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Governance Across Generations

Governance Across Generations. Jennifer M Pendergast PhD April, 2010. Entrepreneur Generation. Family. Owners. Management. Characteristics of First Generation. Focused on survival Don’t have time for anything but the business

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Governance Across Generations

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  1. Governance Across Generations Jennifer M Pendergast PhD April, 2010

  2. Entrepreneur Generation Family Owners Management

  3. Characteristics of First Generation • Focused on survival • Don’t have time for anything but the business • Everyone pitches in to do what’s needed (Mom is bookkeeper, kids sweep up) • Family’s bank account is business bank account • No separation in roles – owner, manager

  4. As Systems Separate,Ownership Role Is Distinct Family Owners Management

  5. Factors leading to emergence of separate governance • Governance means decision making • When the founder is the CEO and the owner, management and ownership decisions are one in the same • When there are owners who are not managers and managers who are not owners, the decisions begin to separate • When this happens, it becomes important to: • Clarify who has authority for decisions • Create a place to make decisions • Create rules for making decisions • All of this may be very frustrating to the entrepreneurial founder

  6. Sibling Teams: The Most Volatile Transition • Common Challenges • Controlling behavior of entrepreneurial parents • Sibling rivalry • Age spread of siblings • Diversity within sibling group • Adopting parents “baby” • Resentment caused by absent parent(s) • “In-law” effect (the first outsiders) • Mother’s desire to preserve the family

  7. How Parents Control • Suppress conflict • Decide career paths • Protect from mistakes • Communicate one on one rather than to group • Limit information sharing

  8. Inherent Tendencies G1 to G2

  9. To Leadership team Planned growth Employees we don’t know Structured management meetings Budgeting Diversified products/customers Performance reviews From Benevolent dictator Chasing business Employees as family Meetings in the break room Back of envelope projections Few products/customers Pat on the back How the Business Must Change to Survive

  10. Making Sibling Teams Work • Articulate shared sense of purpose • Develop business plan • Create buy/sell agreement • Create sibling code of conduct • Develop culture of open disclosure • Develop participation agreement (ownership, employment, board) • Determine method for setting compensation • Communicate estate plans • Agree upon key non-family managers

  11. System Changes: Relationships Sibling Team Cousin Consortium

  12. From Siblings to Cousins • Emergence of non-employed owners • Increase in age span within generations • Decreased emotional attachment to business • Lower common understanding/trust • Grudges/inequalities from earlier generations transmitted through family tree • Disparity in understanding of business/history • May not have capacity to provide positions for all in management/governance • Separation of ownership and management roles • Move from gift/appreciation to expectation of financial return

  13. Evolution of Governance

  14. Family meetings Opportunity for family group to meet outside of business setting to: Make decisions as a family (we will discuss in role of owners segment) Educate family members Create bonds across family Family council Organized family group with defined responsibilities May be representative of the family or include all family members of a certain age Organizes and facilitates family meetings for broader family group Develops and maintains family protocol Organizing as a Family

  15. Family Protocol Document summarizing agreements for managing family aspect of business • Family mission, vision, values • Family decision making body/organizing structure • Family code of conduct • Buy/sell agreement • Family policies – compensation, employment, conflict of interest

  16. Keys to Successful Evolution • Plan ahead (understand what next gen will look like, put structure in place before you need it) • Clear roles and responsibilities for management and owners • Formalized management processes • Separate family and business decision making • Agreement on family role in business • Formalized agreements • Buy/Sell • Code of Conduct

  17. Planning Ahead Exercise • Project your family tree 10 years ahead • Births • Marriages • Highlight who you think will be in the business • Write down what decisions you need to make as a family to make the transition successfully • Participation • Decision-making • Roles and responsibilities • Compensation • Write down what changes you need to make in family and business governance to make the transition successfully • Family meetings • Management meetings • Board of advisors/directors

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