Led by David Belden, founder of ExecuVision International, a facilitation and executive development company, the Family Business Peer Group is designed to generate confidential dialogue around issues specific to family-owned businesses, as well as issues common to all businesses.  Group members will have access to subject matter experts, exclusive networking events and the opportunity to learn from like-minded family business owners.

“Family businesses face many unique challenges and this peer group, led by David Belden, will be a great forum for meaningful, confidential discussion and an invaluable resource helping local family businesses grow and thrive,” said Debra Andrews, Executive Director of The Alliance.

The Alliance was founded in 2008 by Bond Beebe, a certified public accounting firm, to help family businesses located in Maryland, the District of Columbia and Northern Virginia find the information and assistance they need to succeed.  Its objective is to provide a structured forum for the exchange of ideas and best practices.  The Alliance (www.dcfamilybusiness.com) helps area family businesses achieve their business goals while maintaining healthy and harmonious family relationships.

Often some of the most crucial employees in a family business are not members of the family (or families) who own the business.  Non-family managers can provide much-needed expertise not available within a particular family unit.  They can serve as a bridge between generations and among family members – as confidant to one, advisor to another, mentor to a third.

Non-family executives may do everything and more than the best of family members, but often, they cannot own stock.  How does a business retain and reward such crucial members of a leadership team?

Several strategies exist, but the most important test of any special planning efforts for non-family leaders is efficacy.  Before setting up a plan for a key executive, see if it is effective and appropriate both for that person and for your company.  The goal is to incentivize and reward that person, so engage him/her in the process to make certain the commitments made by the company are valued by the executive.

Once everyone is engaged in the process, here are several incentive techniques to discuss and consider with the non-family executive:

Phantom Stock Plans. These plans tie rewards to stock value growth, but not with actual stock ownership.  It is worth noting that what goes into the formula needs to be transparent – corporate funding for a fleet of luxury vehicles for family members may well pull down value and thus impact the growth measuring tool of such a plan, leading to resentment, not performance.

Selective Benefit Programs. These programs allow owners to cherry-pick participants (in exchange, sometimes, for lost or delayed tax deductions) in items like extra life insurance, supplemental disability insurance reflecting their probable higher comp, long term care insurance for executive and spouse (short funded, so paid-up within 10 years or by age 65) corporate funded financial planning fees and special retirement benefits. A review of what is needed by individual executives is better than a ‘package’ for all involved.

Protection from Ownership Change. A contract tying employment to the company, not just ‘at will’ subject to whims of family members, goes a long way to providing assurance.  Obviously the company needs to feel comfortable making contractual commitments, but if so, such an agreement allows for a broader comfort for valued, long-term oriented executives who cannot be tied-in with stock ownership. It can provide the company with protections as well, in exchange for the benefits under the agreement.

Compensating non-family executives is art as much as a science.  If you would like more information from the Greater Washington DC Family Business Alliance, please contact dave.morris@franklinmorris.com.

At a recent Greater Washington DC Family Business Alliance event, facilitator and “Professional Outsider” David Belden shared a provocative thought with the audience:  You are the average of the 10 people with whom you spend the most time.  It really got me thinking about the people I spend time with and how they influence the way I see things.  I guess Mom was right:  The company we keep has an impact on our thinking, our reputation and our results.

In that vein, I’ve noticed a pattern among some family business leaders who want to be both inclusive and exclusive with the company they keep.  On the one hand, they pride themselves on family values and want everyone in the company to be treated like a member of the family. But succeeding as a family business requires more than love and respect or a culture of inclusion. A lot more. Sometimes it means making tough decisions. And sometimes those decisions are about people who shouldn’t be part of your company.  When it comes to the company we keep, we get what we tolerate.

On the other hand, I see a lot of family business leaders who want to go it alone, without much company on their journey. It’s natural, I think, to want to keep our business issues and concerns private. But it’s lonely at the top. And more than that, we just can’t see and understand all the things we need to without other eyes, ears and perspectives. We need people around us for support, advice and dissenting opinions. Napoleon Bonaparte is quoted as saying, “Those who failed to oppose me… who readily agreed with me and accepted all my views… were those who did me the most injury.”  Who in your circle feels free to disagree with you and challenge your thinking? We need those people to become better leaders and build stronger businesses.

The Alliance is forming a peer group for local family business executives from non-competing industries.  This group will be a resource for family business leaders, providing insightful ideas and solutions for the issues they commonly face.  Through this peer group the Alliance hopes to offer unique perspectives from other leaders with on-the-ground experience and help local family businesses positively shape strategy and key decisions.  For more information on the Alliance’s peer group, click here.

The bottom line for family business leaders:  If you want to keep your company, pay attention to the company you keep.

Bethesda, MD (April 6, 2012) – The Greater Washington DC Family Business Alliance (“the Alliance”) has tapped the chairman of the historic paper firm Crane & Co. (“Crane”), to speak at a special Alliance luncheon on May 2, 2012. As the primary objective of the Alliance is to help area family businesses to succeed, this is a rare occasion to hear from a family business that has grown over eight generations and across three centuries. As most family businesses don’t make it past a second generation, this type of longevity is almost unheard of. During his keynote address, Kittredge will share the family-owned company’s challenges and evolution over their 210-year history and his strategy for the next hundred, with a focus on family businesses.

The event is closed to the public. In addition to invited members of the media, Family Business Alliance members and staff will be joined by leaders of local family businesses.

DATE / TIME: Wednesday, May 2, 2012, 11:30 am to 1:30 pm
LOCATION: Chevy Chase Club | 6100 Connecticut Avenue | Chevy Chase, MD 20815
COST: $75.00
PARKING: On-site parking is available.
DIRECTIONS: These can be found on Chevy Chase Club Site site at Directions to the Chevy Chase Club

About the Greater Washington DC Family Business Alliance
The Greater Washington DC Family Business Alliance (“the Alliance”) was founded in 2008 by Bond Beebe, a Bethesda, MD certified public accounting firm, to help family businesses located in Maryland, the District of Columbia and Northern Virginia find information and assistance they need to succeed. Its objective is to provide a structured forum for the exchange of ideas and best practices. The Alliance helps area family businesses achieve their business goals while maintaining healthy and harmonious family relationships.

About Crane & Co.
Crane & Co. (“Crane”) is a fine paper and stationery maker located in Dalton, Massachusetts, with scores of retailers carrying their brand located all over the world. Crane has continuously used 100% cotton in their paper manufacturing, which has origins from before the American Revolution outside of Boston, MA. A family business from Stephen Crane’s start in Massachusetts’ first paper mill in the 1770s, the firm was officially started in 1801 and has survived changing technologies and tastes to continue through eight generations while continuing to maintain its reputation for quality, innovation and unmatched integrity.

Achieving the Rarest of Feats of a Family Business
The Greater Washington DC Family Business Alliance has presented the statistics time and again – the lion’s share of family businesses do not make it past the first or second generation.  According to the Editor of Family Business Review, Joseph Astrachan, PhD, approximately 30% of all family-owned businesses survive into the second generation, 12% will still be viable into the third generation, and only 3% of all family businesses operate at the fourth generation level and beyond.   Imagine making it to the third or fourth generation, a time when the founder would most certainly have passed.  But how often do we see a family business, or any business for that matter, make it over 210 years as an established company?  Crane & Co. is that most spectacular exception that has made it to the eighth generation, growing and adapting as needed to survive and thrive throughout the ages.

Making Paper Special in a Digital World
From the beginning, high quality 100% cotton Crane papers were made for currency, bonds, stock certificates and elegant stationery; sales became international.  It’s a safe bet that any American reading this blog post has held Crane & Co. paper in their hands, as they have won the contract to produce the paper for US currency since 1879.  Sometimes the key to survival is knowing what to change, and other times it is knowing what not to.  To this end, Crane & Co. has continued to make their paper from cotton, instead of the wood pulp that would become commonplace.  As for more people writing online (as on this blog), using emails and phone calls in place of letters, and a general lessening of formality, Crane & Co. has actually become even more special by producing attention-getting, impressive, beautiful paper for the most important moments in our lives.  A wedding invitation instead of an “e-vite,” a sincere handwritten thank you note instead of a text “thx,” a proposal tailored to a prospect and signed by the President on gorgeous stationery instead of a form letter faxed to everyone – Crane & Co. has truly done something astounding.  This family business has taken something special and brought it to the next level, for three centuries and counting.

For most large businesses, the personal financial needs of their shareholders, partners or members are of little concern.  Obviously, there is a market incentive to maximize the value of the company, thus enriching the owners, but the impact that the income or appreciation of the company has on the shareholders does not have to be a principal concern of management.  The exact opposite is true for the family business, where the finances of the company and its owners are almost inextricably bound.

For the small enterprise where ownership is concentrated in a tight circle of family members, the challenge of balancing the needs of the business and its owners is somewhat easier in that there are typically less barriers to communication between the owners and management.  In fact, they are oftentimes the same individuals.

For larger, more mature organizations or companies where ownership has become more dispersed to include non-active owners and professional management, it is probable that management has a very limited understanding of the financial needs of the owners or of their ability to satisfy these needs from sources outside of the company.  Owners are likely reluctant to share too much of their personal situation with “outsiders.”

Regardless of the size of the family business, there are going to be instances where the owners are likely going to look to the company to provide cash flow.  These instances may be directly related to ownership of the company, such as distributions to cover income taxes generated by pass-through income or to help provide liquidity in the event of an estate tax liability upon the death of the owner.  The cash needs of the owners may also be related to more personal matters such as costs of education or retirement, purchase of real estate or other investments.  No matter what the reason, these needs can become a strategic problem for the business and should be viewed as such in the long-term planning of the company.

As much as possible, the needs of the owners should be incorporated into the cash flow planning and strategic goals of the family business.  Of course in order to plan accordingly, the owners have to plan for themselves and share this information with management.  In larger organizations, professional managers or distant relatives are often reluctant to inquire about the personal finances of owners.  In a family business setting, it is crucial that they overcome this reluctance.  Wherever possible, professional managers and outside advisors should attempt to identify and incorporate the long-term plans of the owners into the strategic plan of the family business.  These professionals may also need to consider if they should take on an education role with the owners in order to facilitate proper consideration for the challenges to be faced.

Family business owners, managers and professional advisors must always be mindful of the unique nature of the enterprises they serve.  While this uniqueness can be made into strength, it also can create special and challenging problems that must be addressed if the business is to prosper and thrive for generations to come.  Communication, education and planning are key elements of success.

Sibling-partners’ relationships are among the most challenging in family businesses. Such siblings are often second-generation co-owners of an inherited business. This means

• They may not have had a free choice as to who their partner would be
• They may be 50/50 owners – a demanding arrangement under any circumstances
• Finally, they have a lifetime of emotions and experiences to deal with in their relationship in addition to the demands on all business partners.

The strains on brothers who are partners may be even greater than those on other configurations of sibling co-owners. Business founders are often competitive and dominant males. Sons may well emulate such founders’ traits. This can pit brothers, who will someday become partners, against one another throughout their lives in seeking approval and jockeying for position.

These issues go back a long way. One of the earliest stories of Western civilization is about brothers who ran into difficulties in the “family business.” Considering that case (tongue-in cheek) may be interesting.

Case Summary: Adam & Sons. Adam ______ was a pioneer in the emerging field of agriculture. He and his first wife, Eve, had two sons: Cain (the older) and Abel. Cain joined his father operating the core farming business. Abel was assigned the secondary, low-growth herding division. As a result, Abel did not work with his father and older brother on a daily basis. Abel’s contribution was also viewed as marginal compared to Cain’s burgeoning agri-business output.

In Adam’s absence, the brothers were each asked by the critical Backer of the family business to make a presentation on his branch of the enterprise. To the older brother’s amazement, Abel’s presentation was well received and Cain’s was not. Cain’s anger was evident. He asked Abel to meet with him in the farming division’s fields and there killed his younger brother. The Backer withdrew all support from Cain; he was ejected from the family firm and spent the rest of his life as “a restless wanderer on the earth.”

Lessons: What lessons can we learn from Adam & Sons? I’ll list a few here. But I hope that you’ll add to the insights as you respond to this post.

•Work together. Separation is frequently a strategy for dealing with tensions between brother-partners. Each brother takes responsibility for a distinct set of functions, products or services (e.g., farming vs. herding). This minimizes the amount of collaboration required and can be useful. But there are inevitably occasions when joint decisions have to be made or a common front has to be presented to outsiders. If each brother has been isolated in his silo (or sheepfold), long-avoided interpersonal issues can flair up just as important business demands have to be confronted.

A balanced mix of distinct and collaborative management roles will serve brother-partners best. A conscious effort should be made to partake in joint management on a regular basis In addition to any specialized roles. The benefits of this include a heightened sense of solidarity, enhanced skills in joint decision-making and a venue for interpersonal issues to arise and be addressed.

•Grant equal access. “Working together” should also apply to brothers’ interaction with their founder/father or mother. If one brother has far greater access to the “Adam” in the family, the seeds of presumption, jealousy and conflict are being sown. Practical day-to-day considerations may tend toward an unevenly shared parental relationship. But long-term issues of cohesion and collaboration demand purposeful attention to maintaining a balance.

•Communicate courageously. Someday, someone’s ego is going to get a shock. Someday, someone’s sense of fairness is going to be violated. Someday, childhood resentments are going to resurface. (After all, childhood isn’t really Paradise.) That’s when the brothers have a choice. They can talk about deep and difficult things. Or the blood can flow.

These lessons may be hard to apply, especially the last. Help may be needed from family business advisors and others. But successful brother partnerships create special demands. They also offer special rewards when the demands are met.

Conclusion: The primal brotherly business conflict had an extreme outcome. But other than that, it provides a paradigm for much that has followed. Tensions over public recognition, paternal favor, management roles and simple greed have crippled or destroyed many second-generation family businesses. Well-known names speak to the problems that so often arise between brother-partners: Ambani (Reliance [India] conglomerate), Dassler (Adidas and Puma), Koch (Koch Industries) and Gucci are among the most prominent.

Negative outcomes are not universal. Names such as Warner, Brooks, Lehman and Wright testify to the potential of brothers working well together. But what all of these sibling-partners – successful or not –have in common with Cain and Abel is intensity. Feelings and history go far deeper and mean much more for brothers in business than for other partners. This may yield exceptional trust, loyalty and compatibility – or it may mean sharp envy, grudges and misunderstanding. (The writers of Genesis apparently thought the latter more likely.) But, either way, brotherhood can’t be ignored.

That time of year has come and gone again.  The office parties, family get-togethers, and buying presents are over, and tax planning for the year has begun.  It just does not seem like there are enough hours in the day or days in the week to accomplish it all.  But, it is important to spend some time after this end-of-year madness to focus on areas that may have gotten away from us during the lion’s share of the year.  Especially for family-owned businesses, the need for tax planning includes both personal and company planning coupled with investment and estate planning, as well as some issues that you may not have even considered.  So say goodbye to the eggnog and let’s talk tax planning.

As a refresher, here are some items to add to the list when meeting with your advisor:

First, it is important to talk about the year the business just had.  Was there a profit; if so, how large?  Did anything happen during the year that would affect the value of the company?  How do the answers to these questions affect the need to review your estate plans for the current year?  There may be a need to assess the value of the company; what are the current laws and what strategic plans should be implemented to successfully avoid any estate planning pitfalls based upon the new company value?  You have worked too hard to build a successful company, so it is important that you maintain that value through solid, accurate estate planning.  Estate planning considerations are always a critical area of attention when meeting with your advisor.

Assess the family’s role in the business. Who is coming up in the ranks to take over the business?  Are the family members enjoying their current roles?  Who is following them?  Think about how you will educate the next generation.  Are they natural successors or will some need to be nurtured?  It is important for the younger family members to be exposed to all aspects of the business to learn how they all work together.  Are there some natural non-family business owner candidates?  Identify them early.  Succession planning is critical to the longevity of the business.  Identifying the future leaders will allow the business to continue in existence for many years to come.

Review the ownership structure. Are there owners within the company that want out?  Maybe they are interested in moving to a different part of the business.  Make sure you are maximizing everyone’s potential.  There is nothing worse than having the business get stuck in a holding pattern because owners are too afraid to act.

Assess the governance or advisory panel for the company. Know what the strategic goals of the company are and ask yourself; will this advisory board allow us to attain our goals?  Can it be stronger?  Will this governance board enable us to get to the next level?  If not, how do we change it?

Revisit the family value model.  Your company was based upon a premise of doing good work and being successful to allow you to pass some of the benefits on to others in the form of charitable giving.  Make sure that successive generations of your business know the importance of that value so that they, too, can continue the tradition.

Oh and, of course, leave a little time for tax planning as well.  Make sure you address the critical tax issues that may affect your company this year.  You may not be able to answer every question, but at least it will provide good food for thought.  So remember, the next tax planning meeting should not be all about taxes, but about many of the issues affecting your business and your family.

What would the producers of Jon & Kate Plus 8 have done if it was Kate who left, and the less-catchy new title would be Jon Plus 8?  Marketing loves rhyming and/or alliteration, so it was crucial the title still had some pop, even if Pop was no longer in the family.  And so it goes, divorce affects not only the family, but sometimes the family business, in ways one can’t even imagine.

The Reality of Divorce in a Family Business

Okay, you’ve got me.  A reality show isn’t the most “realistic” example of a family business, but the points can still be made.  And in this case, a divorce could have caused immediate dissolution of the family business, and all earnings from the show, speaking engagements and other perks (e.g., vacations, clothes and other goods from sponsors).   Fortunately for their bank account (and unfortunately for anyone with taste), divorce and associated scandals initially propelled additional interest in the show and the subsequent “new” offering of Kate Plus 8.  The family business grew in other directions, and its initial “customers” of other young families enjoying triumph overcome struggle in raising two sets of multiples would be replaced by a less stable customer base of those seeking pleasure out of the dissolution of the marriage and fallout the children may suffer.

Your Family Business Mission Statement: Changing with the Times, or Just Contradictory

Divorce statistics, well known to Americans at around 50%, make it pretty clear that just avoiding divorce is not likely a realistic strategy for protecting your family business from business turmoil.  Being legally prepared as people become part of the family (and family business), and business planning in general, can go a long way toward minimizing the damage.  But it is often not what is thrown at one in life, but how one handles it, that reveals what a person, or a business, is made of.  Aside from turning a profit (which should be the goal of every business), what did Jon & Kate Plus 8 initially set out to do?  Was it to help other young parents, show a growing family, focus on multiple births, or provide a warmhearted entertainment alternative?  Whatever its original intent, it became a three-ring circus featuring frat-boy dad, control-freak mom and 8 increasingly distressed little ones, provoking interest for all the wrong reasons.  How would your family business handle a difficult private situation such as divorce among two members of the family?