G L O B A L
Family Business:
Governance Shareholders' Assembly
Family Assembly
Shareholders' Council
Holding Board
Family Council
Investment Office
Foundation
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Contents overview Maintaining the Entrepreneurial Spirit Preparing the Next Generation 2
A good Governance framework provides a map to the future of Family Businesses Presentation Overview Governance of Family Businesses must include the concerns of the numerous and diverse third generation. Establishing a set of councils and boards is essential in addressing critical transition issues. With a Governance Model, Family Businesses can address acute short-term challenges and prepare the business for subsequent generations. Kickstarting the change process is sometimes the most difficult part of the sibling-to-cousin transition. Ideally, aunts and uncles call the cousins together and say, “What has worked so well for us and makes us proud of what we have achieved will not work for you. You must go out and find your own model.” When siblings are wise enough to give such a mandate, the cousin generation has a greater chance of enlisting support from the earlier generation and being successful. However, many sibling groups avoid or delay dealing with the issue, leaving it up to the cousins to organize themselves. In most cases, highly educated and qualified cousins leave the business once they find the barriers to establishing Governance Structures so high. This Insight provides a good understanding of the 7 Core Elements of the Governance Model. The 7 core elements are the Family Business’ guideposts to structuring an effective Governance Model.
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Shareholders’ Assembly
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Shareholders’ Council
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Family Council
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Family Assembly
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Holding Board
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Investment Office
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Foundation
Given the way that Family Businesses tend to become more complex over time, it is often up to the third-generation owners to redefine the role of the family and set the direction of the business. Setting up an effective Governance Model puts the Family Business on a new trajectory for success. This deck also includes slide templates for you to use in your own business presentations. Building a Governance Model is an emotional minefield but healthy Family Businesses can deal with that reality and build long-term value in the process.
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A Family Business is an engine for Change and Innovation, requiring a longer horizon of execution Family Business – How They Differ Family businesses are unshackled from the quarter-to-quarter pressures of non-family firms.
Family firms can invest for the long term. They allow good ideas the time needed to prove themselves.
74%
Stronger cultures and values Measure success differently– more than just profit and growth Decision making is faster/more streamlined More entrepreneurial
72% 71% 61%
Take a longer term approach to decision making Need to work harder to recruit/ retain top talent Take more risks Find it harder to access capital
55% 48% 40% 32%
A Family Business is a classic example of “patient capital” and an invaluable counterbalance to the short-termism of many non-family businesses. Source: The Missing Middle, PwC, 2016
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A comprehensive Governance Structure can help resolve the tensions that arise in the multigenerational Family Business Governance Model – 7 Core Elements Second-generation companies whose transition is on the horizon must give due consideration to a sound Governance Model.
There are 7 core elements that comprise the Governance Model for a Family Business.
Family Assembly Shareholders' Assembly
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Holding Board Shareholders' Council
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Investment Office Family Council
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The journey is never easy but having a sense of direction certainly helps. Source: Building a House That Lasts, McKinsey, 2014
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Foundation
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Putting the fundamentals in place makes the transition from generation to generation a systematic challenge. Good Governance, in effect, provides a map to the future.
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A pragmatic Governance Model must include the concerns of the numerous and diverse third generation Governance Model – Structure Establishing a set of councils and boards to address critical transition issues is essential.
This allows Family Businesses to address acute short-term challenges and prepare the business for subsequent generations. Family assembly
Shareholder’s assembly Shareholder’s council
Family council Education Policies Events and communication Family services
Holding board Corporate CEO/center Businessunit board
Businessunit board
Businessunit CEO
Businessunit CEO
Investment office Real estate Private equitytype investments Liquid financial investments
When family firms reach a certain size and complexity – of both family and business – the adoption of a Governance Structure becomes crucial. Source: Building a House That Lasts, McKinsey, 2014
Family foundation
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Kickstarting the change process is the most difficult part of the sibling-to-cousins transition Governance Model – Critical Process Steps Cases exist where highly educated and qualified cousins find the barriers to establishing Governance structures so high that they leave the business. There are 2 essential steps Family Businesses can take on to keep the Governance up and running.
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Develop a clear idea both of the status quo and of the desired destination.
Identify key gaps in the existing structure. Set goals. Decide and prioritize what to do first.
Undertaking the Governance Process require putting in place essential elements to make Family Business move forward. 1 2
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Build the Governance structure.
Develop a Governance blueprint with the second generation.
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Dividing work into separate projects. Assigning each capable member to each task or project. Establishment of a mandate, a deadline, and a well-defined way to communicate with the broader family. Creation of a steering committee to monitor overall effort. Conducting periodic evaluation of work in progress.
While a Governance process takes time, a more deliberate pace makes it possible to gain consensus and educate interested individuals along the way.
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Large family groups are governed by both a Shareholders’ Assembly and a Family Assembly Shareholders’ and Family Assemblies – Overview CORE ELEMENT
Shareholders’ Assembly
CORE ELEMENT
Family Assembly
FUNCTIONS
FUNCTIONS
Deal with classical legal functions.
Foster family unity amongst spouses and the next generation. Instill family values in the next generation and raise responsible shareholders. Align all generations within the family and makes them an integral part of the process.
FREQUENCY OF MEETING Once a year at a weekend event with both a social and a professional agenda
CORE DECISION AREAS Overall direction or vision of the company Ownership structure Large investments Sales of business Dividend policy
Shareholders’ and Family Assembly ensure cohesiveness within the organization diversified it may be.
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A Shareholders’ Council is the most important link to the company Shareholders’ Council – Overview CORE ELEMENT
Shareholders’ Council
FUNCTIONS Regulate the relationships among family shareholders and between shareholders and the business. Represents the larger group of shareholders and makes fundamental decisions on its behalf. Serves as the intermediary between the family and shareholders’ assemblies and the board. Promotes unity and takes on the hard work of exposing and overcoming divisiveness. Serves as a representative body of shareholders, relieving the pressure to have too many family members on the Holding Board. Concentrates on long-term matters of importance to shareholders, including culture, values, risk orientation, and overall strategy. Informs the Holding Board of its decision.
FREQUENCY OF MEETING Twice a year meeting is sufficient once the council is up and running.
CORE DECISION AREAS Dividends Exit and liquidity policies Stay private or whether and how much equity to float Signs off all major investments and divestitures Approves appointment of CEO and members of the board
The Shareholders’ Council, being the guardian of the company and the family shareholder group, sits at the center of the entire Governance system.
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The Holding Board is the link between management and the Shareholders’ Council Holding Board – Overview CORE ELEMENT
Holding Board
FUNCTIONS Responsible for the overall performance of the group and its CEO. Have an overview of the entire portfolio and the last word on major issues. Takes charge of allocating capital. Influences how decisions are made and represented.
FREQUENCY OF MEETING 4 to 8 times a year
CORE DECISION AREAS Mergers and Acquisitions Divestitures
Board composition should reflect the diversity of the group’s holdings, whether related to function, industry, or geography.
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It is the Family Council’s mission to transfer values and traditions across generations Family Council – Overview CORE ELEMENT
Family Council
FREQUENCY OF MEETING In the beginning: every other month Once it has stabilized: 1 to 4 times per year depending on size of family and activities
FUNCTIONS Serves as an important communications bridge between the business and individual family members. Devises policies regarding family members’ behavior vis-à-vis the business, such as employment, use of the family name, and conflict of interest. Encourages cohesion
CORE DECISION AREAS
The family council must not exceed 10 members to preserve effective decision making.
Conduct of regular seminars to educate young members. Organization of task force to formulate policy to facilitate entry of new family members. Conduct of regular family activities to promote bonding.
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The Investment Office manages the family’s assets other than the core business Investment Office – Overview CORE ELEMENT
Investment Office
FUNCTIONS
FREQUENCY OF MEETING
As necessary
Helps reduce tension. Provides a sense of security to those distant from the business that their interests are being considered. Allows families to separate value creation and wealth preservation.
CORE DECISION AREAS Estate planning Tax advice Financial reporting Concierge services
An Investment Office can either be in-house with a committee that oversees asset managers or outsourced to an independent entity.
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The Foundation is responsible for the family’s social and charitable investments Foundation – Overview CORE ELEMENT
Foundation
FUNCTIONS
FREQUENCY OF MEETING Once a month or depending on projects being undertaken
Nurture consensus from generation to generation on the direction of their philanthropic activities Create a discretionary spending budget to allow family members to finance projects that interest them. Provide opportunities to serve on the board or staff of the foundation Provide opportunities for family members to participate directly in
CORE DECISION AREAS Social and charitable investments
philanthropic projects through onsite visits and volunteering scheme. This is a powerful way to engage the next generation early on.
Foundations are essential in keeping families committed to the business.
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About Dawgen Global
Dawgen Global is an integrated multidisciplinary professional service firm in the Caribbean Region. We are integrated as one Regional firm and provide several professional services including: audit, accounting, tax, Information Technology, Risk, HR Solution, Performance, M&A, corporate finance and other advisory services. Our Caribbean regional network covers Jamaica. Trinidad and Tobago, Bahamas, Bermuda, the Cayman Islands, the Eastern Caribbean (Barbados, Antigua, St Lucia, Grenada, and St Kitts & Nevis), the Netherlands Antilles (Bonaire, Curacao, and St Maarten) and Aruba and the Turks and Caicos Islands. Our regional focus is to improve services to local, regional and international clients. Through our affiliation and membership in other Global Networks and Associations, we offer a global perspective while maintaining our regional insight by seeking alternatives for you – we tap the power of both. Our multidisciplinary teams of professionals leverage a wealth of industry-tailored, practical approaches to help you discover opportunities for your business. Whether your organization is strong and healthy, under stress or facing difficult choices, we work with you to find financial, strategic and operational solutions that improve your liquidity, financial flexibility and stakeholder returns. We’re here to help you build a sustainable business – in the short and long-term. Contact Information: Regional Head Office : Dawgen Towers, 47-49 Trinidad Terrace, Kingston 5 | Jamaica Telephone: (876) 929-2518| (876) 926-5210| (876) 630-2011| Fax: (876) 929-1300 Email: dawkins.brown@dawgen.com
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