is another option. Its effects last much longer than other forms of motivation simply because people actually enjoy what they’re doing.

Four critical elements combine to trigger a powerful and sustainable energy level that leads people to seek accomplishment for its own sake rather than pure personal gain. These elements are:

Inspiration – people see themselves as part of something bigger than a single individual;
Participation – people have an opportunity to make decisions about how work will be performed;
Education – people receive opportunities to develop new/existing skill sets; and,
Communication – people are kept informed about how they’re doing.

You can build these elements into your family and business dynamics by focusing and balancing what people need and want, through the elements above, with what you want – your own personal motivation and perspective. To do so, you first have to know what others value.

There are several ways to find out. One approach is to use assessment tools. The right tools can help you better understand what makes them tick:

What talents do they have;
What are their interests;
How do they communicate most effectively; and,
What key actions do you need to take to get them tuned in and engaged in mutually beneficial outcomes?

If asking the questions above does not help you truly understand what they care about, there is another approach that often proves valuable. Using reason and emotion, let others know what is important to you and why you want to achieve it. Then, ask them a simple question and listen without judgment to their response. The question is powerful: Tell me, what is important to you?

Once you know what is important to them, you can begin to put together an incentive system that capitalizes on intrinsic motivation and will take you where you want to go; and, more than likely, at a reduced cost. Try it. I think you’ll like it.

Feel free to comment below and share your experiences with using intrinsic motivation.

Dreamwork to Teamwork – Part 3

2011-09-21T09:30:00.002-04:00

Trust is the single most critical component of teamwork. Unfortunately, some people are just untrusting and believe in survival of the fastest and the fittest. Employment is just another opportunity to compete, win and validate their belief that they are capable of looking out for number one. Untrusting people expect others to disappoint and their fatalistic attitude generally creates a self fulfilling prophecy to the failure of a team. All forms of personal interaction have one purpose for the untrusting, improve their own circumstances. They may be referred to as part of a group but the untrusting think individually and functionally, are team members in name only.

A third answer to the question of how to convert a dream into a team is the elimination of untrusting and the conversion of the skeptical. Do not worry about picking these types out because the untrusting will identify themselves by their argumentative, confrontational attitude and the skeptical will identify themselves with their unwillingness to make a commitment to the common cause. Boot camps, training camps and basic training are all utilized by team-critical organizations to identify the untrusting and convert the skeptical. However, businesses generally do not have the luxury of training camps and therefore must rely upon instincts and trial and error in the identification and elimination of those who lack sufficient trust to be a team member. Team building in business requires taking the time to get to know your people and utilizing instincts and experiences to make decisions as to who you are dealing with and who can be a productive member of the team.

The three aforementioned steps to turning a dream into a team lead us to the final answer, assume that everyone remaining after elimination of the untrusting, is a skeptic and that they must be won over one at a time. Don’t condemn the skeptics. To the contrary, acknowledge that an interdependent team attitude is not natural human behavior for them. Team is a choice to give up the “I” and “me” priority. Interdependence is a learned behavior. To convert the skeptics and teach teamwork, express and continue to relentlessly reaffirm that working as a team will be more gratifying, productive and secure than taking on the world as the Lone Ranger without Tonto. This is not a hard sell in the family business realm because those employees who still have jobs are generally team compatible because economic stress has eliminated the self servers. Furthermore, economic stress has made your employees very receptive to the concept that it is in their best interest to assume a vested interest in the welfare of their colleagues, team members and employer. Sell the team vision that relies upon cross accountability, creates less dependence upon the talents of a few superstars and places more reliance upon the normal doing the abnormal, working as a team. Express an expectation of doing more with less and recognize those who give it up for the team. Family business leaderships should above all demonstrate team attitudes. The best way for a leader to demonstrate commitment to teamwork is to participate as a member of a team (without being the leader) demonstrating that they can trust and that they are trust worthy.

Succession cannot reasonably rely upon a dream, but it is certainly within the grasp of a team.

Feel free to share any dreamwork to teamwork success stories of your own.

$3 Million to the Bottom Line is All I Expect - Evaluating Family Successors

2011-09-19T10:05:00.002-04:00

With my partner, Jeff Faulkner's, recently posted blogs portraying family successors in a somewhat negative light, Jeff has written a blog post that looks at the other side of this situation and examines a common issue family successors can face.

In fairness to the up-and-coming successor candidates in family businesses, it should be mentioned that often times the evaluation of them is not altogether objective or even reasonable. Family member employees live in a fishbowl where nothing they do is seemingly ever good enough. The good stuff they do is seen simply as par for the course. And frankly, that’s often because no one in the organization gets a lot of affirmation for their incredibly hard work, so why should the “heir apparent.” On a side note, that’s a sad commentary on many businesses across our fruited plains in and of itself. And the errors successor candidates make often become mountains made out of molehills.

This reality is simply not fair. I’ll grant that fact. A major reason we end up facing significant challenges with successor candidates in family businesses is because they often come into the business with little to no communication about what’s expected of them. Expectations can cover everything from performance to attitude and behavior.

One client was in the process of promoting his son to a General Manager position and upon questioning what his expectations were of his son’s performance, the client said, “Simple… $3 million to the bottom line.” Now, depending on the circumstances, such a hard and fast expectation may be reasonable for an experienced leader. Whether it’s reasonable for a newly promoted leader, I’m not so sure.

The point here is that both the questioning of this business owner and his response indicate the reality that there are, indeed, expectations placed upon up-and-coming family successors. When those expectations aren’t fleshed out, debated, agreed upon, documented, and communicated, land mines will be around every corner.

You owe it to yourself, your family successor candidates, and your key people to invest the time necessary to think through and develop a list of reasonable expectations that will provide a useful lens through which your successors can be evaluated.

Trust me, it will go a long way toward alleviating, and potentially eliminating, emotionally and fiscally taxing circumstances for all involved.

What have been the craziest/most extreme expectations ever placed on you, and how did you go about bringing those expectations to a reasonable and realistic level?

The Incentive Trap – Are You Caught Up In It?

2011-09-15T15:00:00.002-04:00

Having trouble motivating your team? Take a look at this post by one of my partners, Dan Schneider, on the types of motivation and which one you should be using.

Here’s something that may challenge your current thinking about incentives: Not all incentive programs motivate people towards better and higher levels of performance. In fact, a good many of these programs have just the opposite effect. They can also serve as a source of motivation for the wrong people or a source of entitlement.

Basically, there are three types of motivation: Fear (self-imposed or direct threats); Extrinsic (outside programs such as bonuses, special perks, etc.); and Intrinsic (internal drive for accomplishment). While fear and extrinsic motivation may have some immediate impact on performance levels their impact is generally short-lived.

The challenge with fear motivation is that people either get used to it or they get away from it. Threatening people with the loss of their job, demotion, reduced salary, etc. can produce a temporary change that makes it look like people finally “got it.” More often though, it produces a prolonged period of “malicious compliance” during which you actually begin to get less and less of what you want, sometimes even to levels lower than they were before any threats were ever made.

A second challenge associated with fear is that people get away from it – they leave the organization. “Good,” you say, “If you don’t want to be here then I don’t want you either. So leave and stop ruining it for the rest of us.” While some would certainly consider that an appropriate response, most effective leaders would view that as the mark of an immature and insecure leader. And, so do most of those who stay. If you recognize yourself in that scenario, you might want to consider changing your approach and trying extrinsic or intrinsic motivation.

Extrinsic motivation can work pretty well for people who are employed in jobs that don’t require a great deal of personal engagement or commitment. That would include some forms of retail sales, service occupations, manufacturing, administrative bureaucracy, and the like. The major challenge with extrinsic motivation is that it can quickly become an entitlement; and once it does, it suffers a serious loss of value, often becoming more of a dissatisfier than a motivator.

The most common issue associated with extrinsic motivation is that the payoff is usually designed by someone who believes that all people are motivated by the same things. So, the person designing the system bases the entire model on what (s)he likes and seldom considers even the remote possibility that others might be motivated differently.

Another problem with extrinsic motivation is that sometimes the payoff is larger than the owner/designer anticipated. When that happens, a new and less lucrative plan is quickly introduced. The stick gets longer, the string shorter, and the carrot less plump. The incentive model doesn’t work as well as it previously did until there is enough turnover among the participants that very few original members are left to talk about how good the old system was.

The most effective form of incentive is intrinsic motivation. It comes from the inside out; and, in the next installment of this series, "Power Up Your Organization – From the Inside Out!", I’ll show you how to lead people where you want them to go. In the meantime, if you’re relying on fear motivation, shift to extrinsic. If you’re relying on extrinsic motivation, get ready to see something you may never have dreamed possible.

Any stories you have of incentives that backfired?

Dreamwork to Teamwork – Part 2

2011-09-14T10:05:00.002-04:00

Trust is the single most critical component of teamwork. In the absence of trust in owners, leaders and colleagues, members of the “dream” (versus team) are looking over their shoulder and subsequently handicapped in their ability to focus on their assigned task. Building trust is the first answer to how we convert a “dream” into a team that optimizes productivity and creates the Success Marginsm demanded by business succession. Trust builds cohesiveness and resilience that are the cornerstones of family business synergy. The potential of a collaborative group is not solely dependent upon the aptitude. Assuming journeyman aptitude it is the attitude of interdependence that determines the productivity potential beyond the natural sum of the parts.

Just as each family has a unique suite of cultural characteristics, each member of a group aspiring to become a team (family members, managers and employees) has a unique set of personality characteristics. Among those inherent individual personality characteristics are trust, skepticism and distrust. The focal challenge of converting the dream to a team is development of interdependence. This interdependence will enable team members to fulfill their assigned roles, provide motivation to help others and generate confidence that owners, leaders and colleagues are fulfilling expectations that are critical to the achievement of the group goal.

The second step to building family business teamwork is to understand who you are dealing with. Some people have natural trust or faith that others will fulfill expressed expectations. These trusting persons can quickly make commitments to the group cause; they give others the benefit of the doubt and are very comfortable in interdependent relationships due to their instinctive understanding that their needs and goals can best be achieved through collaboration. Affirmation and recognition of these natural team players is very important to the achievement and maintenance of team synergy. Repetitive disappointments regarding trust take a heavy toll on their energy and will ultimately lead them to change to an environment that supports their inherent belief that people are trustworthy. Unfortunately, naturally trusting team candidates are rare.

The focus of the family business synergy challenge is the skeptics who represent the vast majority of the team candidates. They say they are players but really don’t trust that others are watching their backs. Skeptics can even talk them “team talk”, but instinctively, they believe in survival of the fittest. They are concerned about vulnerability and hold back total commitment. Many skeptics were previously trusting team members who based upon disappointments have been converted to believing that the secret to survival is playing the team game while looking out for number one. Skeptics are alert to opportunities to advance their personal priorities even at the well disguised expense of others. The credo of the skeptic is success by survival. The conversion or culling of the skeptics ultimately determines the success of the team.

The final team candidate is the untrusting who is incompatible to serving as an integral member of a family business team. We’ll further examine this group and determine the last answer to how to build a family business team in the last part of this series, "Dreamwork to Teamwork - Part 3."

Who do you tend to have on your team: natural trusters, skeptics, or the untrusting?

8 Seconds After the Boss is Gone…I’m Gone - Evaluating Family Successors

2011-09-12T09:45:00.002-04:00

Last week I shared with you a post by one of my partners, Jeff Faulkner, on recent issues he's dealt with when working with family successors. Here is another post Jeff wrote regarding family successor problems.

Over the course of the last decade in working with family-owned companies, I cannot tell you how many times I have heard horror stories of family successors driving their family’s business into the ground. Often times, it is our clients’ fear of this happening in their own businesses that motivates them to hire us in the hopes that we can help prevent this tragedy. In spite of situations that I have been involved in where, after some time, I begin to share the business owner’s concerns, I maintain hope that I can be helpful in creating solutions to avoid this disastrous downfall.

Faulty assumptions are a major reason for unsuccessful successors. An entitlement mentality from the “heir to the throne,” is often the kryptonite to the ongoing success for a family business. This is especially true in businesses that are being operated by non-family managers or producers.

A few subtleties of those with an entitlement attitude include a lack of experience-based knowledge of what the non-family managers do on a daily basis, a lack of understanding of what it takes to drive profitability to the bottom line, and a lack of respect for the people who are making it happen. The lack of these important elements prevents the successor from gaining credibility and respect from those who have the experience.

When a sense of entitlement and its underlying assumptions are allowed to fester unabated, the people who are making it happen in the business (that is, those who are generating revenue) are often not recognized by the successor as being integral to the future success of the business. In most of these instances, there is an assumption that the loyalty these people have shown toward the senior owner will be transferred to the next generation without question. However, unfortunately this is generally not the case. I was reminded of this recently when the President of Operations of a client’s company remarked, “Eight seconds after the boss is gone…I’m gone. There is no way I’m working for his kid.”

Successor candidates sometimes need to swallow their pride, humble themselves, and recognize that the family’s business has been built upon the shoulders and backs of non-family managers and employees. When they display misguided arrogance in an attempt to gain respect and to make up for their lack of the things mentioned above, they undermine their own objectives and further alienate those they are dependent upon. This leaves them with slim chances of maintaining a profitable business when dad is gone.

While Jeff's past two blogs have may have cast a negative light on family successors, his next blog, "$3 Million to the Bottom Line is All I Expect," takes a look at the other side of the story and examines the unfair expectations that can sometimes be put upon successors.

How would you evaluate your successor candidate’s attitude toward your key people?

Harmony: You Know It Don’t Come Easy

2011-09-08T10:00:00.002-04:00

I want to share with you a post by one of my partners, Dan Schneider, on how to achieve harmony in your family business. Please enjoy his Beatles-inspired post below.

My apologies to Ringo Starr. In case you’ve never heard of him, he played drums for the Beatles during the 1960’s until that family business came undone. Wait a minute, you say, the Beatles were not family members. Well, perhaps not by the traditional definition of family; but remember, we define a family business as two or more people together for purposes other than making money. Whether you’re family, friends, or strictly business partners, personal and professional partnerships are a lot of work; and they require the eternal vigilance of the night watchman.

So, how’s the harmony in your family business or partnership? Is everyone moving in the same direction? Does everyone share the same vision? If the answer to either of these questions is anything other than an unequivocal “YES!,” then there are some unpleasant and squeaky moments ahead. However, a few relatively simple actions on your part can avoid the breakup of the group.

Let’s start with the hardest part first. Listen. Listen to family member employees, to non-family member employees, to business partners and to stakeholders. Listen for understanding and increased awareness. Listen.   Most of us are pretty good at pretending to listen. Then we take action and/or make decisions that cause people to wonder why they even bothered to share their thoughts.

Does listening work? Shakespeare thought so. He often had kings dress up as commoners and hang around campfires to learn what people really thought. The idea has even caught on with reality TV shows featuring an undercover boss. And, of course, contemporary marketing gurus often promote the concept of mystery shoppers as a way of learning what customers and clients actually think.

Strange, isn’t it? Such a simple thing as listening to others seems best done in disguise, under cover, or shrouded in mystery. By taking the wraps off and becoming a good public listener, you can:
•   Become known as a brilliant conversationalist;
•   Become an exceptional interviewer;
•   Achieve a level of sales you may never have imagined possible.

To become a more effective listener, remember that words create a variety of pictures based on the personal experiences of those hearing the words and picking up on the non-verbal cues. Unless you name is Abraham Lincoln, people are more likely to remember the intensity of your words than they are the words themselves; so be as passionate in support as you are in opposition.

Listening. A vital competency in becoming a highly effective person, regardless of your station in life. So simple, but you know it don’t come easy!

It's pretty difficult to motivate when there is a lack of harmony. So, now that we've discussed how to create some harmony, take a look at my next post, "The Incentive Trap – Are You Caught Up In It?" on how to motivate effectively.

What's the best thing that has happened to you because you truly listened to someone?

Dreamwork to Teamwork – Part 1

2011-09-07T09:45:00.003-04:00

Organizational productivity is dependent upon teamwork, which I describe as two or more people working together productively for a common goal. Team can be expressed or implied, conscious or unconscious but irrespective, organizational productivity depends upon the effectiveness of interdependent, collaborative effort. Teamwork can be fair, good or great, but teamwork cannot be bad because the contingency of teamwork is enhanced productivity. The English language does not give us a word that that describes the negative side of group collaboration which we generally associate with uncooperativeness, inter-organizational competition, backbiting and under productivity.

A family in business has an inherent advantage because the family provides a natural team infrastructure from the presumption that a family naturally portrays productive group characteristics such as pride, purpose, mutual respect, harmony, governance and communication. Unfortunately, these presumed family characteristics are not entitlements of having children or hanging out in the same house. As the world turns, each family has a unique suite of bonding infrastructure assets that come into play if, and when, they pursue a business activity. Predictably, the quality of the family is magnified as an advantage or disadvantage as it endeavors to call upon its unique culture to pursue a business purpose. As I go about my profession as a Certified Succession Planner®, it is apparent that most families endeavoring to develop, manage or grow a business are unable to deploy one or more of the inherent advantages and some cases are dealing with screaming relationship liabilities that can make survival, not just succession, a formidable challenge.

With synergy (doing more with less) so important to success and succession, I am often asked what I think is the single most critical component of teamwork. My answer is always the same, trust. The strength of teamwork comes from interdependency. The difference between “dreamwork” and teamwork is that teamwork has trust among team members that reasonable expectations are being fulfilled. Trust is the bonding agent that provides the foundation upon which harmony, productivity and success are built.

As I interact with Rawls Group clients, a common observation I make regarding manager and employee interaction is a lack of trust and consequently, impaired teamwork and productivity. Everyone is promoting unity and harmony, but it is not happening because there is a lack of trust, vertically and laterally. Members of the “dream” (versus team) are unable or unwilling to focus on the tasks at hand. They lack trust that the other team members have their backs regarding the litany of issues that support peace of mind in the work place. No doubt, in the absence of peace of mind, we have “dreamwork” wherein the employees continue to look over their shoulders and be distracted from what they are being paid to do.

So recognizing that the family infrastructure may not always be the ideal team role model, how do we build the organizational trust that will stop the “dream” and build a real team to support business succession? There are four answers that we will examine in my coming posts, "Dreamwork to Teamwork - Part 2" and "Dreamwork to Teamwork - Part 3."

What do you consider to be the most important component of teamwork?

What $180,000 Will and Won’t Buy You - Evaluating Family Successors

2011-09-05T10:10:00.000-04:00

One of my partners, Jeff Faulkner, has had some recent client experiences that are great examples of issues one is faced with when dealing with family successors. He shares one of his recent interactions in the post below.

This past week I was with an auto dealer client, and we spent some time evaluating the progress of one of his children in the family business. It quickly became apparent that this heir doesn’t know his way to the bottom line of the financial statement. In the car business, razor thin profit margins are the norm. In fact, in a well-run store, for every one dollar that comes in, only about three cents finds its way to the bottom line. That’s a remarkable statistic, but even in other industries where the margins are higher, a deep understanding of how much makes its way to the bottom line should be drilled into the heads of all employees, especially family members seeking to take over someday.

Here’s the story. This 29-year-old successor candidate, who, unfortunately, has been fast-tracked into a management position by his father, is enamored with status and image management. As a part of the family’s portfolio of auto dealerships, they have an ultra-high-line franchise that only the wealthy can afford. The son has decided that if they purchase a sky box at the stadium where the local NFL team plays, they will be able to leverage that into more sales among the rich and famous. Sounds reasonable, right? This successor candidate is showing some signs of leadership, innovation, and determination, right? Maybe. But here’s the problem. The sky box costs $180,000 annually.

Why may the skybox purchase be a problem? Well, how many of these high-line vehicles need to be sold in order to add more than $180,000 to the bottom line, therefore, providing a positive return on investment? With the 3% profit margin mentioned above, they’d need $6 million in sales. With their current average sales price at $200,000 per vehicle, that would equate to an additional 30 vehicles annually to break even on the sky box purchase. Historically, this store has averaged 50 new car sales per year and has not been profitable. It has been propped up by the other businesses the family owns. So the question here is: how realistic is it to see a 60% increase year over year in units sold based on this one move alone? And that’s just to break even on the investment and not lose more than they’re already losing.

There is however, the chance that the son may have less selfish motives and be thinking of this purchase as a marketing initiative. The team’s players and executives are the target market for these luxury vehicles and buying a sky box may be a great way to connect with them. The potential for this extravagant purchase to benefit the bottom line does exist, however the son needs to present a strong case for how he plans to maximize this opportunity for the benefit of the dealership and not just his image.

So if your successor candidate is showing a tendency toward making business decisions motivated by status and image management alone and not by informed sound business principles and a thorough understanding of the Return on Investment, then you have some work to do.

I'd love to hear your comments on this issue. Do you think the sky box is a worthwhile purchase?

For more of Jeff's thoughts on evaluating family successors, read his next blog, "8 Seconds After the Boss is Gone…I’m Gone."

US Debt Downgraded - What do I do now? by Dan Thill

2011-08-19T10:00:00.000-04:00

Dan Thill, one of my partners, wrote this informative piece below on the US debt downgrade. Hope you enjoy this calm and level-headed look at the what this downgrade means for individuals.

On Friday, August 5, the United States’ debt was downgraded from the highest rating of AAA to AA+ by Standard & Poor’s (S&P). The downgrade was announced after the market closed on Friday. Stocks had already been under pressure and as a result of the downgrade and investors being overwhelmed by the numerous opinions of talking heads over the weekend, the following Monday experienced investors exiting the market en masse. Subsequently, equity markets came under heavy pressure and unease mounted about the strength of our economy.

The timing of the downgrade may have been a bit of surprise to some, but S&P had put the US on notice for a downgrade months in advance. Contrary to the doom-and-gloom view of the media, the downgrade, in and of itself, is a fairly manageable issue. Economically, it changes very little in the short run as witnessed by increased demand for Treasuries that Monday. No one is suggesting that the United States will be unable to pay its current obligations. However, the downgrade served to further damage investor sentiment.

Volatile days in the market may bring to mind the dark days of the Financial Crisis of 2008-2009. Then, investors were grappling with a potential collapse of the entire banking system. Fortunately, the problems we currently face are not as dire as then. The downgrade may cause interest rates to rise, but no one is suggesting that the banking system is poised for failure. Corporations have had healthy earnings growth over the last several quarters and have deleveraged their books so that they remain in strong fiscal positions. This is good for both the equity issues of those corporations as well as their bonds. And it is worth reiterating, no one doubts the United States’ resolve or ability to pay its current debt obligation.

Stock market turbulence serves to remind us that what goes up can come down -- and that overall risk is as important a variable in the investment equation as overall return. The value of a disciplined asset allocation process that focuses on both risk and return becomes even more important, especially to the serious, long-term investor. One of the key reasons why we employ not only traditional stocks, bonds and cash, but also alternative investments is to dampen volatility in times like these.

Past performance is no guarantee of future results and diversification does not guarantee a profit or protect against loss. We believe that in any market environment, investors should be diversified across a variety of asset classes.

As you react to the news and volatility of the market, please keep the following in mind:

• Panic is not an investment strategy.
• Diversification can dampen volatility.
• Don’t make short-term decisions that may jeopardize your long-term goals.
• Regularly review your goals and time horizon.

When we work with clients to develop diversified asset allocation recommendations, we base our recommendations on a discussion of the client’s investment time horizon, investment goals, and tolerance for risk. If these remain the same today as when we originally developed the portfolio, short-term market volatility should not have a major impact on the portfolio’s long-term performance. If these factors have changed, then a review of circumstances should be conducted to modify the portfolio accordingly.
As succession planners, we are committed to helping our clients prosper in the years ahead. Please call if you have questions or would like to schedule a meeting to review your current situation. We can help ensure that your portfolio is properly diversified and that your financial plan supports your long-term goals, time horizon, and risk tolerance.

Should I Hire People I Do Not Like?

2011-08-18T10:00:00.000-04:00

Leading those you don't like can be a challenge. Dan Schneider, one of my partners, helps tackle this issue head on in his posting below, discussing who you should (or rather, who you shouldn't) hire.

Of course not. No. Never. Roy Reiman, publisher and philanthropist, writes and speaks about the virtues of hiring people you like and the positive impact that has on building or sustaining an accepting culture. Hiring people you do not like almost certainly leads to problems down the road, and those can be expensive in terms of energy, time and money.

But what if the people you do not like have a history of proven performance with other employers? Well, the operative word in that question is “history”, and you would be wise to check it out. They may have been amazingly productive, brought in a lot of revenue, optimized profitability, or even leapt tall buildings in a single bound. Still, there is a reason you do not like them; and it may be the same reason they now have a “history” with one or more organizations.

You might, on occasion, hire someone you do not like simply because a job or position in your organization has been open longer than you anticipated. People are putting pressure on you to get the job filled. You are so anxious to fill it that you believe “somebody is better than nobody” so you hire somebody. WRONG! I’ve been down that road once or twice myself, and I realized after the fact that an expedient hire gave a whole new definition to “Oops!”

So, back to Roy Reiman and his advice about only hiring people you like. Take note that he did not say “only hire people like you.” When you hire people like you, clones show up all over the place. There is no diversity, no one to challenge the way it’s always been.

When you hire people that are like you, all that happens is that you get more of the same. There is seldom any long term, strategic advantage in hiring more of what you’ve already got. It will add little to your competitive position; and, in fact, probably weaken it.

The goal in hiring is to get some of what you do not have, not more of what you already have. That’s the point in hiring smart. As Gary Rogers, Chairman and CEO at Dreyer’s Grand Ice Cream, says, “You can’t spend too much time or effort on hiring smart. The alternative is to manage tough, which is much more time consuming.”

To recognize your “hiring smart” skills, ask yourself three short questions:

1. Who was my worst hire?

2. How long did the situation take to resolve?

3. How much did the mistake cost?

The very best thing you can do for your competitors is to hire poorly. And hiring people you do not like is just one of the many ways you can hire poorly.

What are some of the first signs you look for to know whether or not an applicant will be a good hire?

Control Freaks and Associated Curses - Part 3

2011-08-17T10:27:00.000-04:00

A thorough succession plan addresses the organizational and family issues that can impact the continued success of the business through the next generation of owners and managers. A control freak at the helm significantly complicates two components of the Succession Matrixsm: successor identification and development and management teamwork and synergy. Notably, the control freak represents a barrier to the development of successors and supporting managers who have the confidence and competence to operate the business when the control freak inevitably loses his/her physical or mental ability to drive the business.

Relieving the barriers created by a control freak is no easy task. Most do not consciously express the goal of maintaining control, some even deny the notion. Their unspoken plan is to maintain a white-knuckled grip “until death do us part” due to insecurities beyond my understanding. The barrier can be so great that it is unrealistic to even discuss the transition of management control and leadership without confronting the control freak with the issue and the impact they have upon the succession initiative. The initial goal is to achieve self awareness and recognition that the unwillingness of the control freak to trust, delegate and hold subordinates accountable significantly handicaps the growth of managers and prospective successors who are seeking experience, competence, respect and confidence, which are the fundamental ingredients of “leadership stew.” The hope is that self awareness and recognition of their excessive compulsive behavior will serve as motivation for behavior modification. Unfortunately, there is no assurance the control freak will get out of the way even if he or she recognizes they are the problem. In many cases, they just cannot help themselves. Like an addict, their conscious may want to trust and delegate, but their subconscious insecurities dictate that they be involved in everything physically possible.

Historically, the most successful course of action for reconciling the control freak succession liability is to acknowledge that they need something to control while organizing a group of respected senior managers as a support group to regularly (and often) discuss the goals of more delegation and empowerment of prospective successors and emerging managers. The group would also discuss what is currently being done to delegate and trust and the positive and negative impact this trust and delegation is having on the business. The purpose of the support group is not to embarrass but to give the control freak regular affirmation and assurance that their trust is merited; as well as peace of mind that there is effective accountability for performance shortfalls. And most of all, they need reassurance that a disastrous blunder will not occur. If successful, this regular reinforcement will delicately and deliberately introduce empowerment, trust and accountability into the business culture allowing a successor leader to be confirmed. If unsuccessful, the control freak will reach his/her limit of tolerance and after a short patronization of the support group, proclaim that they are no longer going to participate in stupid, crazy, demeaning meetings with people who have no clue what it takes to run a business. Regardless, the succession process will be better off because it will have started on a deliberate pathway to achieving leadership and management succession with recognition of the depth of the succession liability. If there is little hope for change in the control freak’s behavior, the best advice is to start preparing for the forthcoming crisis and move on to other issues of the Succession Matrixsm that offer greater opportunity for improvement.

What tips do you have for limiting the effects a control freak has on your company?

Business Structuring & Family Harmony – Part 3

2011-08-15T11:30:00.000-04:00

Below is the final part of Jeff Faulkner, one of my partners', series on how to structure a business in a way that promotes family harmony. I hope you've enjoyed and learned from this series, as it's always easier to do it right the first time than undo the mess that was made from poor planning.

A third family I’m working with also has some Business Structuring issues that could wreak havoc on family harmony if not dealt with. Though this is a relatively simple issue, it is one that could have a profound impact and another example of what would typically be considered good tax-driven planning, but not necessarily good succession-driven planning.

The tax-driven planning accomplished in this case is particular to the client’s state of residence. Similar to the situation in my previous post, this one involves an operating family business and business related real estate, with two children active in the business and one not. The typical structure is to have a lease agreement between the operating business and the entity that owns the real estate, thereby generating a long term and reasonably dependable source of income for the owners of the real estate. Many business owners establish such a structure to provide them with retirement income once they decide to leave the business. Others, as in this case, use this type of structure as a way to create equality between their children, with those active in the operating business paying rent to those not active in the business, and giving the actives the option to buy the real estate. Not perfect, but it works in a lot of cases.

In this particular case, however, the owner did not set up a lease agreement between the two entities; rather, he established a joint venture between the operating business and the underlying real estate to avoid paying sales tax on the rent transaction. The way this works is that the real estate and the operating business share the net profit of the business. Makes sense, huh? Except that in this most recent economic downturn, the operating business lost money a couple of years in a row, thereby generating no profit to share with the real estate. Rather, the operating business, which thankfully was well capitalized, loaned money to the real estate to pay its share of the income taxes. Now, the real estate (inactive child) owes money to the operating business, with no other source of income to pay the loan. The actives could buy the real estate, but then it would be a reduced figure due to the loan that would be due them.

Obviously, this is not a great deal for the inactive child. Unwinding the joint venture is not going to be an easy thing to undo. But for the sake of family harmony in the long run, that’s what this family has chosen to do.

In sum, when structuring your business and your acquisitions of other businesses, real estate, etc. that you make along the way, please keep in mind that someday you will likely be in a position of leaving it all to your kids. Always ask yourself, “What impact will the decisions I’m making now have on the long term continuity of the ‘golden goose’ and the maintenance of family harmony?” You owe it to yourself and your family to make these decisions as wisely and with as much foresight as possible. It impacts more than just today.

What is Succession Planning and Why Do I Need to Involve Outsiders?

2011-08-11T10:00:00.000-04:00

Explaining what I do and what succession planning is can be difficult sometimes. One of my partners, Dan Schneider, wrote this great post that explains succession planning and the need for professionals in this field.

The process of succession planning is significantly different for a privately-held and/or family owned business compared to a publicly held company. For our purposes today, we’ll be dealing with the privately held because most businesses fall into that category.

Depending upon your advisor’s field of expertise, the definition of succession planning takes on a variety of meanings. For some, succession planning is all about wills, buy/sell agreements, trusts, and estate planning. For others, it’s about business performance and for another set of advisors, it’s all about family harmony.

Each set of advisors believes her/his definition to be the “true” definition of succession planning; and, consequently, the only real reason for engaging in the process in the first place. In fact, many business owners only deal with one piece; and they believe they actually have a complete succession plan.

The real truth, however, is that succession planning is a process that involves all three: personal interests, business interests, and family interests. Failing to address all three broad areas of interest simultaneously is tantamount to choosing the Bermuda Triangle for an extended vacation.

In its entirety, succession planning is a process that transfers business ownership, accumulated capital, and family legacy to and through the next generation of owners and/or family members. The emphasis is on sustainability over generations. That takes a level of balance, focus and discipline that rarely occurs unless someone is planning and building toward just such an outcome.

Some of you probably agree in principle while disagreeing that you need to bring in an outside advisor to guide the process. After all, you’ve already demonstrated and created an enviable record of success. Why do you need someone else to guide the process for you?

The reason you need someone else is because you can’t quit knowing what you know, or what you think you know. Your field of expertise probably lies in what you do – either for a vocation or as an avocation; and I doubt that either of those two areas involves succession planning. Much of your personal knowledge about business success is not going to transfer to planning your own succession.

If you are a Renaissance man/woman, and you have a broad band of knowledge related to your personal interests in terms of motivation and perspective, personal estate planning strategies and tactics, business structuring, strategic planning, business performance, management synergy and teamwork, leadership continuity, successor development, family dynamics, and family governance then you might be able to help yourself. However, it’s as risky to put your own plan together as it is to represent yourself in a legal proceeding.

Control Freaks and Associated Curses - Part 2

2011-08-10T09:21:00.001-04:00

As I expressed in my previous post, the deployment of a succession plan should address the organizational and family issues that can impact the continued success of the business through the next generation of owners and managers. Assuming a control freak has been at the helm, activities would include assessing the impact of the control freak and development of plans and processes that can discontinue the inherent handicaps to the continuation of success.

The most prominent curse of a control freak is that the next generation of owners and managers have not been allowed to make mistakes. The concept that “success is based upon the failures you learn from” is null and void. Further investigation should confirm that a major characteristic of the predictably productive environment is that here have been few if any mistakes or wasted resources. If there were any, the control freak would predictably blame them on an underling because fear of mistakes is what drives their excessive compulsive behavior. When controls and intervention don’t work, denial is the most popular alternative course of action. Continued investigation should also reveal that the successor’s owners and managers are not prepared for the pathway to succession success: more successes than failures. Having never been told they can “get up from a knock down and win the fight,” they may encounter paralysis by analysis as they experience or consider the possibility of failures on the roadway to success.

Another curse of the control freak is that the next generation of owners and managers has not exercised their brains and therefore is not prepared for the irrepressible questions associated with assuming leadership and management control of a business. With the control freak reserving the final call on all “big” decisions (which usually means all decisions) in which he or she can physically address, most if not all non-family managers who are competent and capable decision makers have hit the road because they would not tolerate the disrespect of not being second guessed and the lack of authority given to make decisions. Most likely, the strongest, most capable family decision makers have never attempted to be part of the business because they had enough of their control freak parent while they were in high school and college. If they have hung around hoping that the freak will retire and give them some air, there is usually a high level of tension and frustration among family members. The common scenario is that parents express frustration over their child’s lack of focus and commitment while the child/successor throws their passion at hobbies because they have lost hope that the control freak will retire or give them some slack. So, in addition to the elevated level of tension, the net result is that the quality of both the successor and the supporting management team is weak and the probability of Succession Success is substantially reduced.

Confronted with this dilemma, we will look at a way of curing the curse of the control freak in the last post of this series, Control Freaks and Associated Curses - Part 3.

Feel free to share your experiences with a control freak and how they negatively impacted your company.

Business Structuring & Family Harmony – Part 2

2011-08-08T10:30:00.000-04:00

Below is the second part of my partner, Jeff Faulkner's, three part series on finding family harmony through business structuring.

I’m currently working with a blended family business that has two children from each side. Two of the four children are actively involved in the business, one from the dad’s side and one from the mom’s side. Both active kids want to be able to run the business at some point, but the entire family has strongly suggested, if not warned, against the two active kids working together.

Here’s the problem, the business is made up of five different franchises underneath one corporate umbrella. That’s right; all five businesses are inside the same corporation. And, the bulk of the family’s net worth is the operating business. What’s a family to do?

Well, you could start by forcing the kids to grow up and learn to cooperate with each other, so they could work together. On the other hand, if the family is right in that there is absolutely no way to make this happen, we’d then be setting them up for failure and family disharmony. So, why not build in some flexibility? An IRS Section 355 divisive re-organization, or tax-free spin-off, of the separate businesses is in order.

While this will most certainly be a costly initiative that is dependent on IRS approval, it will create the flexibility for the active kids to remain in business together if they show that they can mature beyond their sibling rivalry issues. In the event they cannot, well, we then have the flexibility to divide the businesses up and allocate one or more to one child and one or more to the other child.

Further, we will also segregate the real estate that each business is sitting on into separate entities to provide additional planning flexibility, not to mention, much needed additional liability protection. While this environment is not perfect by any stretch of the imagination, it most assuredly creates an environment that is more conducive to the maintenance of family harmony in the long run.

For the final part of this series, please read "Business Structuring & Family Harmony – Part 3."

When is the Best Time to Give Someone Constructive Feedback?

2011-08-04T10:00:00.000-04:00

Here is a great article from my partner, Dan Schneider, with some excellent tips on giving employees feedback. Happy Reading!

Life seems to be full of “Goldilocks” moments. You know, the time when whatever is going down is just right. So, when it comes to giving family members, employees or partners the benefit of your counsel, when does that magic feedback moment actually occur?

Before we talk about the timing, however, let’s mention one or two things about the nature of the feedback. If it is constructive criticism it may actually have more weight than positive reinforcement. While positive comments may be good for morale, they do not appear to have much influence on actual performance. It seems that we pay more attention to criticism than we do to “wonderful, wonderful.”

Whether the feedback is positive or negative, timing is another story altogether when it comes to improving performance. Except in life threatening situations, there needs to be some space between when the event occurs and when the feedback is offered. Too soon, and there’s a problem. Too late, and there’s a problem.

Studies conducted by Todd Thornock, an accounting professor at the University of Texas, demonstrate the problems. If the feedback occurs too soon, then the learning process is blocked and people do not seem to learn from their mistakes. If the feedback occurs too late, people find the corrective feedback more confusing than helpful, and performance does not improve.

Within your own priority environments – family, work, etc. - there will be people whom you either need to counsel, or who want to be counseled by you. The best time to give people feedback is usually when they ask for it. In most cases, if you offer feedback any sooner, then you are just a meddling busybody with too little to do at best; and you are probably viewed as a micromanager at worst.

Now, if those who need the feedback do not ask for it, then what do you do? If the outcome is reasonably efficient and close enough to what you wanted to satisfy you, do and say nothing. The opportunity will present itself again. If the outcome was terrible, then take enough time to determine what you have learned, and then begin a discussion about what the other person has learned.

Earlier, I noted that negative feedback actually seems to be better received than positive, at least from a learning perspective. Even so, take advantage of opportunities to let people know they gave you what you wanted. You’ll come across as fair and balanced, and that’s not all bad.

Any great stories on how to/how not to give feedback?

Control Freaks and Associated Curses - Part 1

2011-08-03T10:16:00.004-04:00

Every day as I interact as a succession planner with family-owned businesses, I encounter control freaks. Unfortunately, control freaks do not want to be known as such and try to disguise their attitude and management style. Therefore, as I assess what is going on relative to the family and the business, I look for signs that help me understand how the family and business works. By doing so, any control freaks are almost always revealed. In this process, it is important that I be sensitive to these signs because a control freak generally handicaps, or even curses, a succession planning initiative. As a succession planner, I must be aware of, and address, the organizational and family handicaps that may have been accumulating over many years. I must also be prepared to develop plans and processes that will manage the curses and discontinue negative affirmations that can handicap the continuation of success through the next generation of owners and managers. However, let it be said that, rehabilitating the control freaks that I encounter is a stretch because they are so devoted to their comfort zone of behavior, attitudes and affirming the successes of their extraordinary controls that all we can hope to do is limit their exposure to those they handicap or curse.

With respect to identification, the first sign of a control freak is that the individual (owner or manager) is frantically busy. They barely have time to sit down with me in lieu of all the demands upon their time. They also love to complain about not having any time and offering innuendos about the sacrifices they are making for their family and/or the business. The office of a control freak, or in extreme cases, offices since they dream of being “omnipresent”, is usually positioned to maintain visual contact (control) over the proceedings of the business. Their view may be the yard, warehouse, showroom, a multi-screen video display or something else that allows them to maintain their vigilance over perceived minions. In general, my meetings with control freaks are constantly interrupted by an onslaught of inquiries, which are followed by complaints but rarely a message to the receptionist of “hold my calls”. It is also not unusual to have cell phones, office phones, emails and memos flowing at the same time. Office decorations generally relate to achievements, not events or relationships. Favorite words of the control freak are me, my and I, while favorite dialogue questions begin with words such as why, when, where and how. There is also a high degree of urgency around a control freak as those who depend upon him for work are doing everything they can to make him happy until the ”freak” leaves for the day or has to take a vacation because they are exhausted. When we talk with working family members, junior partners, junior managers or the like we hear a lot of “you’ll have to check with dad (the boss, my partner) on that.” Everyone at the end of a spoke is following the unspoken, unofficial protocol by running all significant decisions back through the hub (control freak) for answers.

Generally, the immediate environment surrounding a control freak is very impressive. There is order, there is intense focus and there is productivity. However the handicaps and even curses are below the surface, and we will discuss those in my next post, Control Freaks and Associated Curses - Part 2.

What signs do you look for that indicate you're dealing with a control freak?

Business Structuring & Family Harmony – Part 1

2011-08-01T10:15:00.017-04:00

One of my partners, Jeff Faulkner, has written a great three part series on how structuring a business can impact a family's dynamics. I hope you can gain some tips on keeping the peace in your family by properly planning your business's structure as your read Part 1 of the series below.

Business Structuring is a critical component of succession planning that can have a huge impact on family harmony.

In the next three posts, I’m going to describe three different family business situations that I’m currently involved with where Business Structuring is causing havoc.

The first story is a highly complex 3rd Generation Family-Owned business which consists of a real estate and a separate investment business with 4 family shareholders. Two shareholders, father and son, are active in the operating businesses and two shareholders, sister and a sister-in-law, are not active but are financially dependent upon the business. The ownership of the separate entities add even further complexity to the situation in that, the operating businesses own a piece of the real estate, numerous trusts own a piece of the real estate and investment businesses, and the operating businesses have multiple owners consisting of other entities that the family shareholders control. I have done my best to explain this situation as simple as possible, but due to the bizarre nature of ownership, I have likely confused you.

When we got involved, none of the family members, or any of the family’s advisors for that matter, completely understood the structure. And for a simple family, it didn’t make sense and was causing relationship stress. The two inactive family shareholders were growing increasingly frustrated because they could not predict their income stream with any reasonable accuracy and consequently, could not plan their lives accordingly. The son was growing increasingly concerned about his fiduciary liability with his siblings.

This structure has worked under the father’s leadership because the daughter and daughter-in-law have believed that things are being done in their best interest. However, nothing could be further from the truth. To create dependence in any human being is never in their best interest. If these issues are not worked out with a new, simpler structure, the likelihood of the next generation living under these conditions is highly speculative at best, and more likely pointing toward volcanic explosiveness.

Fortunately, all family members have come to understand the issues and are cooperatively working toward a straightforward structure that is easy to understand and that creates predictable and meaningful sources of income. The initiation of the process towards an uncomplicated structure, in and of itself, has created a more harmonious family environment. The inactive family members’ frustration levels have subsided, and the son’s fiduciary liabilities have been reduced, as they all see movement and growth toward independence.

Click here to read the second part of this three part series, "Business Structuring & Family Harmony - Part 2."

Long Term Care Insurance

2011-04-06T10:00:00.001-04:00

Per my previous posts on this subject, “Business Succession and Long Term Care,” and “Long Term Care and a Living Trust,” I hope you understand and agree that the financial independence component of business succession planning should address Long Term Care contingencies.

Long term care is not a simple matter even if you have the resources to provide for whatever level of care you desire. Due to the medical circumstances associated with the need for long term care you will need an objective advocate who you believe would have your best interest at heart who may not be your children because as your children may be preoccupied, from the dark side, or you may not have any children. As previously described, a Long Term Care trustee of a Living Revocable Trust can be an answer. As described previously this trust could assure both the quality of care you desire during your lifetime and the appropriate management and disposition of your assets after your death.

Another simple solution is Long Term Care Insurance. Those with substantial means could respond that they don’t like insurance and have sufficient personal resources to pay for their care. If you don’t want insurance because you are concerned someone will be making money off of your infirmity, recognize that policies have changed and there is a possibility that, like my Dad who collected insurance benefits for five years, you could save money with this type of insurance. Quality policies now pay benefits for in-home care, progressive care or nursing home care. Insurance commissioner response to public outcry has essentially eliminated the loop holes on qualifying for benefits. Furthermore, the pooling of risk concept of insurance validates that some pay more and some pay less for the peace of mind that all who are insured have this contingent risk covered.

However, irrespective of your resources or mindset regarding insurance, Long Term Care insurance should be considered for several other very important reasons.

Long Term Care insurance permits you to consume or invest the resources that would otherwise need to be set aside in the trust described earlier. You can also be sure that heath care facilities know who is being funded through automated pay insurance and the attentiveness to personal needs reflects their appreciation for this form of business.
Long Term Care insurance companies will provide counselors who will help you and your trustee/advocate assess the level and quality of care needed, help engage the care providers in an efficient manner and ultimately facilitate enrollment. Insurance companies hire these counselors with the sole purpose to help you or your advocates address the ever changing complexities of the Long Term Care culture and fulfill your personal needs. They also stay prepared to assist as circumstances and/or care changes. Their role is not to cut cost because the level of benefits is stipulated in the policy. I can assure you from personal experience that the clout of a Long Term Care representative of an insurance company quickly resolves issues at a health care facility that are cause headaches for individual patients.
Long Term Care insurance relieves your children of concerns that they may be spending their inheritance. You may think this wouldn’t happen to you, but I have observed this with alarming frequency. This type of insurance will give you, your trustee or your children the peace of mind that your needs are funded and administered by an objective professional.

Addressing Long Term Care is a fundamental component of financial independence relating to business succession planning.

Long Term Care and a Living Trust

2011-03-30T10:00:00.001-04:00

As I discussed in my previous post, “Business Succession and Long Term Care,” the financial independence component of business succession planning has become more complicated with the growing concern about long term care. However, with the accumulation of wealth, there is reduced concern regarding the availability of resources to pay for long term care, if appropriately addressed.

Based upon historical data, in current dollars, $500,000 of cash earning 4% gross income should provide sufficient liquidity to easily satisfy the average private pay cost for almost twice as long as the average stay in a nursing home. Assuming probabilities and mortality, for a married couple $750,000 should easily do it. However we have reviewed previously that long term care is not a simple issue because you may not be capable of making the “when”, “where” and “how” decisions regarding the various forms of graduated care, the quality of care and the timing of your ultimate enrollment in the nursing home of your choice.

Notably you may have no children to address these very important questions. They may be too busy running their business and attending to their families. These are very difficult decisions from afar. Furthermore, long term care demands accountability or over time the quality of care may be compromised. Also, if you have children to help out in these matters, after they assume control, they may simply disagree with the level of care that you want and cut expenses to increase their inheritance. Due to the medical or mental circumstances driving your need for long term care, you would likely be in no position to argue and your children’s cost cutting would ultimately prevail at your expense. As you address your business succession planning it should consider the possible unavailability of a family long term care advocate or the inherent conflict of interest associated with children administering for their long term.

So considering the financial and family dynamics potentially impacting your long term care wishes, how you can appropriately plan to ensure your expectations are fulfilled independent from depending on your children or other family members?

The first of two solutions would be to form a Living Trust that would be funded with sufficient cash to pay long term care cost for you and your spouse.

A “Living” Trust means that you would currently develop and adopt a trust and fund it with sufficient assets to fund your care. The trust document should explicitly stipulate the specific level of care that you want without sparing any detail regarding where you want to be and how you want the level of care monitored to be sure that your perception of quality does not change after you are enrolled. This is a very important personal financial planning document and could also serve as a foundation for your estate plan by going on to stipulate how you want your assets managed and dispersed upon your death. The trust should be revocable so if you changed your mind regarding your specific long term care or estate dispersion wishes, you could change the trust.

Of course, you would be the grantor and current trustee of the Living Long Term Care Trust. But here’s the most important point. To make sure your long term care instructions are addressed, a non-family member could be designated as your successor “long term care trustee”. Whereas a family member may be unavailable or tempted to reduce the cash outlay associated with their parent’s long term care wishes, fiduciary laws dictate that a non-family successor trustee follow the specific trustee instructions. The inherent conflict of interest associated with “spending your inheritance” is avoided. After your death, you could continue with the non-family trustee or dismiss him/her, stipulating that your children would now take over and serve as the trustee or co-trustee of your estate management and dispersion.

I will discuss long term care insurance in my next post.

Business Succession and Long Term Care

2011-03-25T12:18:00.000-04:00

Personal financial planning is a critical component of business succession planning. The general subject of personal financial planning is broken down into four components: wealth development and financial independence, estate planning, credit continuity and exit strategy. Within the topic of wealth development and financial independence is sufficient personal income to facilitate independence from the continued success of the business. The presumption is that if you are dependent upon the business you will logically never release management control. Consequently, you will never be able to genuinely determine if successor management is prepared to assume the responsibility of ongoing leadership and management.

A related subject that predictably causes family challenges is the consideration of long term care. This is an important consideration because generally parents do not want to be dependent on their children in their final years. However, due to changes in family culture and medical science advancements long term care has become a more burdensome consideration.

Fifty to seventy-five years ago, adult children assumed responsibility for the care of feeble parents. There was no Medicare or Medicaid to fall back upon so the family stepped up. Additionally, the burden was more short term because with less technology and no health insurance for the aged, geriatric life expectancy was much shorter. In contrast, contemporary families are so dispersed and preoccupied that it is unreasonable to expect children to bring elderly parents into their homes for extended care. With the Medicaid nursing home provision for the indigent and the special care assistance that may be needed, there has been a development of a long term care industry that most children envision as the appropriate caregiver for their parents. In light of this evolution, irrespective of strong loving relationships, I do not support any client’s assumption that their children will provide the highest level of in-home care when they are old and feeble.

From a personal financial planning perspective, my clients are in an asset and income class that could easily afford the cost of long term care either in their home or in the best facility available. They classically state that they do not want to be put in a nursing home and appropriately so because Medicare provides very limited nursing home benefits. Meaning, 98% of nursing homes provide care based upon Medicaid’s bare-bones reimbursement for the indigent. My clients can generally afford the best of care and they expect the best of care. However, to assure fulfillment of their goals, my advice is that they only count on the long term care that they provide independently from the agreement or facilitation of their children. With children in a leadership role (remember you will be old and feeble), there is no assurance they will agree with the expenditure of their parents money (that they will otherwise inherit) on the quality of care their parent have expressed that they want to receive.

I will examine further how you can appropriately plan to ensure your long term care expectations are fulfilled independent from depending on your children or other family members in my next blog posting.

Unexpressed Gratitude Communicates Ingratitude

2011-03-21T10:00:00.002-04:00

Herer is Jeff Faulkner's final blog post of his three part series. I hope it gets you thinking.

At the risk of sounding like I’m contradicting my first two posts, I don’t believe that the business owners, their children, and their employees who all benefit from one another’s contribution are completely ungrateful.. I do believe they suffer from the same thing I suffer from, and perhaps that you suffer from; they are thankful, but just haven’t expressed it. Maybe they are unsure how or they have communicated to everybody their gratification, except for the person that made the contribution.

The principle from my last post bears repeating. Unexpressed gratitude communicates ingratitude. Did you know that unexpressed gratitude is a form of rejection? Just think of the last time you went out of your way to do something special for someone in your life only to have the effort go unnoticed. Because, hey, it’s what you’re supposed to do – you’re my dad. “Dad, my tires are wearing thin. Dad, my bank account is getting low. Dad, I need a job – I’m coming to work in the family business.” They’re “entitled” to your efforts, right? It feels bad doesn’t it? At times it can even make you mad.

The problem here is not so much a lack of gratefulness. It’s that the circle of gratitude has not been completed. The “thanks” has not been expressed. And if it isn’t expressed, it may as well not exist. When we don’t say thanks, the message we send is “I’m entitled.”

Unexpressed gratitude has the same effect as rejection. Human beings are acceptance magnets and environments in which we feel rejected repel us. Therefore, if unexpressed gratitude is allowed to continue, rest assured a wedge of rejection will be driven right down the middle of your relationships.

If you have a distant relationship with a loved one currently, evaluate whether or not there has been a history of unexpressed gratitude. To refuse to pay your debts of gratitude is to have an inflated view of yourself.

How to Express Gratitude

2011-03-14T10:00:00.001-04:00

Here is the second post of my partner's, Jeff Faulkner jfaulkner@rawlsgroup.com, blog series.

In my first post on this topic I discussed a dangerous trap that many business owners fall into of “ungratefulness.” As the business owner, you were likely the holder of the big idea, capital, cutting edge strategy, or great leadership skills, however; no matter the great skill you may possess, your empire was most likely built by a team of people who bought into your mission. Where business owners generally find themselves in trouble, is when they begin to think that they’ve gotten where they are by themselves and fail to express gratitude to the people upon whose shoulders they are standing. In this post I will address the other side of the coin, the recipients of a generous and humble business owner who recognize their people are their biggest asset.

Just at business owner’s struggle with gratitude, so do their key managers, family member employees, and staff. I am absolutely amazed at how frequently I have to coach the recipients of major gifts into expressing gratitude. I had to do it the other day with a key manager we just completed a deferred compensation plan, and have had to do it many times with the children of business owners who’ve just been “gifted” hundreds of thousands of dollars worth of stock in the family business.

It reminds me of a story about Jesus that’s recorded in the New Testament. The story is of 10 lepers who, because of the nature of their disease, were outcasts of society. The rule was that if they were healed they had to go present themselves to the priests in order to be approved to re-integrate into society. Jesus told them all to go present themselves to the priests and they were all healed on the way. Now, I’m quite certain that these guys were grateful that they had been healed. In fact, they were probably tickled pink with joy and excitement. But as the story unfolds, only one of them came back to Jesus and said “thanks.” Jesus’ response is informative - “Where are the other 9?”

Here’s the point – “Unexpressed gratitude communicates ingratitude.” You see, you might very well feel grateful, but unless you express it, the non-expression actually communicates that you are not grateful. Any attitude of ungratefulness communicated, whether it’s reality or not, can, and often does, lie at the heart of relationship struggles in families.

If you have been the recipient of your boss’ or parents’ generosity and have not expressed thanks, go do it.

You Didn’t Get Where You Are By Yourself

2011-03-07T16:21:00.000-05:00

Below is a blog posting from one of my partners, Jeff Faulkner jfaulkner@rawlsgroup.com, enjoy!

One of the ugliest words in the English language is “ungrateful.” Nobody wants to be ungrateful. 2010 was a particularly busy year for succession planning. Many business owners capitalized on the opportunity to transfer assets to their children at deep discounts due to de-valuations and low interest rates in this struggling economy. Subsequently, I have had the opportunity to coach people in expressing gratitude.. Looking back at last year has me in a contemplative mood about giving thanks. In the next few posts, I want to address this issue in the context of family business.

The truth about ungratefulness is that it’s almost impossible to recognize the trait in yourself. We can see other things pretty clearly, but ingratitude is a different category than anger, fear, or even, if you’ve got the guts to admit it, insecurity. You can see those things in the mirror, but being ungrateful is often unnoticed.

As is common for me, I want to start this discussion at the top – with the business owner. The reason I always start at the top is because as the owner of a family business, you are supposed to be the mature one. All too often, the expectation of owners is everyone is supposed to express gratitude to you for all that you’ve done for them, right? Of course that’s right. You’re the entrepreneur who was willing to take a risk, who was willing to leverage everything you had to make a go of it. And here you are 20 or 30 or more years later sitting on top of the empire you’ve built. And that’s just the way you think about it – “look at my baby…look at what I built…look at what I’ve done for our local community…look at what I’ve done for this industry…look how many people are dependent on me.” This is the epitome of arrogance. “Look at what I did all by myself.”

You’re not just standing on top of an empire, you’re also standing on the shoulders of a bunch of people who you could not have done it without. And they deserve a little thanks. By the way, that does not translate through a paycheck. Any attitude of “that’s what they’re supposed to do, it’s their job and I pay them to do it” is an indication of the ugly word “ungrateful.”

Take some time today to think about to whom you owe an expression of gratitude, then go do it.

Rediscovery: The Secret to Life Transitions

2011-02-03T13:51:00.000-05:00

Here is a post from my partner, Dan Schneider dschneider@rawlsgroup.com , discussing the transitions of life through a five step process.

Regardless of what kinds of activities you follow – sports, music, movies, politics, etc. – you’ve probably wondered why some people hang around so long it becomes too long. Brett Farvre may have played a season too many. Frank Sinatra may have sung a few years too many. Why it happens is fairly simple; and how it happens should be a lesson to all of us.
In almost all cases, including Brett and Frank, the roar of the crowd and the smell of the greasepaint become so addictive that they measure their worth by what they do.   As a result, their fear is that when they stop doing what they do, they will become worth less than they can accept. In short, they will be “has beens.”
Many of us have the same concerns, because we haven’t spent enough time developing a sense of worth based on something other than what we do. Far too often, that keeps us in the game longer than we should stay.
So, if you are beginning to become aware of an imminent transition in life, here are a few thoughts for you to consider about making a graceful exit and rediscovering life.
1. Recognize that you are a human being first and foremost.   For decades you may have responded to the “and what do you do?” question by saying “I run this” or “I have my own business” or some other response that enshrines your activities and entraps you in how you make a living.
2. Learn to be bigger than what you own, run, or do. Andrew Carnegie was a steel tycoon who is more remembered for his philanthropic interests than for his steel mills. As a result, my little town of 15,000 had a library when a sizable portion of the population still struggled with reading.
3. Let your money compliment your legacy. If you’re using money as your success scorecard, some would suggest you’re probably keeping track of the wrong things. Your heirs will have opportunities to amass their own financial nets; but they will not always have the opportunity to be with you.
4. Accept the fleeting nature of fame. Shakespeare talked about life being a player that struts and frets his hour upon the stage, and then is heard no more. Someone else, Andy Warhol I believe, talked about everyone having fifteen minutes of fame. Don’t be greedy. When you’re on top, leave.
5. Treat your legacy and your life like a portfolio: Diversify, Diversity, Diversify. The danger of putting all your financial eggs in one basket has been recognized since the days of that ancient Greek Aesop. In this case, diversify your interests and pursue all those things you wish you had done years ago. It’s never too soon to get involved in what you like. If you don’t think you’re very good at it, do it anyway.
Some readers will no doubt think this sounds good, but it’s just not that easy. Yes, it is. In the words of one of the world’s greatest marketing companies, “Just Do It!”

The Simple Way to Make Change Easy

2011-01-27T13:45:00.002-05:00

One of my Parnters, Dan Schneider dschneider@rawlsgoup.com discusses a four step process geared towards, "change".

We have become conditioned to believe that change is hard. That is not always true. For example, we do not even think about the change we made from lying down to rolling over to sitting up to crawling to standing to walking to running. It happened so naturally that many of us do not even remember when we did not have the requisite skills to perform any of those activities.

Ah, you say, but that is different. Perhaps. But is it really? We explored, discovered, and practiced new behaviors until they became so natural that they no longer required conscious thought.

So what is different about those changes from the ones we move from one state to another? The primary difference between those changes which seem to be natural and those which are imposed upon us, either by ourselves or by others, is that we accepted the fact that the change was happening. Once we accepted that reality, we gave ourselves choices and options.

For change to be easy, follow this four step process:

1. First, you have to focus on yourself. The emphasis here is on your behavior. Change is like charity, it begins at home. If you want to change others, begin with yourself and your approach to the world around you.

2. Second, you have to want to change. Note, I did not say you have to like the change; you simply have to want to change. Your reason for changing really does not matter, as long as you want to change. Change without purpose is not sustainable.

3. Third, you must involve your whole person. You will need your imagination so that you can recreate yourself. How do you do that? Model the behavior of someone who has done it successfully. Scrooge, Richard Nixon, Al Gore. Find a model, fictional or real life, and study HOW that person did it.

4. Fourth, get or create the opportunity. Look at these letters and break them into a four word sentence:

opportunityisnowhere

If you found that opportunity no where, then you have retired from life. If you found that opportunity is now here, then welcome to world of choices and decisions. You may not always like the consequences that come with the choices open to you; but the choice is still there.

If you want to create opportunity, it helps to know what you want. It’s the “purpose thing”, and it makes change easy.

To Sell or Not to Sell? Removing the Confusion from the Question

2011-01-20T13:44:00.000-05:00

Here is a posting from one of my partners, Dan Schneider dschneider@rawlsgroup.com

I know someone whose business has been for sale many times over the length of our relationship. In fact, he could actually have sold it on at least six occasions that I know about; and each would have given him a “never have to work again” lifestyle. But, for reasons best known only to my friend Sam, he routinely leaves a willing buyer scratching his head in bewilderment.
He has another offer on the table. It’s a very good one by most people’s standards, especially considering the nature of his industry. Good as it is, the smart money is betting against the sale.
Maybe some of you have been in a similar situation, either as a business owner or as a business advisor to someone like Sam. Just after he told me about his most recent offer, he began expressing disappointment that the business was valued properly and that the negotiations were being handled by a bunch of young MBAs who had no appreciation wheeling and dealing. “All they see,” said Sam, “is their worksheet. They don’t know what to do without it.”
What is becoming obvious is that Sam does not really want to sell his business. In short, he has become what he does; and he is afraid that when he does not, he won’t be anything.
Oh, he likes the chase all right; and he apparently does not like the prospect of being caught. There is probably no amount of reason, no compelling rational argument, no realistic offer that will cause Sam to sell. He is more motivated to keep things going than he is to let go.
Whether you are caught in this trap or in some other “to do or not to do” scenario, here are some questions you can ask yourself to help you make a decision that will resonate with both your mind and your heart.
• What do I really want?
• What will it do for me?
• What will happen if I do it?
• What will happen if I don’t do it?
• What won’t happen if I do it?
• What won’t happen if I don’t do it?
Decisions do not have to be as difficult as Sam makes them. You and Sam may have to ask yourselves that first question several times. You see, if and/or when you make a change in one area of your life at the expense of another area, the chances are very good that the change will be short lived.
Just ask Sam. He keeps trying to give up who he is; and deep down, he just can’t find an amount of money that is worth not being the Sam he has come to know and love. Do you know anyone like that?

How to Address Marginal Competency

2011-01-03T08:30:00.000-05:00

Although an uncomfortable subject, it is reasonably predictable that some of us will outlive our brain. Advances in medical science have increased the likelihood of beating cancer and the likelihood that more of us will experience some degree of incompetence prior to death. Incompetence will be preceded by a transition with good days and bad days until at some point there will be confirmation that we are not able to manage our affairs. In a classic retirement environment this is no big deal. However in the family business realm where founders and subsequent successors commonly stay engaged well into their late 70’s and early 80’s because they are either addicted to the culture or they are an integral component of the success formula. In light of the difficulty self assessing competency and the emotions associated with telling a love one that they are losing their marbles, Marginal Competency represents a significant challenge to both the business mission and family harmony.

We have previously discussed a possible course of action in the event you discover that you are up to your arm pits in this unfortunate dilemma. Let’s now consider how you could preemptively address this potential issue and avoid the business gaffs and family fireworks.

The first step is awareness. If the leader of your business is over 65 years old, you are vulnerable. If the leader of your business is 55 years old and you have not discussed an exit strategy and more specifically a successor leader you are vulnerable.

The second step is communication. You or a trusted adviser in a group environment should bring up the subject of succession in the event of death or disability. This is generally an easy way to get the ball rolling but if not, continue to focus first on initiating succession discussions on the more black and white subject of death. As the discussion moves forward ask the question in the presence of the lucid and responsible leader (father, uncle, sibling) “what are we to do if you become Marginally Incompetent?” No doubt discussion will ensue as to the definition which is all together healthy. Hopefully you will get a substantive answer, but more than likely you will initially be ignored or stonewalled with a “you don’t need to worry about that.” In such case, don’t get offended.

The third step is collaboration; solicit support from other same generation family colleagues and those who could be negatively impacted with the Marginal Competency Dilemma. Remember, success on sensitive subjects comes from strength in numbers. Keep in mind that the goal is to create awareness and over time take substantive action. Under the heading of action, suggest that the group request the business attorney give ideas about the legal structures that can be used to protect your family and business from the Marginal Competency Dilemma.

The fourth and final step to reconciling the Marginal Competency Dilemma, is persistence over time. Relentlessly keep the sensitive subject part of the succession agenda. If you don’t develop a substantive plan, at least you will not be caught by surprise.

Dealing with the Marginal Competency Dilemma

2010-12-27T08:30:00.000-05:00

The good news is that we are living longer and have more time to develop and deploy a business succession plan. The bad news is that many of us will outlive our mental capability while filling important management and leadership roles within the family business. Unfortunately incompetence is usually the result of a cognitive capacity transition that is stressful for both family and management. The no-man’s land of marginal competency creates a dilemma which can imperil family harmony and the welfare of the business. The question is, should you mind your own business and repress your stress or should you call the question and run the risk of offending parent(s), family, friends, management and advisers? Based upon my experience both options compare to a root canal without Novocain. Such is the nature of a family business dilemma; damned if you do and damned if you don’t. Dealing with potentially marginally competent business owners or leaders is an unfortunate, emotionally volatile, pathetic family business predicament.

So how do you deal with the Marginal Competency Dilemma? The only realistic answers are communication and collaboration. Unfortunately, if without warning you just discover that you are immersed in this unfortunate dilemma, the preemptive opportunity is gone and there is little that you can do, except make a choice between keeping your mouth shut, praying for the best, or potentially offending your parents, siblings and senior management. Allow me to encourage you to take the risk, there is just too much involved for you to not step up to what you have discovered. First speak privately, cautiously and highly respectfully with your parent or family member to determine their awareness of the problem that you have identified. When you ask, “Is everything ok?” your parent may affirm your concern, advise you they are taking protective action and/or ask for your help. If you get rebuffed consult with your closest family. If you have the perceived cooperation of siblings, cousins, etc go with the concept of strength-in-bonded-numbers. First meet as a small group to discuss the circumstances, confirm agreement with regard to the perceived marginal competency and develop a plan for expanding your “group of the concerned”. If appropriate include only the most senior management who are within ear shot of retirement. Middle managers have too much at risk to take part of any confrontation of a family owner/leader. When you have the optimum group discuss an intervention strategy. Predictably the development of something as emotional as an intervention strategy will require negotiations on the how and when of intervention so don’t be bummed if everyone does not see things your way. The goal is to do something, create awareness and send out an appropriate “Under Surveillance” notice with as little family and management collateral damage as possible. The goal is not doing exactly what you feel needs to be done. Avoid arguments within the intervention group because these arguments will only detract from the goal of doing something, which is quantum gain over doing nothing.

Then deploy your strategy to empathetically but resolutely confront the family member with the confidence that you can handle whatever occurs. Plan for a meeting after the meeting to discuss perceived reactions and plan your next step until you have achieved peace of mind. Let’s next discuss what to do when there is no current problem but there are looming issues or a troublesome family history.

Preparing for the Disability of Incompetence of a Business Owner

2010-12-20T11:52:00.000-05:00

There is much estate planning discussion in the family business arena about incompetency. The classic result is that most estate plans include provisions for a designated party, usually a child or sibling to assume responsibility and control of a family member’s, usually a parent’s, business affairs in the event of disability or incompetence. The goal is to avoid a very formal and cumbersome guardianship that in addition to the ongoing administrative expenses opens the family’s private affairs up to public scrutiny. The mechanisms for administratively assuming responsibility outside of a formal guardianship is a Durable Power of Attorney or the successor trustee provisions of a Living Revocable Trust. The typical qualifier for these two mechanisms is usually affidavits from two independent physicians that the parent is unable to attend to their customary business affairs.

These mechanisms and qualifiers are fine and dandy under ideal circumstances involving a cooperative parent who welcomes help and relief from the pressures of decision making. However, as a succession planner I unfortunately rarely encounter ideal situations. Most of my elderly clients are strong willed and totally confident in their decision making ability. Most of the time these elderly living testimonies of the virtues of hard work and risk taking appear large-and-in-charge, on top of their game and totally “with it”. However, on “bad days” they can be easily confused, disoriented and unable to address relatively simple tasks such as use their cell phone or remember what you told them 10 minutes earlier. When they are “with it” they are cooperative but when they are “out of it” they are impatient, obstinate, rebellious, disrespectful and suspicious of anyone, especially children, who try to tell them what to do or try to undermine their control. Ironically an advisor generally has more persuasive power over the parent than the family members who are genuinely concerned for their welfare and sacrificially attending to their need.

I classify individuals who are in the transition from having all their faculties to various levels of incompetency as marginally competent. The skepticism and paranoia of the marginally competent complicates, frustrates and befuddles family members who understand the vulnerability of their parents. The family members want to protect their parents from both conniving, self serving, opportunistic predators disguised as old friends, self serving family members, opportunistic business partners and overzealous charitable promoters who are drawn to the marginally competent like bees to a romantic flower. Marginal competency typically creates a “no-win” dilemma for concerned family members. On one hand family members may evoke resistance, defiance and criticism from the parent and/or skepticism and resentment from other family members, partners or friends who from the best perspective may appraise the parent’s competency differently and from the worst perspective may have recognized that a nefarious window of opportunity is being closed. This is also an administrative “no man’s land” because the parent could shut down any competency hearing because as luck would have it they were “with it” on the days of examination.

None of us know what cards are in store for our family businesses so let’s look at the ways of dealing with the Marginal Competency Dilemma.

Revocable Trust, It's Now or Later

2010-11-29T09:00:00.002-05:00

Below is my partner, Jeff Faulkner's (jfaulkner@rawlsgroup.com), final post of his three blog series discussing revocable trusts.

Having heard, on multiple occasions, from local attorneys that probate is not a big deal, and knowing from experience that, indeed, probate is a big, fat, hairy, expensive, time intensive, insensitive, and emotionally challenging deal, I have asked these attorneys to share with me, from their perspective, just one compelling reason to not use a revocable trust. Here are the two most common responses I have received:

1. “Probate’s not a big deal in our state. We can waive the inventory, so it’s really not that big of a deal from a publicity standpoint.”

2. “Well, it’s administratively burdensome because you have to go through the hassle of funding the revocable trust.”

In my first two posts, I dealt with the “it’s not a big deal in our state” response. As far as the second most common response, I simply retort with “you’re either going to deal with it now while the client is alive, or leave the responsibility to his/her spouse or children after he’s gone.” It’s simply a “pay me now or pay me later” issue. So, why not go ahead and deal with it and create an environment that eases the estate administration process for your heirs, and, in particular, creates an environment in which the family owned business can continue on uninterrupted by the sterile and insensitive culture of the probate court. Perhaps there are some other reasons to not use a revocable trust, but I have not heard any good ones.

Frankly, in my opinion, some attorneys (I have no problem with attorneys. I have to work with them on a daily basis and I appreciate what they do) have a conflict of interest in not recommending the use of a revocable trust – after all they are the ones who will be helping your loved ones settle your estate, and they don’t typically do it on a pro bono basis.

Using a Revocable Trust for the Sake of Asset Continuity

2010-11-22T09:00:00.001-05:00

Enjoy my partner, Jeff Faulkner's (jfaulkner@rawlsgroup.com), post discussing revocable trusts.

One of the most powerful truths I have learned in working with family owned businesses, is that the world of entrepreneurialism moves at a very rapid pace. I have not worked as an employee of a company for 20 years, but my recollection is that being an employee was a more forgiving place, at times with little sense of urgency. Those workers with an “employee mind-set” were more concerned with making sure they got their ½ hour lunch breaks, 15 minute breaks every 4 hours, and punching the clock right on time. The world of entrepreneurs doesn’t work that way. It’s 24 hours a day, 7 days a week, 365 days a year. There’s a reason entrepreneurs are referred to as “movers and shakers.” They eat, sleep, and breathe their business.

They are always on the move and always involved in making a deal happen. This is another reason we often recommend the use of revocable trusts in these environments – for the continuity of asset management. As an example, let’s say a business owner is involved in a strategic acquisition or sale of a piece of real estate or another operating business. During the process he becomes disabled or, even worse, dies. Under such circumstances, this deal would come under the purview of the probate court and subject to a judge’s decision, or guardianship, and often a long and delayed process. Further a guardianship environment requires bonding, which can often be difficult to acquire. Consequently, the deal this business owner has been working on is likely to fall apart; that is, unless he has made effective use of a revocable trust. With a revocable trust, a successor trustee is named and this successor trustee simply takes over getting the deal done.

Further, when a business owner has made distributive provisions through his will (as opposed to a revocable trust) for his assets, it’s important to note that these assets will not be under management or be distributed according to his wishes, until the estate is settled. The estate settlement process can, and often does, take years to complete. When a small business becomes subject to the hassles of a guardianship environment or probate, the viability of the business can be threatened.

In my next post, I’ll cover the only reasons I’ve ever heard an attorney give in suggesting a revocable trust is not necessary.

How Awareness Impacts Change

2010-11-18T09:00:00.001-05:00

One of my Parnters, Dan Schneider dschneider@rawlsgoup.com discusses how you can increase awareness and get people moving.

Lots of “best practice” programs promise to improve corporate performance and family harmony in seven (choose your own number) or fewer steps. Some work for a period of time, and then the effects fade into the sunset. They fail most often because they don’t increase the awareness level of those involved; and, neglect any new heartfelt emotion or head-smart reason to persevere with new behaviors and attitudes, the momentum to change for the better gives way to the inertia of getting back where we belong.

Several years ago, Emily Lawson and Colin Price suggested that owners and CEOs could make life easier on themselves if they identified the scope of the change they needed BEFORE they started off in a new direction. For our purposes, let’s just say the scope of change can be anywhere from very simple to a radical makeover – a cultural change for the family or the organization. How do you increase awareness enough to get people moving and stay moving in a new direction?

Step 1: Make sure people understand that the change is purposeful. That sounds like a platitude, and maybe it is. But it’s based on a fundamental premise that you may not have considered: People do react negatively to the prospect of change. They react negatively to the promise of change never realized. Only promise what you intend to carry out; and if you promise to do it, then do it.

Step 2: Change your reward systems to match the new world. If part of your new “brand” for the family or the organization is to be more people friendly, then find ways to reward people’s friendly behavior. Reward comes in many colors (not always green!), and it does not have to cost you an arm and a leg or the development of an entitlement attitude among staff or family members. But, there absolutely must be a reward!

Step 3: Be(come) a consistent role model. Actions speak louder than words. Joe Batten, a leadership author and consultant, frequently reminded his protégés that “What you do thunders so loudly I can’t hear a word you’re saying.” If you want to get everyone doing things differently, then you have to be ready to hold everyone (including yourself) accountable .

Step 4: Make sure people have the skills required. Telling people what you want is usually not enough to get the job done. You sometimes have to show them; or, you have to bring in someone who can show them how to make it happen. People learn differently, and most adults appear to learn quicker by doing than by being told. Expect people to struggle, at least in the beginning. After all, anything worth doing is worth doing poorly until you learn how to do it well.

So, want to transform your family or your business culture? Develop a checklist around the four points listed above. If you think there should be a few more, add them to the list. Don’t add steps, and do everything you can to make it easy for people to give you what you want. And, most importantly, suspend disbelief.

"Family" Business is Not a Bad Word

2010-11-17T10:00:00.001-05:00

As I reflect on 38 years of experience in business succession planning I can confirm that there was a time when being categorized as a “family” business was not a compliment. The term was derogatory, considered synonymous with “mom and pop” business. This stereotyping had obvious exceptions but was more right than wrong with respect to pets laying around with assumed rights superior to visitors or employees; kids entering the business out of school as an expert because they had worked a few summers and then coronated with a vice president title, a parking place and a tricked-up office. The female spouses acted like princesses and the male in-laws were on the payroll, but not to be found unless you called two days in advance or bumped into them at the country club. The attorney and accountant were long standing and highly embedded based upon personal relationships without any concern as to the level of expertise or competency. There were sloppy records and sloppy surroundings, other than the shine on the new luxury cars bestowed upon all the family members. There were few if any up-to-date documents such as revocable trusts, buy sell agreement, employment agreements, summary plan descriptions, board minutes, etc. Key managers achieved there standing by loyalty, patronization and tenure, not productivity. Most employees were friends of the owners or kids and family members of employees. Accountability was a misunderstood concept being limited to doing whatever the owner said when he was around, otherwise doing whatever each person felt like doing. Information, technology, strategic planning, and operating budgets were not even part of the vocabulary. Succession planning was a foregone conclusion, because the owner had a will giving everything to their spouse and a life insurance policy owned by and payable to the business.

I am pleased to report that based upon my current experience, things have changed. By and large, families have come out of the ether and recognized that their business represents a unique opportunity to achieve economic and social standing. They understand from consultants and sophisticated advisors that the velocity of the economy will eat their lunch if they blink, efficiency must prevail over tight margins, and relationships with family members, managers, employees and vendors are both their greatest asset and their greatest liability. “Family” business is now looked upon as a partnership between the parents who have the experience and the children who have the enthusiasm and technological expertise. Decisions are no longer made in a vacuum with family members and outside advisors throwing in their opinions and joining in the debate until a decision is made. Everyone understands accountability especially the kids because they realize they are working under a microscope getting credit for anything they do bad but nothing they do good. Pride is beginning to drive the success of the business. Through hard work, self sacrifice and graduate degrees from the School of “Hard Knocks,” “Family” business has become a good word, a complement and an honor.

Why Use a Revocable Trust

2010-11-16T13:46:00.000-05:00

The below post was written by one of my partners, Jeff Faulkner, jfaulkner@rawlsgroup.com

In my travels around the country working with family owned companies, I am always amazed at the significant and very public role these entrepreneurs play in their communities. Because of this we often recommend the use of revocable living trusts as a part of their succession planning environment. I’m also frequently amazed at the pushback on this powerful planning tool that we get from local attorneys. In one recent situation, our client’s attorney told our client that we did not understand this particular state’s laws and that probate in this state is not a big deal.

It just so happened that our client’s mother had passed away just last year. So, to prove our point, my partner and I took a trip to the county courthouse and paid a visit to the probate court. There was no line at the window, so we were assisted immediately. We simply requested a copy of the inventory of our client’s mother’s estate. Nine minutes and $35 later, we had in our hand a detailed inventory of her estate, the value of each of her assets, including household items and specific pieces of jewelry, and how the assets were owned. Since this happens to be a community property state, this also gave us a lot of information regarding what our client’s father still owns.

When we presented this to our client, he suggested that we not reveal this to his father because he would feel like we violated his privacy. This was our point! Probate is public.

This is a primary reason for owners of family businesses to utilize revocable trusts in their planning - to avoid the publicity of the probate environment. There are other reasons family business owners should consider the use of a revocable trust, which I will cover in future posts.

How to Become More Aware of the World and People Around You.

2010-11-11T09:00:00.001-05:00

Below is a great post written by one of my Partners, Dan Schneider dschneider@rawlsgroup.com on how you can prevent being blindsided.

Most of us go through the day thinking that we’re pretty much on top of things. Then, a business colleague or associate comes into our office; or a family member asks for a few minutes to talk; or we get a tweet, an email, or some other piece of information that catches us off guard. Innocently, we ask “How long has this been going on?” and we feel the breath leave our bodies as we discover that something usually incredibly wrong or sad has been going on around us for far too long.

How can you keep from being blindsided by the unexpected? Usually that occurs when your expectations of what has happened, is happening, or will happen don’t match with reality. That happens to all of us; and it generally leads to a rather negative self-talk experience. So, to make sure that blindsiding is less likely to occur, here are some recommendations for your consideration:

· Don’t shoot the messenger. In a classic scene from The Godfather, the Don’s counsel is informed in no uncertain terms that the Godfather’s request to give a favorite god son a movie role will not be honored. The Counsel thanks the movie director and says he will be leaving immediately because “the Don is the kind of man who wants to hear bad news right away.” The messenger makes it through the next two Godfather movies. The movie director has an unfortunate experience with his horse.

· Recognize the power of LOLO. LOLO is not the latest entertainment celebrity. This LOLO is an acronym for Lock On and Lock Out. Basically, it’s the brain’s filtering system. What doesn’t fit what we have come to believe gets off-loaded even before it has a chance to breathe on its own. The brain takes in data and information; stores it in bins labeled “truth” and “impossible”; and then recalls our current version of “reality” based on what we stored in bins. The result of this process is that we “act like us” and continue to believe what we’ve always believed and act like we’ve always acted.

· Open wide. Dentists aren’t the only people encouraging us to open wide. In this case, opening wide means sloughing some of those behaviors, attitudes, and beliefs that keep us in a comfort zone rut. Here are a few suggestions that will help you “open wide”:

o Expand your circle of advisors and confidants. Listening to the same people all the time may reinforce your beliefs, but it won’t necessarily grow your body of knowledge.

o Allow yourself to be confused by the facts. Many of us are intuitive decision makers and our mind is made up by the way that we “feel” about something and/or our experiences. That can make for self-limiting choices and decisions.

o Rediscover how to be curious. One of the best ways to do this is spend time with people who still find wonder and excitement all around them. Lock out those who have mentally and emotionally chosen to rest in peace.

Family Business Advisor Team

2010-11-10T10:00:00.002-05:00

Family businesses rely on teamwork. The family infrastructure sets the inherent expectations and role model (good or bad) for teamwork to management and employees. The family team concept should also apply to their advisors. Most families base their advisor decisions upon relationship, often times with tenure taking blind precedence over the quality of service. Although I acknowledge that the average family business is increasing in sophistication, I continue to see abuse and malpractice caused by predators who are seeking to take advantage of the natural tendency of family business leaders to rely upon relationships to make important decisions. Unfortunately there are far too many wolves wearing sheep’s clothing.

One would think that family business leadership should solicit the opinions and ideas of all advisors on important decisions such as those pertaining to key manager retention, strategic planning, significant capital outlays, insurance, acquisitions, sale, etc. Unfortunately the presumption is that if the decision does not fall within the advisor’s professed discipline (law, accounting, investments, banking, etc) their input is not needed. However, in an environment influenced by relationships, in the absence of the multiple perspectives and active debate between advisors, there is significant vulnerability to bad advice from underperforming or self-serving advisors. More important, there is no opportunity to tap into the power of team: Together Everyone Achieves More. The reality is that not all advisors offer the same level of professional expertise. However, irrespective of the level of expertise, the independent perspective and input of all core advisors is important to quality decisions.

The fundamental responsibility lies with leadership to create teamwork among their advisors and not allow themselves to be manipulated by salesmen disguised as wolves in sheep’s clothing. Family business leadership should demand that all significant decisions be presented to an advisor team that consists of at least the attorney and the accountant. No one should get a pass based on a cop-out such as “I don’t know anything about life insurance”. Every advisor should be expected to express an opinion from their unique professional perspective on any issue. The net result will be an improvement in the quality of decisions and the predators will seek unprotected prey elsewhere.

What Happens When What You Believe to Be True Isn't?

2010-11-09T10:44:00.000-05:00

Take a look at the below post written by one of my Partners, Dan Schneider dschneider@rawlsgroup.com

To borrow from Thomas Jefferson, each of us holds many truths to be self-evident. Most of those go beyond the scope of life, liberty, and the pursuit of happiness. He and his colleagues built a republic around that relatively simple concept. Every two years, we subject ourselves to an election process that, as many elected officials like to point out, has consequences about future choices and decisions regarding our collective welfare on local, state, and national levels.

Our vote usually is based on our personal awareness of a variety of circumstances. And, if you think about it, our personal actions on a daily basis regarding family and business succession are also based on our current level of awareness regarding family members, business colleagues, and business conditions. When our awareness turns out to be false, then we can’t help but make poor choices and decisions. It’s the old computer principle all over again: Garbage in, garbage out.

A very good friend and colleague is fond of saying to others that “I have to speak my truth.” One day, after hearing that comment once too often, I pulled my friend aside and said “I think it’s fine that you speak your truth. Just realize that your truth may be false. You might want to expand your awareness a little bit so that your body of factual knowledge continues to expand.”

As harsh as that may appear to be in print, it came across much better when spoken. Partly because I also acknowledged that I am not always as smart or correct or factual as I think I am either. But once I become aware of the error, I can change my opinion, my behavior, or my decision; and I can sustain that change over time.

Every once in a while (daily?), it’s a pretty good idea to test your general level of awareness, even if it’s just to prove yourself correct. Here are a few questions for you – don’t look up the answer, just respond based on what you believe to be true:

1. A brick weighs one pound plus one-half brick. How much does one brick weigh?

2. Los Angeles is south southwest of Reno, Nevada. True or False

3. You begin the day with 17 sheep. All but 9 die. How many do you have left?

4. When he built the ark, how many animals of each kind did Moses take on board with him?

5. Early map makers believed California to be an island. True or False

If you missed these questions, probably nothing dramatic is going to happen to you. At the same time, if you got these questions right, probably nothing dramatic is going to happen for you. But suppose these questions were more serious and dealt with questions about your child’s personal motivation and career interest? Or maybe they deal with questions about whom to promote and why they would be a better choice than someone else? Now how important is it to know that your truth is true?

The Family Business Curse

2010-11-05T15:32:00.002-04:00

I am frequently asked – “What is the biggest problem that family businesses face?” The ugliest problem by far is what I call The Family Business Curse: ENABLEMENT or FAMILY BUSINESS WELFARE which can be described as - able bodied, capable minded family members active or inactive in the business who for any number of excuses are not contributing, but are provided ongoing financial assistance/subsidy to keep their standard of living up to par with those that are sacrificing to make the business work.

Enablement generally starts with the rational that a child or sibling is down on their luck which then evolves into enabling the family member to expect that they deserve a subsidized standard of living. This curse is derived from a Family Business Equilibrium imbalance towards family: “we will take care of our own, especially those less fortunate, regardless of commitment, effort, attitude or motivation”. The underlining reason for this problem within a family business is “over-parenting” which is the assumption that as a parent you are responsible for the welfare of all of your children regardless of the circumstances; equal love, equal cash.

Enablement or “over parenting” is like eating a chocolate bar versus a healthy sandwich for lunch. Satisfying the urge to attend to the perceived needs of our children provides an immediate rush. Then immediately following the rush is guilt because you recognize that you have rewarded a child above and beyond relative to other children and employees who have made a commitment to hard work, diligence, and self discipline. Then depression comes from recognition that the gift you provided and those that have proceeded have created an entitlement attitude that generates resentment among family members, managers and employees who have not been enabled to maintain a lifestyle without cost and sacrifice. And finally there’s the return of the empty gnarling feeling associated with renewed awareness that the child is not being prepared to fend for him/herself when the parent will not be around to “tend the net”.

Enablement in family business is a curse. It starts a nasty chain of developments beginning with entitlement, which subsequently erodes commitment which in turn stimulates resentment from others. Enablement creates a curse of disunity and skepticism among those that is critical to the family culture and ultimately the delivery of products and/or services.

Changing Culture by Creating It

2010-11-01T10:00:00.001-04:00

Below is a post written by one of my partners, Jeff Faulkner, jfaulkner@rawlsgroup.com, enjoy.

As I’ve said in the previous two posts, the Arizona immigration law is highlighting the obsession our country has with our perceived civil rights with little to no acknowledgement of our responsibilities. Even to the point of extending these civil rights to individuals who are not legal citizens of our country. No matter where you stand, it’s a very interesting dilemma without an easy solution, because our country is the great American melting pot.

I’ve also said that this focus on rights is a characteristic I see on display daily in the family business arena. One of the parallel features that I see frequently is the need for cultural assimilation. There is much discussion in the business management arena about the importance of the maintenance of a business’ culture.

As an example of this, I’m currently working with a family business in which the father and son have very different personality styles, communication styles, and leadership styles. They are both very successful in their own right, but as they enter into succession planning conflict is arising regarding culture. Rather than assimilating into the culture that the father has created over many years of running the business, the son has attempted to bring his own ideas to bear in the business.

Now, this is not unusual and frankly, I’d be more concerned if he was not trying to make a difference and I applaud the son for this. However, this is a manufacturing company and the business culture has historically been a “blue collar” type world. The son has an advanced engineering degree from a very prestigious university and, perhaps naturally, among his different ideas, is the desire to bring a more “white collar” environment to the business. It actually fits with the long-term strategic vision to grow from being a regional player to being a player on the world stage. But it’s a tough shift at best, and he is certainly not going to be able to make any hairpin turns in changing the culture.

He is learning that he has a responsibility to assimilate to the current culture, and earn the right to be heard, before he can create the culture he desires. I once heard someone say, “You don’t change culture by changing it. You change it by creating it.“ Creating a new culture takes time and an emphasis on what your responsibilities within that process are. If we only focus on our rights we will spend most of our time being offended and not productive. We will make decisions based upon whether or not something’s offensive, not based upon whether it’s the right decision to achieve the ultimate objective. When everyone focuses on their individual responsibilities, the outcome, interestingly, is that no one is offended, people live in peace and harmony, and they are extremely productive.

The Importance of Conveying Your Message to the Successor

2010-10-25T10:00:00.002-04:00

Enjoy the below post written by my partner, Jeff Faulkner, jfaulkner@rawlsgroup.com

The immigration debate rages on, as today a federal judge put Arizona’s immigration law on hold, therefore upholding the idea that illegal immigrants, or undocumented workers, depending on your leaning, have rights in the U.S, namely the right to enter our country on their own terms.

Again, I see this dynamic play out daily in the family business arena. The solution to these problems is not demanding our rights, but understanding and living up to our responsibilities.

A business owner has a responsibility to a lot of people – their family, managers, employees, employees’ families, customers, vendors, and the community. They have a stewardship responsibility, to do everything in their power to prepare the business for ongoing continuity of success, because there are a lot of people depending on it. They also have a responsibility to convey this message and mentality to their successors because when a business owner perceives that they have the right to abuse the business and use it solely for their own personal gain, it will not last.

There are plenty of examples of business owners abusing the business for their own personal gain in the businesses that have been swallowed up by our most recent economic downturn. When a business owner is responsible for the business, he or she creates an environment that most of their children want to participate in. A lot of times for no other reason than to maintain the lifestyle to which they have grown accustomed to. But, the business owner has a responsibility to make sure that their children earn their way into the business.

Upon entering the business, these potential successors also have responsibilities. They have a responsibility to understand the stewardship mindset and to enter the business the right way by earning their way in and viewing it as an opportunity not expecting it as a birthright. They have a responsibility to learn as much about the business and leadership as possible, work hard, earn respect, and develop a team-oriented outlook. When they come in displaying entitlement, trying to take the elevator to the executive suite when they’re not even qualified for a job, because they feel they have a right to it, their peers do not respect them. Their peers will not work for them or support them in their efforts to become successful; thereby undermining the success of the family business and the environment that was so attractive to them in the first place.

Offer your thoughts and suggestions on the above topic.

Watch Out for that New Best Practice: It May Not be Right for You.

2010-10-21T10:00:00.000-04:00

Enjoy the offering below from one of my partner, Dan Schneider, dschneider@rawlsgroup.com

Much of the literature and buzz around best practices seems to presume that there is a universal business model or family governance structure that fits everything. Personally, I haven’t found that to be true; so I generally do not recommend that a client, business, or family run out and adopt the latest and greatest approach to anything. In fact, the greater the hype, the more likely I am to want to move away from it. There’s something about a herd mentality that makes me want to wave the caution flag.

Instead of looking at another person’s idea of the best practices for business (or family governance) models in general, focus on finding the best practices for your particular set of circumstances. From a business model perspective, that means knowing why you’re in business and what outcomes meet your definition of success. Some practices work well in one culture, and just create strife and discord in another.

Consider using these guidelines for selecting the “best practices” for your business. They will help you make better use of principal resources: People, Time, and Money. You may be tempted to say “I want all three.”; but choosing to be all three simultaneously almost guarantees that you will become a herd member rather than a herd leader. So, take a look at these three options, choose one, and then you will know what best practices are likely to best fit your organization:

1. We define success as being a highly efficient company focused on limited customer/client choices that appeal mostly to the price conscious. If that’s true, then build your processes, policies, and procedures around that value proposition. Spend a minimal amount of money on building close personal relationships with clients. Market your “pricing” ability. A local merchant with this approach advertises that “You’ve said it and we believe it. Price sells!”

2. We define success as being an innovative and creative company that can put products and services in place that tap into the previously unknown and unmet needs and wants of the marketplace. If that’s true, then you need to be putting people, time, and money into product/service research and development. Market everything as “new and improved” or as the leading edge of whatever line of business you happen to have. Your target market likes and wants “change”.

3. We define success as being trusted advisors and consultants to prospects, customers, and clients who want a great deal of personal time and attention from their vendors and suppliers. You probably chafe a little at being thought of as a vendor or supplier because that implies a more distant relationship than you want. So, your best practices are going to focus on maintaining a level of customer intimacy that the more operational efficient would find unnecessary.

Once you decide whether you are Door 1, Door 2, or Door 3, you will be able to recognize what “best practices” are most appropriate for you. Choosing the “best practices” helps you identify what business processes and procedures will help you better achieve your goals. Then, you will have a greater comfort level in knowing that you are doing things the right way.

Please offer your imput.

Rights Versus Responsibilities

2010-10-18T10:00:00.001-04:00

Please enjoy this post by my partner, Jeff Faulkner, jfaulkner@rawlsgroup.com

No matter where you stand on the immigration law, one thing is painstakingly clear. Our country is obsessed with protecting everyone’s rights with little to no concern for their responsibilities. Somehow we seem to suffer from affluence guilt that leads us to feel it is our responsibility to take care of everyone on the planet, and perhaps more accurately, that everyone on the planet has a right to be cared for by the U.S.

I see this same dynamic play out in family businesses. The founder of the business worked day and night, 7 days a week, taking a 2nd mortgage out on the house and leveraging everything else he had, to get the business off the ground. It was no one’s responsibility but his or hers. They took no salary for years. They busted their tail to make payroll on Friday. When times were tough they cut their own pay first.

Thirty years later we’re dealing with the 2nd generation who are bitter toward their parents for neglecting them and spending too much time on the business. And yet along with this bitterness comes a “you owe me” attitude towards mom or dad and the business.

“You owe me a job.” “You owe me an advancement.” “You owe me a company car.” “You owe me use of the company plane whenever and for whatever I want.” “You owe me a large salary.” “You owe me the CEO position.” “The business owes me dividends.” “And, by the way, I’m not going to neglect my family the way you neglected me, so I not only have a right to all of this because you’re my mom and dad, I also have a right to a balanced lifestyle that allows me flexibility to live my life the way I want to.” “I get the benefit of all the wealth your determination, hard work, and created resources is responsible for.”

Frequently, the guilt of the business owner is somewhat assuaged by giving in to these demands, confirming for the kids that, indeed, they must have a right to all of these things. It’s emotional manipulation at its best. It’s also a recipe for disaster. In my next two posts, I’ll discuss the importance of responsibility to alleviating the devastating effects of rights.
Please offer your thoughts on this issue.

The Key to Ending Business and Domestic Turf

2010-10-14T10:00:00.001-04:00

Enjoy the below post written by one of my partners, Dan Schneider, dschneider@rawlsgroup.com

Conflict and disagreement are natural human occurrences. Sometimes they escalate to the level of a “turf war”. The consequences may not always be fatal in terms of physical life and death, but all too often they lead to the emotional death of a relationship. Sometimes it’s a domestic fatality, and sometimes it’s a business fatality. The real tragedy is that neither has to occur.

Generally this begins to happen because people either never really agreed on mutual outcomes or their expectations changed. This is often the result of no real communication every having taken place. Recently, in a business meeting with a client, the General Manager could not resist the temptation to share his views with everyone. During one of his “Hear me” moments, I interrupted long enough to remind him that listening is also part of the communication process. After the meeting ended, he came to me and said “I have a communications problem, don’t I?”

Listening is critical. Just as important as listening to the words is listening to the intention. Some of us do not like confrontation, so we often “hint” at what we mean; and then we get frustrated or angry with those not clever enough to read between the lines.

If you happen to fall into that category, then my recommendation is that you start saying what you mean. People do read between the lines; but usually what they read between them is what they want, not what you want.

Also keep in mind that some of us are quite literal. If you say “a few” or “several”, we have no idea what that means. As an example, I recently looked at some training material used by one of our clients. Step Number 1 calls for “a warm, personal, friendly greeting” to each client. Those are nice words; but what does that sound like when it’s done? In my home town, a local merchant uses warm and friendly words; but they are delivered in such a sterile manner that I would almost rather not hear them at all.

If you are not listening or communicating clearly at work, there’s a high probability that you aren’t doing it at home either. Regardless of your intention, the real meaning of your message is what the receiver thinks, not what you meant to say. And, when your words are unduly harsh and intemperate, the net effect can be fatal. It is possible to kill the spirit with a word, a phrase, or a look.

Turf wars can be emotionally and physically exhausting. I would like to say I’ve never gotten involved in one myself, but I can’t truthfully say that. Your domestic and professional life will be much richer if you can stay out of the swamp. But if you should find yourself in it, remember this adage: It may take two people to create a lasting peace, but it only takes one to get it started.

Please offer any comments regarding this topic.

Shift in the Employment Probability Teeter-Totter

2010-10-11T09:00:00.000-04:00

As discussed in my previous post, our new economy has forced business’ to do more with less causing the workforce to become more productive and resourceful. The competition has created a contraction of margins that will not tolerate inefficiency, complacency, high wages or any presumption that future success can be achieved through practices of the past. As a result, workforce competition has also increased and the rules have changed, causing the unemployment rate to rise.

As a business succession planner, I give constant thought to how business success is maintained during diverse economic environments, which are constantly moving. I define succession as simply the continuation of success and success is dependent upon reasonable labor. “The doing more with less” mindset, however; has tipped what I call the “Employment Probability Teeter-Totter” giving those who are more flexible and willing to dig deeper more value over those who are skilled and experienced.

Imagine if you will, Behavior, Attitude and Cost (expected compensation) on one side of a teeter-totter balanced with Skills, Knowledge and Experience on the other. In an ideal economic environment there should be balance. In a high performing, economic environment like we experienced between 2002 and 2007, the teeter-totter tilted toward acknowledging those employees with Skills, Knowledge, and Experience due to high production requirements. In the current tight economy with little to no margin for error however, business owners have concluded they must take action and that Behavior, Attitude and Cost are more important than Skills, Knowledge and Experience.

The immediate presumption, which from my perspective appears to be valid, is that with lower production demands there is time to recruit new receptive talent that is capable of learning the critical skills while being open to new innovative ways of getting the job done at reduced cost. And success through survival demands reduced cost. In many cases it appears that the unwillingness of long standing employees to think out of the box; to reconsider the market value, their skills, knowledge and experience as well as to consider new more innovative ways of doing things negatively effects productivity creating employment incompatibility.

Those with Skills, Knowledge and Experience become part of the newly unemployed and stand on the sidelines while those with the Behavior and Attitude who aren’t handicapped with an entitlement attitude work enthusiastically to gain the Skills, Knowledge and Experience to significantly impact productivity which subsequently increases personal compensation.

Putting Your Business on Steroids.

2010-10-08T15:37:00.001-04:00

I hope you enjoy the below blog from one of my partners, Dan Schneider, dschneider@rawlsgroup.com

Some pretty famous people are back in the news for their alleged use of performance enhancing steroids. That topic came up during a lunch with a client and a couple of her key advisors. She turned to me and asked “Are there any steroids to enhance business performance?”

We all laughed, and then I said “Yes. Of course there are. We have been talking about them all morning; we just haven’t been calling them steroids. We have been calling them by their generic counterparts: policies, processes, and procedures.”

Some of us are old enough to remember that in the early to mid 1950’s, there was a three word phrase used to describe “junk” products and services. The three words? Made In Japan. Up until a few months ago, those same three words had come to epitomize all of the best practices associated with products and services. What happened to change the perception from “junk” to “perfection”?

When Edwards Deming, the Iowa born guru of continuous process improvement, was rebuilding the Japanese manufacturing capacity after World War II, he developed a set of 14 principles that now serve as the foundation contemporary continuous process improvement efforts. One of the most important for our purposes today holds that performance problems are almost always process related.

The Japanese, with guidance and leadership from an Iowa farm boy, began to focus their attention on doing things (service or products) the right way. When a product or service didn’t produce the desired outcome, they did not tinker with the process; they fixed it. The message? Tinkering does not improve a broken process. The only way to fix a broken process is to fix it.

If your business is underperforming , here are some steps you can take to fix it. Assuming that Deming’s principles are universal and they can be applied to both product and service organizations, you can begin using the performance enhancing process of continuous improvement. Here are the key steps to use in diagnosing your process problems:

1. Begin with the end in mind. What did you want to happen?
2. Be honest about the result you got. What did happen?
3. What worked? Why did it work?
4. What didn’t work? Why did it fail?
5. What did we learn?
6. How can we do this differently the next time?

Some of the readers probably have belts of some color in one or more continuous improvement processes. You are certainly welcome and encouraged to refine this list and give others the benefit of your experience. Jim Collins has suggested that the enemy of being great is being good. I would suggest that the enemy of getting what you want is settling for what you get.

How do you enhance your business' performance. Please share your thoughts and experiences on this topic.

Doing More With Less

2010-10-04T09:00:00.001-04:00

We’ve been hearing a great deal about the unemployment rate lately as political pundits try to cast blame and gain leverage based upon the current 9% to 10% unemployment rate. Evidentially for many years it has been presumed that the unemployment baseline was 3% to 4% and during good economic times it would rarely drop below 3%. This dynamic gives some level of support to my personal theory that at least 3% of the US workforce is unemployable and the percentage is only increasing due to higher expectations.

As I visit a variety of closely held businesses with annual sales of less than $200,000,000 I have noticed that sales are down about 20% to 30% depending upon the industry and size. I am a business succession planner not an economist, but you don’t have to wear a bowtie and have a whacky hairdo to recognize this decline in sales. Due to this decline in sales all expenses have been scrutinized and squeezed in an effort to survive 2008 and 2009 when we were slammed with the credit crunch. Now success of closely held small businesses comes through survival by reducing overhead cost including rent, cost of goods, hourly wages and executive compensation. The point is that the drop in sales EXCEEDS the drop in profitability.

In reviewing my client’s Profit & Loss statements I noticed that productivity per an employee is UP approximately 35% meaning businesses are doing more with less. Those who have a job are happy to be working and accept the need for increased productivity. Therefore ownership and management won’t hire anyone that doesn’t immediately impact productivity in a positive way. Inefficiency, waste and entitlement are no longer tolerated. Teamwork is now a non-negotiable, fundamental expectation. There is no excess time or energy for turf wars or silo management.

The body fat of the American small business community is comparable to a world class tri-athlete, lean and mean. So, if we assumed 3% to 4% of the workforce has been historically unemployable, I now contend that another 3% to 4% of the workforce is not capable of impacting productivity. Although this observation may not be politically attractive I contend that the baseline for unemployment has increased to 6% to 8%.

The Rescue Syndrome

2010-09-27T13:10:00.003-04:00

I doubt there will be any disagreement that parenting is a challenge. Surely anyone who has been privileged with offspring will agree. As a succession planner who is uniquely positioned within many families who are collaborating in business, I can affirm that bringing children into a family business greatly elevates the challenge of parenting. Family business is an oxymoron because family is an institution of unconditional acceptance whereas business is a institution of conditional performance. As a result, being a parent can become even more challenging because, you can’t run a family like a business and you can’t run a business like a family. As if the challenge of raising a child were not enough, the family business environment creates a constantly changing rule book. This can often lead parents to believe that the only hope for a child’s success comes with divine guidance toward a prayerful balance between unconditional love and performance accountability.

The spiritual drive of mothers to attend to the needs of their children is a power beyond my understanding. For a “mom”, unconditional love appears to be a natural behavior with endless amounts of empathy, endearment and compassion. This behavior is natural and extremely important to empowering and building productive adults. However, if not careful, this behavior can also cross all boundaries including the murky family business borders between love/accountability and personal/business success.

It is probably just the stressed-economic window I am looking through, but I have recently witnessed an increased number of “over-responsible mother” behaviors which can become a family business disease. With economic times pushing us all to dig deeper, it appears that many mothers are not able to resist saving their children, even if they actually need to be held accountable or pushed further. This “help” can quickly transition from a mother’s empathy, endearment and compassion to enablement and entitlement. As a result, parents (both moms and dads) are frustrated that their good intentions are creating more problems. Motivated children are frustrated that some siblings are not allowed to fail. Key managers and employees are frustrated that there are two sets of poorly defined rules and expectations regarding family business behavior.

Far be it from me to contend that I have a simple answer for managing children who are struggling personally or in the business. However, I do believe that moms (and dads) can become more effective and find some relief by becoming more aware of the difference between support and encouragement vs. over responsibility and rescuing behavior. Constantly rescuing your children prevents them from maturing or learning how to deal with adversity.

As a parent, consider, simply waiting until your child specifically asks for help. Then discuss the impact of the help with your spouse or another party before acting. As a result, the negative impact of over-parenting can be significantly relieved.

Successor Development: You've Selected Your Successor, Now What?

2010-09-13T08:00:00.002-04:00

This is the final post of this Successor Development series following the blog titles, "Successor Development: 5 Key Indicators for Evaluating a Successor." written by my partner Jeff Faulkner, jfaulkner@rawsgroup.com.

Posting:

Now that you have successfully selected your successor, what do you do? If you’re developing a family member successor, the most important thing is to have them go work somewhere else before entering the family business. Learning how to be an employee in a place where your last name means nothing is very valuable.
Once they enter the family business, they need to know their expectations in terms of behavior and attitude. Many next generation kids in family businesses have no idea that they are entering life in a fishbowl and are shocked when they figure this out. They assume that everyone will give them the benefit of the doubt. This is simply not true. Every thing a family member does in a family business is magnified and your kids need to be aware of and prepared for this.
I was recently talking with a 27-year-old potential family successor who was frustrated in his current role in the business and felt that no one really cared about him, so he decided to take a two-hour lunch break and see if anyone noticed. He really believed that no one noticed. I assured him that not only was this noticed by all the employees, but was also notated and will more than likely be held against him for way longer than it should be. It’s simply the nature of family member employees in a family business.
Regardless of whether you’re developing a family or non-family successor, we have found that it is not only vitally important, but also necessary that expectations be clearly defined. Conflict arises when expectations are not matched up and someone’s expectations are deemed to be unreasonable. These expectations need to be ironed out so that everyone knows the rules of engagement on how decisions are made, how conflict is handled, what roles everyone is playing, etc.
As I stated in my first post of this series, Successor Development – There Has to Be One Available!, getting a successor ready provides legitimate and viable options for succession when the time comes. When you have a successor fully prepared the business can continue uninterrupted when the unexpected or expected transition happens. This inherently builds sustainable value in the business.

Successor Development: 5 Key Indicators for Evaluating a Successor

2010-09-06T08:00:00.001-04:00

Here is the second posting following "Successor Development: There Has to Be One Available" written by my partner in Atlanta, Jeff Faulkner.

Posting:

Once there are available successor candidates, business owners should take a less instinctive approach to selecting a successor from the candidates by evaluating some key traits. We refer to these traits as the 5 Cs: Character, Confidence, Capability, Competence, and Community.

First and foremost is Character. A viable successor candidate should have a strong work ethic and an attitude of earning his way. They should have respect for the people that work for you and value them as great contributors to the business, not as pawns in your play. They should be an upstanding individual with integrity and a commitment to doing the right thing.

Secondly is Confidence. Potential successors need to display a Confidence in their own ability to be your successor and in their people. More importantly, they should display a high degree of confidence in their relationship with you. As a part of the succession process, it’s important for both of you to recognize that you will become partners and solid relationships built on trust and confidence are imperative.

Next is Capability and Competence. Some people ask what’s the difference between Capability and Competence.

Capability is the raw talent to do the job. They should have natural people skills and leadership qualities, though undeveloped and inexperienced. This is most evident in evaluating a potential successors track record in leading themselves effectively. Ask the successor candidate these questions:

Are they self-starters?
Do they follow through and get the job done?
Do they accept no excuses?
How have they done with building relationships?
Are they a leader or follower in their peer group or among siblings?

Competence, on the other hand, is a proven track record of demonstrated ability with the business itself. We see many potential successors who are full of talent, but have never been afforded the opportunity to really learn the business by firsthand experience. They’ve taken the elevator to the executive suite. Consequently, they lack confidence and the “would be” followers lack confidence in their ability to lead the company.

Finally is community. The successor needs to develop a stewardship mentality that the business is not just about what it can do for them, but what it means to the employees, employee families, customers, vendors, distributors, manufacturers, lenders, and the community who all have a vested interest in the continuity of the business. The essence of community means that the culture represented by the business is understood and respected. Potential successors must be community minded team players who really have the best interest of all parties who are dependent on the ongoing continuity of the business at heart.

Beyond the 5 Cs, it’s important to identify a successor in the context of the strategic plan of the company. If you don’t know where you’re going, then how can you select a successor. On the other hand, if your vision is crystal clear then selecting a successor involves evaluating them based upon their ability to lead the company toward the fulfillment of the vision.

Successor Development: There Has to Be One Available. By: Jeff Faulkner

2010-08-31T10:27:00.012-04:00

I hope you like this offering by one of my partners located in Atlanta, Jeff Faulkner - jfaulkner@rawlsgroup.com

Posting:

Business owners frequently select their successors with an intuitive approach, or based on experience-informed “gut” feel. Most of the time they’re pretty good at it, but when it comes to evaluating a successor for a family business, the family relationship dynamic inevitably clouds a business owners evaluation. There are emotional entanglements that get in the way of their well-grounded intuition. So to help business owners be less instinctive and more intentional and consciously competent in selecting a successor, there are some key indicators to look for in identifying a successor for your business.

Before looking into key indicators for evaluating a successor, the most important thing is AVAILABILITY. The key to ensuring you have at least one available successor-candidate is thinking and planning ahead. Many business owners don’t think about succession until it’s staring them in the face and then they look up and say, “Hmm, who’s going to be my successor?” Since you know the “succession question” is inevitable because we don’t have the power to stop aging, you can take advantage of time and begin to mentor and coach early so when the time comes, you have options.

When it comes to finding an available successor, a lot of family business owners look at their kids. However, many business owners feel that their business has been so difficult that they try to encourage their kids to go do something else. This can sometimes be the right thing, but other times it’s a real mistake and tragedy, because kids end up opting out of the business without a real knowledge of what they are choosing against.
Additionally, many owners remain their organization’s key manager and fail to develop people under them who are capable essentially becoming a genius surrounded by a thousand acolytes. If you’ve encouraged your kids to go do something else and you haven’t developed a non-family successor, well, your options are limited and probably not the best ones.

If you’re beginning to think about succession, and if you’re not you should be, first start with the process of determining the available potential successor candidates.

Manager Want a Cookie?

2007-07-11T13:30:00.000-04:00

“I just need a cookie once in a while.”

“Cookie? Speak English man! I don’t follow what you are saying” responded the brusk, in your face owner to his key manager.

Surprisingly reflecting confidence to speak his mind the key manager responded, “I just need you to tell me I’m doing a good job, you like what I am doing, you appreciate me; something affirming and encouraging.”

“Good God man, this isn’t kindergarten! After patting you on the head do I need to burp you too,” responded the owner sarcastically. “If you need a scoutmaster you are at the wrong place. You perform big, I pay you big. The average dude would die for your job. That’s our relationship and if you need more from me such as hanging out with your wife and kids, I am just sorry but I don’t have time for that touchy feely crap. Just do your job, make your big bucks and don’t expect any more from me.”

The room went silent as the visibly deflated key manager just stared at the owner with astonishment. After a few moments he turned his eyes to me with an expression of futility. I had nothing to offer the young man who had been struggling with continuing in what appeared to be a great job making fabulous money. I had been mentoring him for several years as he tried to reconcile working for my client who was Mr. “don’t wine and dine me, bottom line me.” As an extraordinary manager and leader the young man was at the top of his game. He was empowered to be “da man” and run the business without any interference from the owner as long as he delivered the profits that had become routine and uninspiring to an idealistic young man looking for more than a job than just the big check.

“Boss you have just made my day. I read you loud and clear. It’s about the money. I get it, I get it,” he emphasized. Just as I was thinking the conversation was concluding a chill ran up my back as I recognized a very never before seen wetness growing around the young man’s humble eyes. As he gathered himself to continue speaking I could tell something was up.

“The pity is you don’t get it and I am not average. The pity is you don’t understand that the emotional drain required to motivate and lead an organization that produces like this business, deal with the vendors and deal with the customers. For me to do this, I need more than money. I also need a cookie. And if you don’t have the interest, the time or the humility to give a beggar a cookie, you can stick your money where the sun doesn’t shine. And then with a big smile he finished is statement with, “and no doubt this is the best day of the nest of my life.”

The manager purposefully stood up, walked over to his desk and began gathering his belongings as the astonishment transferred to the owner. When the owner recognized what might be happening he began to nervously wave his hand at him saying repeatedly, “now come back over here and sit down. We can work this out.”

However, the young man was undaunted by the pitiful 70 year old’s pleading. Just before stepping out the door he said, thank you for the opportunities you have provided. You are right money is important to us non average managers but money is not the whole package. I am going to find me another job that includes and occasional cookie. A manager has got to have an occasional cookie.

Trust Problems

2007-02-14T16:53:00.000-05:00

Estate planning is an integral part of business succession planning. I am commonly asked what are the most common problems encountered in estate planning trusts. There are so many problems with trust administration it is difficult to find a place to start or where to stop. For lack of a better plan, let’s consider what I have found to be the top five trust administration problems:

Problem: there is no way to change provisions of a trust that are outdated or ineffective. Cloths go out of style and so do trusts. Upon the death of the grantor of a revocable trust, the provisions of the trust can not be changed. Similarly, upon adoption of an irrevocable trust, the provisions can not be changed. However, the world turns, things happen, society morphs and laws change. Unfortunately, most of that last over ten years lack the versatility to be updated to adapt to changing or unanticipated circumstances. I am not talking about doing things that would make the grantor turn over in his/her grave. I am talking about just providing refinements to trust operation, taxation or payout that were not even applicable when the trust was formed. No matter how much minutia is drilled into the document, various forms of obsolescence are inevitable to long term trusts. Antidote: provide within the document a “trust amender” or “amender committee” that has the authority to amend the trust to address changing circumstances. In skip generation trusts, it is wise to also provide for succession of those who are given the power to amend the trust.

Problem: the beneficiaries do not have the power to remove the trustee. Oh Mama this can be a doozie because trust officers are not known to be the most ambitious or pro active financial servants. Consequently, if job security is no concern, their attitudes and initiative can progressively decline to the point that after realizing that jumping on their desks does not work you may want to file suit. Unfortunately this is generally not a good idea because the fine print in the trust agreement usually states that you must reimburse the trustee for the legal expenses incurred in the delivery of their services. Catch 22 gives this problem top billing. Antidote: always provide within the trust document a “trust protector” who has the power to remove the trustee.

Problem: the trust officers are given the responsibility to manage a private business or special use real estate. Banks/trust officers know fixed income instruments. Portfolio managers know stocks, bonds and the various derivatives there of. Most individuals who have not put their heart and soul in a private business do not understand it. Conclusion, banks, trust officers and capable and talented individuals do not have a clue as to how to manage a private business or special real estate. Consequently when these parties are asked to manage a business we generally see a movement to liquidation (let’s move the money into something we understand) or a steady decline in the productivity of the business. Antidote: Do everything possible to keep these special assets out of trusts. When deemed necessary, put these assets in sub trusts and designate specialists including family members or key managers who know what they are doing to manage these assets.

Problem: the trust distributes to children/beneficiaries at specified ages. As a result of this flash of cash, thirty to forty year olds indulge dependencies, make bad decisions or just go money crazy. And why not? In most cases these heir do wells have no financial education or experience that prepares them for handling significant assets. Their expertise is in patience and restrained consumption. Having controlled themselves until the trust vesting provisions were satisfied, they figured it was their time to be self indulgent. The net result is more often than not financial ruin for the irresponsible and unwarranted pressure on the responsible as they are called upon to bail out their siblings. Antidote: establish criteria for principle distributions that include history of steady employment, proof of no alcohol or drug dependencies and at least three years prior service as a co trustee to learn the fundamentals of financial management and investments. Where there is no conformity to these reasonable criteria, keep the assets under the management of a professional trustee.

Problem: the beneficiaries are surprised, shocked or dumbfounded by the terms of the trust. The parent or love one never took the time or never had the gumption to disclose how the beneficiaries were going to be treated under the trust. The reactions of the beneficiaries run the gamut from my Dad did not love me to my sibling turned my Dad against me or the attorney designed these trusts just so he could have a job and drain my parent’s estate. Irrespective of whether any of the accusations are true, being disrespected by being kept in the dark leads children to be skeptical, argumentative, litigious and even belligerent. Antidote: respect your beneficiaries by sharing how your trust is going to impact them. Listen to their reactions that beyond being self serving may give you insight into how your estate should be divided and how your trust should be administered. Don’t let your reluctance to deal up front with a problem child create problems for your other children.

Copy Right: The Rawls Company

Vision Conflict and Business Succession

2007-01-25T08:51:00.000-05:00

Loyd H. Rawls

January 21, 2007

A clear, concise, well communicated, self-affirming vision is a critical component to the creation of an unstoppable family business succession plan.  However, just establishing a vision in this complicated world is not enough because in the business succession realm, this vision involves teamwork. Unfortunately those whom we endear, those whom we love, those whom we depend upon to continue our businesses and those who depend upon us for their careers can complicate our circumstances and the achievement of a succession vision that on a good day has many moving parts and on a bad day can appear mind boggling. In the midst of complications with family, key managers, lenders and vendors succession can become such a hassle that a business owner may want to isolate himself. Unfortunately this isolation is completely counter productive to the achievement of a vision that requires a team effort. Within the realm of business succession planning, the vast majority of these succession problems are cause by vision conflict. Allow me to explain this frustrating predicament and the remedy.

Vision conflict is a team problem and notably the nemesis of synergy. Team work and synergy require a unified vision by all members of the team. Any divergence from a well articulated vision erodes synergy. Vision conflict occurs when the leader/owner/operator and supporting family members and key managers use assumption to support their individual visions. Due to any number of real or imagined reasons, family members or key managers do not feel comfortable expressing their expectations of other team members. When assumptions are the foundation of significant miscommunication we have vision conflict. Consequently team members and their goals become the victims of unreasonable expectations. Expectations are unreasonable fundamentally because interdependent team members have not openly and freely expressed their expectations and engaged in the discussion, debate and compromise required to deem expectations as reasonable.

Team vision conflict is resolved by adopting Operating Covenants between higher powers (owner/operator) and lower powers (employed family/key managers/vendors). There is a natural reluctance within the family business to express expectations of others. The process of adopting Operating Covenants alleviates erroneous assumptions and gives everyone who could crash the team and/or impact the fulfillment of a unified vision the peace of mind that all members of the team are pulling in the same direction. During Operating Covenant process everyone would communicate, refine (where necessary) and ultimately affirm reasonable expectations of each other that will give the owner/operator and all those associated with the succession vision the confidence and freedom to engage in team endeavors without reservation that they are not being respected and/or their needs are not being fulfilled.

The purpose of Operating Covenants is to bring formality to the acknowledgement of reasonable expectations. This formality facilitates effective interaction which notably includes accountability, between otherwise complex relationships involved in a team initiative such as business succession planning. The process of formality recording reasonable expectations provides the foundation for confidence and freedom to make a commitment to a team initiative. Expressed reciprocally, the purpose of Operating Covenants is to preclude unreasonable expectations that become embedded obstacles to efficient and effective communication and ultimately evolve into vision conflict.

Operating Covenants are pursued at the pleasure of the higher power because he/she believes that clarifying expectations is in everyone’s best interest. Obviously, the owner as the highest power within a family business could conclude that he/she does not need to waste time on silly covenants.  This owner recognizes that he or she could just dictate to everyone that “it’s my way or the highway.”  Although dictating to some degree would relieve erroneous assumptions, team leaders must be aware that team conformity and commitment are internal elections. It is easy for one to say they are a team member and they will do as they are told while on the inside they are committed being an organizational terrorist. Dictatorial, positional leadership may accomplish short-term goals, but long term leaders inclined to dictate should be aware that passive resistance will only follow while the leader is present and strong-willed resistance will just disengage ASAC (as soon as convenient).  Both forms of passive or active vision conflict under the best circumstances result in internal withdrawal from the succession commitment and under the worst case circumstances result in obvious sabotage of the leader’s vision.

I suggest that the preferred course of action is for all members of a team to confirm acceptable/reasonable expectations that will motivate everyone to choose to work together. Vision conflict does not happen over night and it is not resolved overnight. The development of Operating Covenants is a deliberate process that begins with private meetings with a facilitator to allow everyone to have an opportunity to release their genuine feelings regarding expectations. In many circumstances, family members or managers must be given time to articulate their feelings regarding the unreasonable expectations they have struggled with in the past before they can look to the future. The process allows all operators to have an opportunity to express their perspectives that are probably the foundation of unreasonable expectations. The process of discussing, refining and ultimately reducing expectations to writing, leads to enlightenment as to what is unreasonable and the reasonable. The exchange of feelings and ideas with an experienced facilitator in private filters out the bulk of the unreasonable expectations that otherwise expressed face to face with the other party would create team and/or family confrontations that could have long range deleterious impact.

When all parties are confident in their expectations of others, enlightenment continues as the presumed reasonable expectations are exchanged, again in private with the facilitator. Reaction to expectations in private allows for more emotional filtering that avoids unnecessary confrontation with family members or key managers. The facilitator who has experience dealing with dysfunctional family and management dynamics helps manage reactions and coach all parties in the direction of more reasonable expectations.  After one, two and even up to three exchanges, with the confidence that eighty to ninety percent of the expectations would be considered reasonable, the family members and/or managers are brought together face to face to work off the edges and confirm that the expectations are worthy of a covenant and that everyone will do everything possible to fulfill and accept cross accountability when a reminder is needed that someone is operating outside of the reasonable expectations.

Reasonable expectations and the willingness to accept cross accountability is the silver bullet to team synergy. Communicating, discussing and agreeing upon the ownership, operating and family interaction expectations enables intense, motivated business operators to maintain productive relationships during the predictable periods of stress that accompany business operations. Operating Covenants relieve or preclude Vision Conflict.

Sibling Partnerships

2006-12-13T09:03:00.000-05:00

Sibling Partnerships: If you are a part of a sibling partnership in business or anticipate being in one in the near future, please understand that your relationship, just like any other relationship, will require a significant amount of effort to make it an effective one. Effective sibling partnerships will not happen by default. Natural behavior is to be competitive, self promoting and self serving. It takes a purposeful, dedicated effort to achieve win/win with siblings and there are many factors that lead to the effectiveness of sibling partnerships. Here are ten fundamental suggestions as to how you can establish and sustain an effective working relationship with one or more siblings:

Make a personal decision to rise above sibling rivalry by recognizing that you are no longer competing for your parent’s approval. You are now in business together fighting for the success of your business. If you divert your energies from this focal point you will bear part of the cost. You should now be more interested in earning your sibling’s approval, not your parent’s. If the disconnect with your sibling runs deep, admit it, and seek professional help together.

Engage in Family Strategic Planning to establish a “shared vision” of your future together. The process of building a shared vision will either reinforce your relationship or highlight the areas in which you need professional help. A shared vision or dream that you are both pursuing will provide a foundation for individual accountability that will assist you through difficult times.

Agree upon a Leadership Model. It doesn’t matter whether you take the more traditional route of one sibling being the leader, or the more contemporary co-CEO approach, as long as you have agreed upon the basic model and how it will work. It should be understood that the co-CEO approach is more complex due to the ongoing opportunity of unreasonable assumptions.

Create behavior and attitude Covenants that will confirm how you will interact with one another, how you will communicate, make decisions together, resolve conflict, hold each other accountable, support one another with respect to the senior managers and employees, etc. Then, regularly review these agreements because mistakes are predictable but success is achievable with continual reaffirmation of your commitment.

Establish a Supporting Outside Board. If necessary, agree to have outside independent advisors to facilitate debate and provide a resolution to deadlock that is not perceived as win loose. Siblings who perceived they have lost a power play rarely forget and generally spend too much time on getting even.

Develop a comprehensive Family Business Employment Policy. Don’t allow nephews and nieces to just come to work in the family’s business. Make sure family members understand that working in the family’s business is special because all family members are in the spot light and they are role models for good or bad attitudes and behavior.

Document all agreements regarding compensation, responsibilities, stock transfer capability and the disposition of stock in the event of death, disability or retirement. Assumptions regarding these important contingencies are opportunities for a crisis within a family. Addressing the contingencies is work but having documented agreements is a giant step towards avoiding disagreements.

Acknowledge that you can agree to disagree. An expectation that siblings are going to agree on everything is pure fantasy. How you handle your disagreements will in large part determine the success of your partnership. Disagreement is OK as long as there is an understanding that some one is responsible for the final decision.

Address the impact of spouses on harmony and teamwork. Far too many sibling issues are really an in-law issue. If an in-law is back stage pulling the strings, you had better address the involvement of the in-law or just reconcile yourself to having ever increasing dysfunction.

Agree upon an Exit Strategy. Due to differences in age, motivation and health, one sibling will retire or want to retire prior to the other(s). However, concerns about maintaining lifestyle, relinquishing control or leaving underperforming children unprotected can greatly complicate the retirement. An agreed upon exit strategy for siblings can alleviate many of these concerns.

Approximately fifty percent if the family businesses involve siblings. If you, your children, your partners or your bosses are in the beginning stages of a sibling partnership, give thought to these suggestions or suggest that they do so. Putting these Best Practices in motion will serve to provide you with a firm foundation for future growth of the partnership and the business. If you have been in a sibling partnership that has gone awry realize that it’s never too late to pull it together. It will require coming out of your comfort zone, but with resolve and determination you can forge unity and maybe even harmony. You may need the services of an outside facilitator to help you work through the issues but just like your marriage, it is worth the investment. In the end, remember that it takes commitment to make family an asset in business. Family can be an asset by bearing up under the load and supporting each other through difficult times.

Brand Bible?

2006-10-11T12:58:00.000-04:00

Loyd, what do you think of the concept of a brand bible?

What should e determined immediately is if "brand bible" is just being used as a cute term for core policies and procedures or do they really mean "Brand Bible."

The concept of using the term brand bible conveys that this document is the foundation or reference for belief, trust and faith. Inherent with the behavior, attitude, attained skills, knowledge and experience that are associated with belief, trust and faith there is the assumption that the business will grow in power, strength and resilience. However, this is faulty logic if there has been no process through which the brand bible has been proven as the source of strength as in Bible. In the absence of a profession of belief and faith by the rank and file employees and managers who are integral to the strength in the mystical powers of branding the use of the term bible is very assumptive. Actually, a safer presumption would be that all those exposed to the brand bible the first time will have doubt or even cynicism. I believe that in order to be successful in a branding initiative, we must convert the precepts of a brand bible into Organizational Covenants to achieve the strength that everyone anticipates. In other words, organizational believers should preach brand beliefs and then have organizational alter calls regarding how those beliefs are going to drive behavior. The Bible is based upon on two fundamental Covenants that have created unimaginable strength. A business will need a many more covenants because the business “higher power” does not have the same horse power as the Devine Higher Power.

As you and I know, attaining these Organizational c=Covenants will require a tremendous faith, effort and commitment. Unfortunately, just like the Devine Covenants, much of the effort of Organizational Covenants will be wasted because generously 50% of the current employees are statistical turnover casualties. "The road is wide but the gate is narrow." We don't need everyone to buy in to branding immediately. We just need to identify our zealots, build our house upon them and give them the forums to preach and walk their talk. Long term expressions of faith in Organizational Covenants combined with a commitment to role model brand bible behavior by a Remnant of a constantly growing brand believers will generate the power, strength and resilience needed to create a sustainable competitive advantage. More over, in order to achieve realize the potential strength of a brand bible, the business must have a higher purpose than just making money: we must impact lives!!!!

Maybe a mini mission for a branding imitative would be "Brand Believer." After we have the believers we can then proclaim our brand manual to be a Brand Bible.

Succession Planning Build Value

2006-09-18T11:01:00.000-04:00

Succession Planning Builds Value
Loyd Rawls
September 18, 2007

The valuation of a business is an assumption of future productivity based upon the perception that the multiple value drivers at play within a business will continue.  An appraisal (of value) is simply an analytical assumption of the future productivity of current value drivers supported by historical performance combined with assumptions as to how those value drivers can be or will be impacted by future circumstances.

Businesses have both social value and economic value.  For the purpose of explaining how succession planning impacts value we will dwell upon classic economics. The current economic value of a business lies in the demand for products or services provided, the assembly and distribution cost of those services relative to sales price, the adequacy of financial resources to support product development, assembly and distribution and the managers and leaders who are responsible for overseeing the business.

These are components of current economic value because the marketplace fully understands that all of these value components are depreciating. Products and/or services will become obsolete. Assembly and distribution of products will become inefficient and/or ineffective. Facility and technology demands will consume cash resources. And most important, as has been an unfortunately predictable cycle, leaders and managers who have astutely integrated the development of products, sale of products, management of cash resources and the infusion of winning attitudes will move on, retire, become distracted or lose their edge.  Consequently any presumption of financial value is temporary and conditional. At some point these value drivers will expire unless they are being assessed, refined and as necessary, regenerated.

The process of succession planning addresses all issues impacting the continuation of a business through the next generation. Of course, “all issues” includes value drivers which are part of the fundamental components of The Succession Matrix.  With resolute understanding that the predicate to succession is continuing success, succession planning assesses the value drivers that will be support the commitment of the next generation to continue the success required to perpetuate the business. This assessment predictably demands refinement to products and processes and a commitment to providing the financial resources needed to support those products and processes. Furthermore, succession planning demands a challenge to the assumed progression of leadership and management because the foundation of Succession Successsm is confidence that the next generation leaders will have the competency, capacity and commitment to not only maintain the current business value but also reach full value potential.

In summary, Succession Planning builds value because the succession planning process focuses on achieving Succession Successsm.  The process for achieving Succession Successsm, by its very nature confirms, refines and where necessary regenerates the drivers that constitute business value.

Surgical Update Regarding Challenging News

2006-09-01T09:09:00.000-04:00

I am pleased to reportgood news regarding my prostate surgery that took place on August 15th. Notably I survived. There were a few moments that I felt I would have to get better to die but thanks to your support and the unbelievable nursing of Pat, Amy, Kendall, Champ, my sister Dora and brother in law Rich, I am back to my commitment: live until I die. The next good news, no let's make that great, is that the pathology reported that the lymph nodes were clear and that the surgical margin, although close, was clear of cancer. Sitting here ten days after entering the surgical protocol I am reasonably free of pain, holding my own with post surgical issues and regaining strength to hopefully resume my passion for life, my family, you my friends and succession planning. My surgeon has stated that next Tuesday I can step back into an active routine excepting that for another two weeks I can not do any lifting or other specific activities that could convert one of these four abdominal wounds into a hernia. Is God great or what?

For those of you interestedin my passage through the "valley," nine of the last eleven days were pretty dark. Your visits, prayers, cards, calls, flowers, gift baskets and emails were very instrumental in helping me, Pat and family through these challenging days. From the deepest level of my heart and soul Pat and I thank you for your help and we will continually seek ways that we can stand in the gap for you. The fundamental revelation of this experience is that there is an army of brethren out there who are just waiting for the opportunity to exercise their faith in the healing hand of the Lord on our behalf. To not allow your friends to participate in your trials and tribulations is to withhold them from an opportunity to exercise and be blessed through the experience.

Our family went over to St. Pete the weekend of August 12th to relax and position ourselvesfor the surgery which was to take place in Tampa the following Tuesday. Sunday evening, forty hours before the surgery I was instructed to begin fasting of everything but clear liquids as well as do a colon prep in the event of surgical complications. In retrospect I now better understand why the robotic surgery is described as being very easy. I will have to admit that as compared to being starved for a couple of days, when we arrived at the hospital Tuesday morning, surgery looked like a great opportunity to get fed again.

The presurgical processing was as anticipated other than the "ring thing." Just as anticipated witha well refined surgical program, I was out of my cloths, on a gurney and hooked up to an I. V. in what seemed like less than ten minutes. While laying on the gurney and being asked the same allergy questions by three different anesthesiologists, a surgical nurse noticed that the processing nurses had not been able to remove my wedding band. Earlier the processing nurse had unsuccessfully applied all of her skill and accepting that it wasn't coming off had taped it down. However, the three anesthesiologists gathered and committed themselves to the challenge of removing the ring noting that they had never encountered a wedding band they could not remove. Recognizing I was already half way in the bag from the I. V. juice, one grabbed my wrist stabilized through her arm pit, another stabilized my ring finger and guru of the team worked the ring for about fifteen minutes. While constantly yelling, "Mr. Rawls does that hurt" they grunted gowned and tugged. As reflective of a significant finger bruise, the changing color of my finger must have motivated concern that they were about to dislocate the knuckle. However, due to the fine juice, I was feeling no pain and was unconcerned other than a fear of being jerked off the gurney. They took so much time that the classically impatient surgeon came out of the operating room to see if he had been abandoned. He offered a couple of jokes about the apparent lack of dexterity of an anesthesiologist and how many anesthesiologist are required to change a light bulb. Ultimately, I give kudos to the gas gang because while giving reasonable odds that I was going to need an orthopedic surgeon before a urologist, they won and celebrated like little leaguers when the ring came off.

As I personally expected, the actual surgical procedure was a snap because immediately after noticing the amazing indention in my finger in lieu of a ring, I was out. Maybe they jacked up the juice to make up for the traumatized finger. Four hours later when I awoke I was amazed to learn that the prostate was out and the catheter was in. I was feeling no pain but just the thought of that catheter put me ill at ease. As you might expect, the rest of Tuesday was a blur other than the nurses predictably waking me up to make sure I was comfortable. No doubt I slept better than Pat who apparently wrestled all evening with a reclining chair.

Afterthis drug assisted evening, the surgeon bopped in the next morning about 10 AM, and of course his first comment was "how's the finger?" He quickly transitioned into stating that the surgery went very well and telling me I was going to be just fine. A great surgeon I hope he is but a bed side communicator he is not. In a flash he pulled back the covers, removed a drain tube and said go home and take it easy. As though he had a pressing tee time, he was gone. An hour later, less than 24 hrs after going under the robotic knife I was riding Interstate 4 with the family back to Orlando. What should have been a simple two hour trip became progressively more stressful as we recognized that I had not receive any departing pain medication. Net result, I can remember every bump in the newly resurfaced I-4.

Upon arriving homethe first mission was to fill the vicodin prescription. The "bottom" and belly pain became up front and personal. A couple hours later, I was relieved of significant pain other than to say that nothing seemed to overcome the actual or perceived pain of the catheter. The excitement of trying to get out of a chair or go to the bathroom achieved previously unimaginable levels. As I settled into "house arrest" with the darkside handicap of the catheter my outlook was greatly brightened by your visits, cards, letters and get-well encouragement gifts. Again I was overwhelmed and stand as a witness to the comforting hand and healing power of the love of family and friends.

From a more bizarre perspective, the prescribed pain medicationI confirmed what many of you have recognized for a long time, I am weird. Yes, the vicodin relieved the pain but unfortunately it also revved me up like "speed." Although I was free of significant pain, I did not sleep for the next four nights. "Where was that stuff during college!!" In the wee hours of the evening, it was just me, my catheter, HBO and Pat saying "are you still awake?" A desperation prescription for an antidepressant and a sleep drug could not even overcome the bizarre stimulation of the vicodin. Pat described me as a "deer in the headlights" as I restlessly stumbled around the house carrying the catheter. I don't know who was more weary, me or Pat because as you know it is difficult for one to sleep and one to ramble in the same bed? After my doctor confirmed what you have known (being weird) for some time, I gave up all drugs in search of relaxation and sleep. Subsequently the sixth day after surgery (Monday) was exhaustion day which manifested itself as pain from every pore of my body. The impact of the surgery and the sleep deprivation just finally hammered me.

After a decent night's sleep, Tuesday was a noticeably better day. Tuesday was also brighter in anticipation of the Dr.'s visit on Wed for the removal of the catheter. But of course, after living with that thing for a week I was also in wonderment of what I should expect when it was removed. Wed and the removal of the catheter met every favorable expectation. Maybe I overreacted but irrespective of the norm or my surgeon's smart-mouth nurse who claimed catheters were great because you do not to have get up to go to the toilet, I did not do well with that bugger. As soon as that catheter was removed on Wed morning, there was light at the end of the tunnel, Florida's ambient temperature dropped ten degrees and my wine glass immediately became half full. No doubt the very good pathology report also lifted my spirits. There is no prescribed follow up treatment other than to monitor my PSA closely. I did not even mind hanging around for a few hours to prove that I could empty my bladder without that stupid catheter. Trust me, I would have had Pat jump on my belly before I have allowed them to put it back in.

Again the checkup by the surgeon was brief. On inquiry Dr. Mastandria did say that he did not play golf so I think he is just not the patronizing type. The only real information we got including the pathology report was responses to the questions we asked. Unfortunately, we are currently finding out that we did not know all the questions. Surgeons may be artists but they are not notably good communicators.

I timidly walked with Pat and the family in a mall for a few hours before the afternoon appointment. This was incident free other than an encounter with another gentleman who had the same surgery on the same day and was also killing time before returning to have the bladder check. This gentleman after hearing my storybragged that he had encountered no pain, slept like a baby and apparently loved the catheter. I was impressed that he was dancing around while I was walking gingerly but privately I wanted to coke him. Pat was similarly effected and we consoled ourselves by resolving that this was not a competition. Then we agreed we would beat him back to the doctor for bladder clearance so we would not have to listen to any more of his gloating. Actually, I am now happy for the dude but at the time, our patience had just hit a low.

By 2:30 that (Wed) afternoon, we were the first (we won something) to be released by chatty Mastandria and were on I-4 heading back to Orlando. This was a much better ride! The road was now smooth as glass, the grass looked greener, the traffic was lighter, life was better.Words do not describe how good it was to go to bed without the catheter that evening. Thursday I was feeling better and here we are Friday and I am no longer wearing Depends and progressively feeling better. I am not ready for belly laughs or sit-ups but I also no longer look like an eighty year old hunch back. I pop a couple a Motrin whenever I begin to ache, take a power nap and continue to do as Pat tells me. Since I too admit that I am crazy, I am relying upon her good judgment to keep me from hurting myself. Other than having my cruise control stuck at 55, I am pleased to say that my biggest issue is leg cramps. It looks like I'll continue to lay low until mid next week and then hopefully (if Pat agrees) begin spending a few hours a day in the office. I anticipate returning to a reasonably normal schedule after Labor Day. But not to worry, if you need to chat, give me a call. I would love to speak even at home unless I am taking one of those siestas that seem to jump on me several times per day.

So again, thanks for your support and concern. It continues to be a challenge to comprehend the support group that is there for me to call upon. In the last few days I learned that a lady whom our family has known very closely was diagnosed with breast cancer in January of this year. Inquiring with other mutual friends, no one seems to know about the diagnosis, the prognosis or the treatment. Apparently she did not want to burden anyone with her problems or possibly she only wanted the confirmed faithful to be praying for her. I pity this lady as she does not understand that she deprived me and my family the opportunity to life our faith own her behalf. I believe we are all better off with the well wishes, cerebral prayer and deep spiritual prayer from anyone who will offer. I am regaining my game and I am confidently expecting a total healing based upon the support you have been giving me.

Major teary-eyed thanks to Pat and the kids who literally moved in with me and refused to allow me to get depressed. They are continuing to be my heart and soul. Pat is an example that true love knows no limits. I believe that as a result of this experience, I believe I am a healthier man and a better husband, father, friend, counselor and child of God. I now know not to postpone the important things in life because we may not get another opportunity. I humbly understand there are those that are reading our daily walks and we are making impressions, positive and negative,with everything we do as opposed to very little of what we say. Always priding myself as a giver, you have helped me also become a receiver of love and I now better understand that the best givers are those that also have had the experience of receiving. I would appreciate the opportunity to give by ministering to anyone you encounter who is going to deal with the same challenge. Unfortunately the numbers are growing. Succession planning is about giving clients the comfort of knowing they have a facilitator that has been where they are going. I believe addressing prostate cancer can be impacted with the same form of ministry. I would be honored to share my experience with anyone you refer.

Cherish each moment. Appreciate your family. Keep the Faith as this is your greatest power. And by all means, live til you die.

I'll keep you updated.

Much has occurred since I shared my challenging news

2006-08-03T23:26:00.000-04:00

Much has occurred since I shared with you the Challenging News that I received in June. I have learned a great deal about the disease of prostate cancer. In fact I went from being on a mission to learn what I was dealing with to being overwhelmed in less than a week. Fortunately there are many, many who have preceded me down this challenging path, most with very encouraging forecasts of what I will encounter. All had tremendous zeal to help me deal with the confusion of treatment options and the depression of knowing my life has come to a crossroads and there could be more bad news. Fortunately there are also many gifted treatment providers: hospitals, clinics, surgeons, radiologists and oncologists. All these providers appear capable although some are more user friendly than others. However, adding to the confusion, all treatments appear to have approximately the same success rate. But of course, all providers have something unique to sell. Most of the marketing appears to focus on the potential of avoiding the collateral damage or handicaps associated with the various courses of treatment. When you get caught up in all of this you realize that you/me are just little cogs in a big business machine. From a purely mercantile perspective, I figure my disease is going to mean $30,000 to $50,000 of revenue to some combination of providers. To that end, I assure you there is no shortage of marketing zeal to capture that revenue. And the insurance companies are appropriately skilled at making one jump through hoops to prevent being ripped off by the system. As long as you have insurance, you are somebody. In the absence of insurance, you are nobody. This whole environment has been very confusing.

Another part of the update is that I have been overwhelmed. Part of being overwhelmed has been the mouth dropping shock regarding those who are pro actively and enthusiastically concerned for my welfare. You all know that I am an "open kimono", transparent kind of guy so I felt obligated to let those with whom I have close contact know what was going on because some form of treatment was in my future. As I was drafting the "Challenging News" email I was giving thought to who I should send it to. I even said to myself, "I don't have many close friends and contacts so this won't take long." I concluded that my only criteria for advising someone of my Challenging News was if I would want to know and be involved if this person was encountering the same circumstances. I knew I had under estimated my situation when it took me three hours to select and/or accumulate all the email addresses. Due to the number of names, I had to break up the "send" into four waves. Then the nature of the responses from those I sent the email to and the "forwarded" responses from those I did not send it to just emotionally overwhelmed me. I must admit that I was unprepared for the outpouring of love and support I received. I was also not prepared for the embarrassment of realizing I had not sent the email to many, many who felt that I under estimated their concern, love and support.

I have learned that I am a much better giver than receiver. I receive a great deal of joy in giving and their are others who feel the same. If I deprive others of giving by not receiving the love and support they offer, it is comparable to telling them they are not valued or appreciated. I have also learned that I have touched many lives in ways that I had no idea about. As I was sharing with a caller the other evening, I am just speechless. God has not given may words to express how overwhelmed I am by your love and support. Based upon the prognosis of my doctors I anticipate long life after treatment, but if God chooses to take me home I will arrive in his presence still amazed at the comforting power of the Body of Christ. Although I would rather be serving your needs, I accept and truly appreciate your concern for my welfare and support for my recovery. And to those of you that I have emailed but I have not had the chance to personally speak, I am looking forward to that opportunity.

And no doubt, this has also been depressing. The emotional ups and downs are very fatiguing. This fatigue combined with concern regarding the impact of my mortality on family, partners and clients is depressing. The as you are being poked, tested and analyzed, it is easy to conclude that every ache and pain is the progression of cancer. Every doctors office feels like a branch of the government. Most of the time an automated receptionist tells you to leave a message and someone will call you back. Then no one you talk to can give you a straight answer.

Although I have been overwhelmed, confused and depressed, I am better. Pat, Amy, Kendall, Champ and I have decided that we are going to address this with surgery. Following the best advice I received, "treat the cancer not the side effects", I think this is the most appropriate route for me. I will have the prostate removed on August 15th in Tampa. I have identified the best "ace" I could find who specializes in this surgery. As of August 15th he will have done over 225 using the Da Vinci robotics. I will be in the hospital over night, out of action about a week and on injured reserve for another two or three weeks. We are going to treat the cancer first and pray for the best results regarding side effects, biopsies, etc. With a full understanding of what we are dealing with, additional treatments will be undertaken if deemed appropriate after the surgeon gives the scouting report on neighboring organs and limp nodes.

I wouldn't be honest if I didn't say I am a little scared about going under the ether and having someone fool around with my plumbing. However, I am relieved that we have made a decision and I have the peace of Christ that this is the right course of action with the right surgeon. Please pray for my surgeon Dr. Frank Mastandria. Devine guidance for the ace would be much appreciated. And, also pray for my family because I believe this is tougher on them than me. I'll be under the ether and in the hands of God while they are watching the clock. Also please pray for my patience and discernment. I have spent much time in the oncology ward with my Mom encouraging her and those sitting around us. I would like to continue to do that but it is easy for me to get so self absorbed that I don't recognize those around me need an encoring word. Thank you beyond words.

I received some bad news yesterday

2006-08-03T23:24:00.000-04:00

I received some bad news today. I tested positive for prostate cancer. Like most hard chargers, never thought this would happen to me. However, a genuine understanding of my mortality has set in. Having only received a phone call from a nurse, I do not know much more than that. Of course, there will be more details to follow as I go through the process of evaluation and treatment. This test came about as a result of a routine check up. I have had normal PSA tests for the past ten years. At my annual exam the PSA was elevated but still within normal limits. A subsequent test prior to the biopsy was normal. However, the biopsy reflected a positive indication for cancer. You mean a great deal to me so I felt you should know just as I would want to be part of your support structure in a time of crisis.

I don't know what this means yet but what I have heard from those who have preceded me down this path it is no tea party, but a path with God's grace that I can endure. As you might guess, my mind has been going to a thousand places, many of which do not make sense. I would presume that based upon the above history, we have caught this disease early but again, more details will follow as my physicians continue to poke me and make suggestions for treatment. I do know that I am prepared to see God's face but by no means am I ready to cash in my chips. I have the same fight as my mother who has had cancer twice and is 85 years of age. I genuinely have more concern for her than me. I believe God has a purpose for this little guy's continued life and love but I would also be accepting if He had a greater purpose in me preceding you to His side.

Each of us have had parents or love ones who have traveled this path so we know some of the routine I will be following. I could not count the hours I have spent in the oncology wards with my Mom and I have always wondered how I would act if it was me. So, here we go and I of course want your prayers and support. I know that attitude is a major component of health and I am optimistic that learning of this bad news in time to achieve a cure is exactly why we go through those annoying annual check ups.

Pat, Amy, Kendall and Champ; our extended family in TRG; and our friends hope and pray that you will not pity me/us, will not spend emotional energy feeling sorry for us but join us in positive prayer that Jehovah Rhoffe (the God that healeth me) will deliver me/us from this infirmity. We thank you in advance for your prayer and support.

I will continue to work a normal schedule and pursue my customary interests until the doctors or God does something to take me off of my game. However, realistically, as circumstances evolved, I may from time to time not be accessible so I will also ask for your patience in advance. Again thank you for your friendship and support. <><

Skip Generation Cross Purchase Agreement

2006-08-03T23:21:00.000-04:00

A new client consisting of two 50/50 partners expressed a desire to develop a buy-sell agreement around life insurance policies that they had been sold prior to my engagement. This was an extraordinary business reflected by the unique synergy created by the 50/50 partnership. Each partner had brought unique skills sets to their business that had been affirmed by success beyond anyone’s imagination. The values involved were tens of millions. The planning initiative also involved the updating of estate document and the initiation of strategic gifting.

Prior to fade-out, the insurance salesman had mentioned to our clients a traditional trusteed cross purchase arrangement and even left behind a proto-type document presumably provided by the life insurance company. I agreed with the general assumption of a cross purchase because of the structure of the businesses and the benefits of a step up in tax basis for the survivor. As I thought about what we were embarking upon, I asked myself, why should we allow wealth from buy-sell life insurance proceeds to be created in the estate of the surviving partner? When I subsequently presented this question to our two clients, their response was predictably, “Uncle Sam is not paying any of the life insurance premiums so we would be very pleased to cut him out of as much of this transaction as possible.”

With this tax avoidance endorsement, my partner Dave Ciambella, CFP and I designed a buy-sell agreement that among other “ad nauseam” details gave each partner the first option to purchase as much of the deceased partner’s interest as he desired. Conceptually, we all agreed that this purchase should be just enough to give the survivor voting control of the impressive operation consisting of ten independent operating businesses. After this “control option”, the agreement stipulated that a newly formed irrevocable trust would purchase the remaining minority portion of the deceased partner’s interest. However, unique to this design, this would be an intentionally defective, skip generation, irrevocable trust for the benefit of each partner’s children and grand children.

We subsequently suggested that we address strategic gifting by transferring to separate family accounts within this trust, interest in real estate LLCs also owned 50/50 by each partner. Since this transaction would make the newly formed trust and our client’s technical partners in the real estate LLC, we contended that we could transfer the personally owned life insurance to the irrevocable trust under the “partner” transfer for value exclusion.

After many days and hours of discussion, problems solving and negotiations, the deal was sealed. The above is a highly simplified description of a very demanding process that addressed what seemed to be endless contingencies relating to business valuation, payout terms, equalizing of insurance premiums, disability terms, retirement terms, qualified successor, divorce, bankruptcy, etc. Hearty shout-outs go to Bill Lowman, Esq. and Jennifer Junker, Esq. of the Shuffield Lowman Law Firm as well as mergers and acquisitions ace Micheal Goodbread, Esq. for their encouragement, brilliant drafting and technical support.

The net result is that we have provided our clients peace of mind that:

This extraordinary business has a viable succession strategy in the event of a partner’s death, disability, retirement or irreconcilable differences.

The surviving partner has confidence that he will have unencumbered control of the business if his partner voluntarily or involuntarily withdraws.

Both partners will be treated fairly in the event that they withdraw.

Strategic gifting will begin that will help control estate tax growth.

A structure is available to which the partners in the future can make additional strategic gifts and sales.

The deceased partner’s estate will be liquid through the application of life insurance.

The multi million dollars of life insurance that will relieve liquidity concerns for the deceased partner’s estate will project skip generation wealth to the survivor’s children and grand children and in so doing avoid millions of dollars of tax in the survivor’s estate.

The multi million dollar policy on the life of the survivor will remain out of his estate and provide estate tax liquidity for his heirs.

Hearty congratulations to all involved including other members of The Rawls Group such as Dan Thill who supported our creative process. Hopefully other business owners or advisors Seeking Successionsm can follow this or similar pathways. A 50/50 partnership is not a prerequisite. The only prerequisite I see is a cross purchase structure versus a stock redemption.

No No To Down Load

2006-07-26T09:12:00.000-04:00

No, No To Down Load

In route home from an endeavor to bring a family back from critical mass, I have confirmed again that families who choose to take advantage of family synergy in business must give up some freedoms to download emotions to intimate inactive family members. More succinctly, families who work together all day put the greater family harmony at great risk if they go home at night and emotionally download to spouses and children the acrid details of their daily experiences. Therapeutic, unrestricted dialogue about the emotion laden interactions with family members, partners and key managers should give way to an understanding that spouses and children who are not exposed to the intensity of day to day business interactions are not equipped to handle the uncensored blow by blow daily description of what takes place in a family business. Spouses and children are aggressively protective and they will connect the dots of “emotional downloading” as dastardly attacks on their love one. There natural response is to defend and viciously attack those who do not respect or who allegedly is taking advantage of their love one. Those who are not used to the realities of on job emotions will jump to incorrect conclusions and build up powerful resentment towards in-laws, cousins, key managers, partners etc that can severely damage the outer family harmony that is critical to achieving inner business teamwork. Uncontrolled downloading can create emotional flash fires that can be blown totally out of control over issues that otherwise would have blown over in a day or so in the normal course of business.

To the point: family members should think twice about immediately crying on the shoulder of intimate, uninvolved family members about highly emotional experiences that are common place in the family business. Keep in mind that totally supportive spouses and family members can go from zero to hate in less than five seconds. Hate is extremely difficult to remove. Try to suck up the highly emotional frustrations of the office until you can find some virtue in the both sides of the argument or issue. Try expressing yourself to someone other than a totally supportive family member first. Subsequently when you do share your experiences you will have more control your feelings and you will not incorrectly promote lasting animosity within you spouse and children toward your, parent, brother, sister or partner. Then, when your brother or parent invites you and your spouse over for dinner or on a family vacation, your spouse will not raise hell about why you continually patronize family members who are out to take advantage of you. Trust me, this self control will later make your greater family life simpler and support outer family business harmony which in the long term is just as important as inter family business harmony.

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Start small but start

2006-07-16T12:19:00.000-04:00

“Start small, but start”
Succession planning can be an overwhelming thought. There is so much to be done. “I don’t even know what I don’t know.” There are so many potential issues. There are so many opinions. There are so many places where things can go wrong.

Correctomundo on all points. However, confirmation of your challenge is no reason to resort to ruminating, having no hope, disengaging from pro active behavior and just waiting for a wheel to fall off.

There is hope. The most important pro active behavior you can initiate is to start. If you do not start, you will truly never have a chance of fulfilling your dream of perpetuation your family’s business legacy. Although mistakes of the past with business structure, products, finances, children or key managers may be right in your grill, the problems are converted to issues once you make a commitment to address them. Problems are issues that you are unwilling (not unable) to address. Given enough time, where there is a will, there is a way.

And the start does not have to be world shaking. A small start is not only compatible, it is preferred. Why? Because you do not have to worry about being the brainiack. Small starts allow you to set a commitment, set a direction and give yourself plenty of room to negotiate the family, finance, feeling and Federal tax law mine field.

What’s the best first step? Commit. Decide that you are going to do everything within your reasonable capability to perpetuate the business through the next generation of family members of key managers. You hope it will be family but in the absence of a capable, committed, cooperative and available family member, a key manager will do just fine.

How do you commit, communicate. Tell the four to six most important people in your life that you are making a commitment to succession. That group should include your spouse, your children, any partners and any very special or special key managers and your attorney or accountant. When you tell them that you have made a personal commitment to the succession of your business through the next generation, ask them to hold you accountable. This start, this small start will start moving the wheels of the succession train.

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