ISB Family Business Conference Hyderabad, February 7 th 2009

1. ISB Family Business Conference Hyderabad, February 7th 2009 © Nigel Nicholson, London Business School

2. Classic Conflicts Some happy endings © Nigel Nicholson, London Business School

3. The Issues • What are the internal and external forces that bring business-owning families into conflict? • What are the leadership failings that lie at the root of many family wars? • What kinds of behaviours and choices do families enact that typically create or magnify conflict? • What can business-owning families do to anticipate, control and resolve various types of conflict? © Nigel Nicholson, London Business School

4. 1. Forces for conflict Environment Business Complexity & Challenge Human NatureKinship Conflicts The Unique Family The Vessel Concept Poor Structures & Decisions Conflict – Triggers & Flashpoints bad process/control Escalation & Warfare © Nigel Nicholson, London Business School

5. Human Nature Kinship Conflicts Siblings power & resources Parents & Children control & autonomy In-Laws rights & duties Marriage Partners values & interests Non-family trust & fairness © Nigel Nicholson, London Business School

6. Solid Waste & the Waxman Family Greed, Deception & Destruction • Misfit personalities • Understand the forces working within the family • Communications & problem solving are critical © Nigel Nicholson, London Business School

7. The Unique Family The Gene Lottery + = Maybe! You are not “just like” your mother, father, brother, sister….. Unless you are IDENTICAL (monozygotic) TWINS © Nigel Nicholson, London Business School

8. The Vessel Concept Family dynamics • The members • Personality types • Interests • Values • Abilities • The structure • Size & branches • Gender balance • Generations • Proximity + • The process • Communications • Problem-solving • Emotions • Authority & control x © Nigel Nicholson, London Business School

9. The Gucci Family A Tragic Italian Opera • A Culture Uncontrolled • Know your weaknesses and manage them, before they destroy you • Bad blood doesn’t have to be passed on • “Shirtsleeves to shirtsleeves in three generations” © Nigel Nicholson, London Business School

10. 2. Leadership Failings Three challenges for family business leaders • Adapting to changing situational demands • Building capability and culture • Creating emotional ownership in the next generation © Nigel Nicholson, London Business School

11. Why leaders derail Issues of alignment Situation fitting Leadership Situations Leadership Qualities ALIGNMENT Situation sensing Self –awareness and control Leadership Processes © Nigel Nicholson, London Business School

12. Two Paths to Failure And strategies for effective development • Mentors & role models • Projects & experiments • Self-analysis & reflection Insight Confidence Wisdom Adaptation & learning Innovation & impact Failure to read the situation and adapt to it Failure to find a purpose or to exercise one’s will © Nigel Nicholson, London Business School

13. Seagram and the Bronfmans The Runaway Leaders • Destroying fathers • Be aware of your parenting style & its consequences for the next generation • Watch the balance between letting go and control © Nigel Nicholson, London Business School

14. The Leader as Parent PARENTING STYLES How Attentive to Children’s Needs Low High High Authoritarian Authoritative Parental Authority over Children Neglectful Permissive Low © Nigel Nicholson, London Business School

15. Ford family Strategic Myopia • Patriarch derailed • Doing what comes naturally is not always a great idea • Effective entrepreneurs are not always effective leaders © Nigel Nicholson, London Business School

16. 3. Behaviours & Choices Common factors that escalate conflict • Errors of influence • Stories and theories • Games • Lack of basic governance • Conflict mismanagement © Nigel Nicholson, London Business School

17. Errors of influence Who listens to whom? .......and why? Aristotle’s formula..... ETHOS PATHOS LOGOS Result: Emotion before reason © Nigel Nicholson, London Business School

18. Dassler Family Racing for Supremacy • External influence • Liking and trust are not enough • External emotional pressures can pull a family apart © Nigel Nicholson, London Business School

19. False Stories & Theories DESTRUCTIVE NARRATIVES “We have been wronged” “There’s something wrong with X” “You are just like Y” “It’s a dog-eat-dog world” “I have the right to do this” © Nigel Nicholson, London Business School

20. Shoen FamilyShattered dynasty • Foolish old kings (Shakespeare’s King Lear) • The seductive power of your own story • Risks of addiction to family sentiment © Nigel Nicholson, London Business School

21. Dangerous Games SET-UPS & PITFALLS Succession games– “Guess who’s next” Competitions – “Go on, prove your better than your brother” Structural traps – “Get in the box – work together” Power Games – “See if you can take it off me” Ego Games – “Read my mind and follow my wishes” © Nigel Nicholson, London Business School

22. Reliance Story The Myth of Unity • Game of unintended consequences • Watch out for poisoned games • Competition in a family can easily escalate dangerously © Nigel Nicholson, London Business School

23. Pritzker Fighting for the Spoils • One man’s vision not the family’s: • Reliance on bad mechanisms (e.g. the law) • Need to engage the next generation © Nigel Nicholson, London Business School

24. Lack of basic governance Leaves you vulnerable to conflict triggers over...... • Succession • Business strategy • Rewards & opportunity • Ownership • Locus of decision-making • Roles & responsibilities • Financial management • Family involvement © Nigel Nicholson, London Business School

25. McCain When the chips are down • Jousting for position • Bad structures lead to bad decisions • Lack of governance, oversight & independent voices © Nigel Nicholson, London Business School

26. Conflict Mis-management Phoney harmony & buried divisions Ignoring the elephant in the room Treating money as the answer to all problems Failures to decentre – see others’ perspectives Reaching for the law Escalation fever & chasing sunk costs © Nigel Nicholson, London Business School

27. Mondavi family A Bitter Cup • Shattering the “family vessel” • Some combinations are explosive • Don’t force members into harness together © Nigel Nicholson, London Business School

28. 3. Anticipating, Controlling & Resolving Conflict Anticipating: A check-list of warning signs • Sudden behaviour change • Complaints about unfairness • Unusual & basic errors • Communication gaps • Too long to make decisions • Disagreements about process • Unclear goals & responsibilities • Disconnected people • Perceptions of privilege • Not letting go • Inequitable rewards • Lack of independent voices • Poor planning • No open dialogue • Executive churn • Bad gossip • Factions • Nepotism • Hangers-on • Reluctant leaders © Nigel Nicholson, London Business School

29. Excellent Family Firms Winners of the JP Morgan UK Honours Program– 2003-2008 Business Performance Family Governance Social Responsibility Overall Excellence 2003 2004 2005 + Caledonia Investment (public/private partnership ) 2006 2007-8 © Nigel Nicholson, London Business School

30. Controlling Conflict An ongoing strategy • Know yourself – control yourself! • Read your family dynamic – buffer the bad stuff or quit • Celebrate creative conflict – learn how to handle it • Build EO (Emotional Ownership) in the next generation • Keep adapting your structures for growth and change • Do regular health checks and risk assessments © Nigel Nicholson, London Business School

31. Resolving Everyday Conflicts • Be ready to deal with your family patterns & pathologies • Watch out for the warning signs - investigate • Prepare for the common hazards of families in business • Don’t get cut off from the outside world – don’t be too protected, insular and private • Don’t believe your own stories • Set rules to make everyone a winner • Model healthy work/life balance • Forgive and forget • Remember your common interest • Nurture your culture © Nigel Nicholson, London Business School

32. © Nigel Nicholson, London Business School