Family Business: the Next Generation

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Family Business the Next Generation

• David Zaudtke
• Doug Ammerman

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• Warming-up questions
• Background Information
• Some Terms
• Text Analysis
• Key to Some Exercises
• After-class assignment

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WARMINGUP

• What is a family business?
• Do you have any idea about what is involved in
  owning a family business? (open)
• Can you describe what qualities and abilities a
  good family business owner should possess? (open)
• What is wealth transfer?
• Suppose you were the owner of a family business
  and you were getting old, how would you pass your
  business onto your children?

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ANSWER

• A family business is a company owned by a family
  and is handed down from one generation to
  another.

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ANSWER

• The hand-over of a family business from one
  generation to another is called wealth transfer.
• Further question what are the difficulties
  involved in wealth transfer?
• 
  

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BACKGROUND

• Family business first occurred in the 17th
  century.
• There are many family businesses in the world.
  Take USA for example, they hold more than 90 in
  American economy. Among the top 500 companies
  listed by Fortune, more than 1/3 are family
  businesses. Some renowned companies such as
  Motorola, Dupont, Panasonic, etc are controlled
  by family businesses.

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BACKGROUND

• Most companies of all types and sizes fail within
  20 years of their birth. Even among family
  companiesa much hardier breedless than 30
  survive into the second generation, barely 10
  make it to the third, and only about 4 to the
  fourth.
• Some successful examples in USA

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BACKGROUND

• 102 companies that have remained owned and
  operated by the same family at least since 1865,
  and in some cases back as far as the early 17th
  century. All have operated for at least five
  generations, some for eight or nine or, in one
  case, 14 generations.
• The oldest family business
• Zildjian Cymbal Co. (1623)
• More info http//www.familybusinessmagazine.com

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BACKGROUND

• According to statistics, the average survival
  time for family businesses is 24 years. Now many
  family businesses have survived the capital
  accumulation stage and enter a stable development
  stage. However, many enterprise founders have to
  retire because of age, which is a critical
  problem to the family businesses.
• The purpose of this article is to solve this
  problem.

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TERMS

• private enterprise
• state-owned enterprise state-enterprise
• chairman of the board manager
• a comprehensive succession plan
• the succession management
• the succession process
• the succession-management structure
• the final succession

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TEXTANALYSIS

• What can you read from the title?
• The passage is about the succession of family
  business.
• The next generation of the family business
• How to transfer the family business to the next
  generation

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TEXTANALSIS

• Structure/organization
• Para 1-3 (Introduction)
• Para 4-22 (Body)
• Plan Your Succession Management
• Define Family Employment Practices
• Establish and Maintain Family Harmony
• Plan Your Estate
• Para 23-25 (Conclusion)

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Para1to3

• Comprehension
• Language Points
• Paraphrase

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Para1to3

• Comprehension
• Why do the authors take up such a topic?
• 1. America is now in the process of massive
  wealth transfer, much of which is in the form of
  family-owned business. (P1,P2)
• 2. The viability of many of these transfers is
  questionable. (P2)
• 3. A comprehensive succession plan requires at
  least a 10-year horizon to be properly
  structured. (P3)

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Para1to3

• Why did the authors think that many of the
  transfers of family business are questionable?
• Because most of the transfers will fail. Only one
  out of three businesses is successfully
  transferred to the second generation, and almost
  no family business to the third generation.
• Why will most of the transfers fail?
• Because of the lack of a properly-structured
  comprehensive succession plan.

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Para1to3

• What is the main problem to the failure of many
  family businesses?
• Many of them have no proper planning. If they
  have plans, they can not start planning at proper
  time. They usually start too late.

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Para1to3

• What is the authors reason that it is necessary
  to start planning for wealth transfer as early
  as possible?
• The reason is that it usually takes at least 10
  years to form a properly-structured comprehensive
  succession plan including sophisticated estate
  management strategies.So the earlier, the better.

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Para1to3

• 1. in the midst of (line 1, para 1)in the middle
  of ?(??)?
• 2. viability (line 2, para 2)
• workability ????
• e.g. The executive directors are currently
  investigating the viability of the proposal
  youve put forth.
• viable ?????
• e.g. We are in favor of the program, but we want
  strong assurance that it is viable.
• 3. Some of the household names some of the
  well-known businesses

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Para1to3

• The viability of many of these transfers is
  questionable.
• It is doubtful whether many of these transfers
  can be successfully realized.
• Survival of a family business into the third
  generation is a rare occurrence.
• It is not common that a family business can
  survive long enough to be transferred to the
  third generation.

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Para1to3

• The sad part is that many of them could survive
  with proper planning.
• It is sad that many businesses that will fail
  could succeed if their owners had planned the
  succession of their family businesses properly
  and comprehensively.

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Para1to3

• Indeed, a comprehensive succession plan, which
  includes sophisticated estate planning
  strategies, generally requires at least a 10-year
  horizon to be properly structured.
• Actually business owners need to form an
  overall 10-year future plan for succession, which
  includes complex and careful planning strategies.

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Para4

• Comprehension
• Paraphrase

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Para4

• Paragraph 4 What suggestions do the authors give
  for a successful transfer of a family business?
• Four essential elements
• 1. Plan a succession management
• 2. define family employment practices
• 3. Establish and maintain family harmony
• 4. Plan the estate
• This is a transitional paragraph.

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Para4

• Paraphrase
• But regardless of how diverse they are, four key
  elements must be in place before a business can
  be successfully passed from one generation to
  another.
• But no matter how different they are, four key
  elements must be established before a business
  can be successfully passed from one generation to
  another.

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Para5to9

• Plan your succession management (para.5-9)
• Comprehension
• Whats the logical relationship between these 5
  paragraphs?
• Organizational charts?example?action plan and
  timetable?employees in key position?the matter of
  timing

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Para5to9

• Why should there be more than one person to
  replace a family business owner/founder?
• Because family business owners/founders are
  usually highly motivated, energetic, and usually
  good at more than one skill in managing a
  business (production experts, marketing geniuses,
  skilled financiers)

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Para5to9

• What does the authors suggest family business
  owners to do in order to make the business
  function well?.
• Organizational charts
• In what way can organizational chart help a
  family business owner?
• Organizational charts indicate the
  differences in management structure and draw
  attention to(highlight) misunderstandings and
  differences in judgment, thus helping the owners
  to plan and form the best management team
  possible.

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Para5to9

• What is the authors purpose of citing Judys
  case? (para. 6)
• To introduce a kind of succession management
  structure that family business owners can
  consider giving ownership to their children while
  having strong management teams run the business.

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Para5to9

• Why is it suggested that family business owners
  retain loyal employees? (para 8)
• Loyal employees usually hold key positions in
  management and play an important part in the
  development of the business.

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Para5to9

• Why did the author use the word seasoned
  instead of experienced? (Para 9)
• To stress the point that only when the children
  have undergone proper training in business
  management for a long time and know the problems
  involved and they become experienced enough , can
  they take over the management of the family
  business.

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Para5to9

• Please summarize what a family business manager
  should do in planning his / her succession
  management. (para 5-9)
• create organizational charts
• develop an action plan
• retain loyal employees
• form a transitional management team if the
  would-be successor is not ready to take over when
  the present manager retires

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Para5to9

• Paraphrase
• In order to allow for an orderly transition of
  responsibilities (para 7)
• in order to take into consideration the
  transfer of responsibilities/succession to
  proceed systematically and smoothly

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Para5to9

• Key managers must have a clear picture of where
  they stand and what their responsibilities will
  be in a succession-management structure. (para 8)
• The key administrative personnel must know
  exactly what positions they have and what duties
  they will perform.

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Para5to9

• Language Points
• 1. Provide interim management (line 3-4, para 9)
• Manage the business temporarily
• 2. Season (line 5, para 9) experience
• 3. highlight (para.5) to emphasize, to attract
  attention
• 4. in place (paras 4 6) in a usual or correct
  position
• out of place in the wrong place or looks
  wrong
• 5. allow for (para.7) to take sth. into
  consideration plan for

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Para10to15

• Define Family Employment Practices (Para 10-15)
• Comprehension
• Paraphrase

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Para10to15

• What do the authors suggest doing in defining
  family employment practice?
• To establish a clear employment policy and stick
  to it
• To select company executives on the needs of the
  business rather than the needs of the children

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Para10to15

• What does the example in para.11 imply?
• Everything should be made on the needs of the
  business rather than on the needs of the
  children.
• What kind of example is it?
• It is a negative example.It tells us if things
  are not made on the needs of the business, it
  will have a lot of troubles.

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Para10to15

• Whats the purpose of para.12?
• According to the needs of the business, the
  authors suggest one way to deal with their legacy
  and control of a company if the children are not
  suited to take over the business.
• What s the main idea of para.13?
• If a child is determined to carry on the
  business, ensure that he or she will receive the
  right education and business experience.

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Para10to15

• How to ensure he or she receive the right
  education and business experience?
• 1. Outside job experience
• 2. Working his or her way up from the bottom at
  the family business

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Para10to15

• Parents can pass on their legacy to their
  children without necessarily giving them control
  of a company. (para 12)
• Parents can leave their property to their
  children but not the management of the company.

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Para10to15

• Proving themselves outside the family business
  also gives children greater credibility with
  employees when they do eventually take control of
  the family business. (para 14)
• If the children show that they are
• capable outside the family business, they will
  surely gain greater confidence of the employees.

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Para16to18

• Establish and Maintain Family Harmony
  (para 16-18)
• Comprehension
• Paraphrase
• Language Points

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Para16to18

• Topic of each paragraph
• (16) consider seating an outside board of
  directors
• (17) develop a family vision document and use
  family council meeting
• (18) communicate often between companies and
  families

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Para16to18

• How to establish and maintain family harmony?
• Three suggestions
• seating an outside board of directors
• developing a family business vision document and
  holding family council meetings
• communicating often between companies and
  families

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Para16to18

• Rivalries and jealousies can be extremely
  time-consuming, not to mention destructive. (para
  16)
• Rivalries and jealousies can waste a great
  deal of time moreover, they can cause bad
  feelings.
• ---the reason for why the business should
  establish and maintain family harmony

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Para16to18

• A family vision document (para 17)
• A formal written statement which provides
  visions, embodying purposes, values, goals and
  operation procedures for the family business

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Para16to18

• not to mention (para.16) as well as (emphasizing
  sth.)
• He is one of the most intelligent, not to mention
  handsome people I know.
• We were served French champagne, not to mention
  the usual cocktails.
• 7. seatsb.(para.16) give sb. a place to sit
  give sb. a position
• The new concert hall seats(has enough seats for)
  1500 people.

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Para19to22

• Plan your Estate (para 19-22)
• The topic of each paragraph
• 19. The importance of estate
• 20. Suggestion life insurance, the effective way
  to cover estate taxes
• 21. Example (negative) a grocery store
• 22. Finding ways to reduce or manage the transfer
  taxes as soon as possible

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Para19to22

• What is a family business manager suggested to do
  in planning his / her estate?
• Utilize planning techniques to
• minimize estate-tax costs
• e.g. buy life insurance.
• What do the authors think of life insurance in
  solving the problem of estate taxes?
• They think that life insurance may be effective
  in most cases, but it can also be an impractical
  solution.

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Para19to22

• What can we learn from the the case of grocery
  store?
• Poor estate planning can result in the
  destruction of family businesses. ( good estate
  planning can lead to the success of family
  business).

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Para23to25

• Conclusion of the passage
• For most family businesses, it is absolutely
  necessary to start dealing with all the problems
  in a comprehensive manner right away.

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Key

• Translation
• 1. He is an experienced banker and an
  acknowledged trade expert, not to mention an
  excellent managing director.
• 2. Regardless of danger, volunteers from an
  Italian organization for peace have gone to
  Baghdad, the capital of Iraq, to form a body
  shield for the purpose of preventing the U.S.
  from bombing the place.

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Key

• 3. Nobody in the family is more dedicated to
  operating the real estate business than Judy.
• 4. Because of the economic depression, real
  estate agents are in the dilemma of whether to
  lower prices or let sales fall off.
• 5. More often than not, Mr. Smith earns great
  profits by careful investment of his capital.
• 6. John did not make much of a mark in his
  studies at school, but he excelled at sports.

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Key

• 7. Orderly transition of responsibilities is a
  condition for the long-range prosperity of a
  family business.
• 8. You had better have have a clear picture of
  prospects before formulating a plan for
  investment.
• 9. Although sculpture is a time-consuming art,
  there are still some people following it as a
  profession.
• 10. The software company is in the midst of being
  transformed from an individual proprietorship to
  a joint venture.

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ASSIGNMENT

• Summarize the whole passage and write an article
  about wealth transfer of family businesses. State
  your own idea.

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The End