The Saga of the Usher Family Business

Posted on January 24, 2011 by Isabella McPeak

As a spark for discussion at our Northwest Family Business Advisors (NWFBA) meetings, one of the local accounting firms, Bader Martin, has done a great job by producing the Usher Family Business Saga in annual video installments.  Just like in the Edgar Alan Poe version of the Usher Family, this story has some gloomy parts.  This year’s installment definitely left the family in crisis mode and challenged our group of 50+ multi-disciplinary family business advisors to come up with first steps and potential solutions for the dilema at hand.  Unfortunately, some of the scenarios in this ficticious story are only too real for many of us working with family businesses on a daily basis.

Here is a short synopsis of the “Usher Family Business” drama to date. 

  • Jonathan Usher, who founded the electronic toy company several decades ago, dies suddenly in his mid 80s without any estate or succession planning
  • A few years earlier, Jonathan got remarried and 100% of the stock of the company went to his second wife, Mary, upon his death
  • His son Jonathan II is in his 60s with severe health issues and unable to run the company.  He depends on the business for income.
  • A strong belief has been instilled that the business should be passed from father to son over and over again.  Women are not considered as potential leaders for the business.
  • The 29-year-old grandson, Jonathan III, used to manage sales in the company and was put into the CEO position after Jonathan’s death.  The company has since run into financial difficulties due to lack of leadership and the loss of key personnel in R&D
  • Cousin Laura, who used to run R&D successfully for the Usher family and has a business degree, is now working for a competitor. 
  • The competitor has captured significant market share and offered to buy 51% of the stock of the Usher company from widow Mary
  • Widow Mary does not know anything about business or finance.  She is confused and undecisive.  She has no interest in running the company, but wants to honor her husband’s wishes that the business stay in the family. 
  • Widow Mary is in financial trouble, because she had to pay significant estate taxes and the company has only been able to pay minimal distributions since Jonathan passed away.
  • After two years, widow Mary has a new boyfriend who is a financial advisor

Here are some of the first steps and solutions that were offered by the advisor community in attendance:

  • Organize a facilitated family meeting /retreat with all family members in attendance to surface all the issues.  The accounting firm has the best trust position to bring in other family business, legal and financial advisors. 
  • Approach widow Mary to convince her of the urgent need for a family meeting
  • Approach widow Mary’s new boyfriend who has the most influence over her actions at this time to speed up decision making
  • Suggest hiring an outsider as CEO to run the company and encourage grandson Jonathan to return to his sales role where he was effective
  • Approach cousin Laura to come back to the company and take on the leadership role
  • Structure a deal where cousin Laura gets to buy out the majority interest in the family business and leave the competitor
  • Create a New Widow Family Business Roundtable at an educational institution similar to the family business roundtable currently available at SeattleU in order to support and educate widow Mary and many women like her who suddenly own a business they don’t know how to run.

Additional comments and suggestions are welcome.  How would you help the Usher Family?

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The Top 4 Frustrations for Younger Family Members in a Family Business

Posted on January 10, 2011 by Isabella McPeak

In many cases, a lack of transparency is an issue that frustrates younger family members in a family business. They are not integrated in the financial, operational or human resource strategies of the business. Frequently, decisions are made ad-hoc or in a vacuum by founders or older leaders in the business. The lack of communication and the lack of asking for their input can cause a lot of unnecessary tension and frustration. Whether it’s a decision to forgo dividends and pay off a credit line or execute creative tax strategies at yearend can be a real turnoff and demotivate younger family members. Part of the education and leadership training for succession planning needs to include regular discussions on financial, operational and human resource decisions in the business.

Old bankers, accountants and attorneys who have worked for the family and founders for 30 or 40 years often display an amazing lack of respect for younger family members in the business. Younger family members in their forties and fifties are often still viewed as “the little girl” or “little boy”. The old advisors consider the founders their clients and often ignore requests of information from the younger generation. Unless the old professional advisors are also engaged in their own succession planning efforts, the younger generation in a family business will make a significant effort to bring in their own advisors to get the information, support and knowledge they need to learn how to lead the business.

Quite frequently, founders surround themselves with a number employees they consider to be key employees. These select employees are “untouchable” because the founders believe that their business cannot run without these employees. In reality, the performance of many of these employees is marginal and they are highly resistant to change and are only loyal to the founder. It is extremely difficult for a younger family member to take over the family business when he or she is stuck with highly resistant employees that cannot be moved or replaced. Regardless of the organizational chart, these long-time employees tend to have more power and more influence with the founders and thereby create severe succession issues for younger family members.

In many cases, the timeline for transitioning leadership and/or ownership is much longer than anticipated. Most founders talk about a 5-year timeline, but nothing much happens in five years. Especially in smaller family business, these are verbal agreements that are easily ignored. Without a written plan and outside advisors to hold everyone accountable, succession timelines can mushroom and seemingly drag on forever. As the years go by and nothing much happens, the younger generation gets more and more frustrated with the status quo.

Please share your experiences with these issues and feel free to share.

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3 Leadership Lessons from Alan Mulally

Posted on December 1, 2010 by Isabella McPeak
Ford Family Business

Ford Motor Company

After 37 years at Boeing and being passed over for the CEO position twice, Alan Mulally decided to take a call from Bill Ford, at the time the head of the Ford Motor Company and the Ford Family Foundation.  That was four years ago when the Ford Family was trying to save Henry Ford’s legacy and his vision of “Opening the highways to all mankind”. 

As a family business, the Ford Family and its foundation are significant because they own 40% of the voting stock in the company.  At the time of the phone call, the stock had lost 80% of its value and the company was facing a $17 billion loss at the end of its fiscal year.  It took extreme courage for Bill Ford to make the call to bring in an outsider to run this family business.  It also took extreme courage and confidence for Alan Mulally to take the job under these dire circumstances. 

As it turns out, Alan Mulally was up to the challenge despite his lack of automotive industry knowledge.  He figured that airplanes have millions of parts and need to stay in the air – cars only have a few thousand parts and stay on the ground – so it couldn’t be that hard to manage an auto manufacturing company.  As he spoke about his journey at a recent Puget Sound Business Journal breakfast, his passion for Ford and the American manufacturing heritage became crystal clear.

Here is Alan Mulally’s proven formula for leadership:

1.  Have a compelling vision
As he arrived at Ford in 2006, Alan Mulally found that the company vision had become fuzzy and needed focus.  At the time, Ford had full or partial ownership in dozens of other brands including Jaguar, LandRover, Volvo and Mazda.  In order to truly focus, the company had to go back to basics and focus on one thing – and they decided that the one thing was the Ford brand.  It was decided to divest all other brands and completely focus on one brand, Ford, to make it the best in fuel economy, quality, safety, sustainability and overall smart design.  Every employee at every division and every level of the company has bought into this Ford vision and in 2010 the JD Power ratings and other industry reviews validate this compelling vision.

2.  Choose comprehensive strategies and include everyone
a. Review the business plan and understand the numbers
b. Make it feasible to produce a profitable car in the US by renegotiating union contracts with the UAW.
c. Create a full line of cars worldwide
d. Leverage global assets to produce “global cars” by getting every division to talk to each other.  Ford US, Asia, Europe and South America used to run autonomously and not communicate well.  The chassis or 65%+ of a car can be shared across the world with exterior design preferences by country or continent.
e. Be the best in class
f. Get the financing to execute the vision – Ford mortgaged everything in 2007 prior to the financial crisis and borrowed $23.5 billion dollars to overhaul its manufacturing and R&D to support the vision.  This strategy made it possible to pass up funding as part of the government bailout for the other two American car manufacturers.

3. Be relentless in the implementation
a. The data sets you free – get accurate, timely data at all times
b. Deal with reality – size production to real demand during times of economic downturn – be prepared to make the tough choices and idle plants or shut them down as needed
c. Get everyone involved in a comprehensive worldwide weekly meeting – where each executive (no handlers allowed as Alan put it) is responsible for reporting and explaining their numbers and the status of their projects. At Ford, it’s 7:30 a.m. on Thursday morning – each department head – worldwide – virtual – 300 charts – the charts are either red, yellow or green.  Guests from R&D and manufacturing are allowed to observe and listen. 

The charts and the meeting agendas are highly efficient and can be applied to any company – regardless of industry. This is one very useful habit that Alan Mulally introduced from Boeing where he held these types of meetings for decades and managed to be involved in every airplane the company every designed.

Alan Mulally told a great story about his first few meetings when all the charts were green and every executive thought he or she would get fired if the chart was anything but green.  Yet, here was a company projected to loose $17 billion dollars and everything was perfect?  A few weeks into the meeting routine, one manager finally put a red item on his chart and several other managers worldwide were able to solve the problem in under a minute.  After that it took approximately two months to get the charts to rainbow color.  Relentless implementation means using peer pressure to hold people accountable consistently and solve complex problems.

What are the results?
• In 2010, for the first time in 35 years, Ford has gained market share
• The company will be cash flow positive at the end of 2010 and able to repay $10 billion of the $23.5 billion dollar loan.
• Alan Mulally was voted the Fortune 500 CEO of the year in 2010 for executing one of the greatest corporate turnarounds in US history
• Ford is positioned to execute an amazing expansion plan in China, a country that invited Henry Ford back in 1925.  In 2010, 11 million vehicles will be sold in the US – 18 million cars will be sold in China.  The number of cars in China is projected to go to 45 million cars per year in the next few years. Henry Ford’s vision of ‘Opening the highways to all mankind” is becoming reality under the leadership of Alan Mulally.
• Alan Mulally believes that private enterprise needs to lead the US economic recovery by creating jobs and ways to manufacture products at a profit in the US
• He believes that a private/public partnership is necessary to enable the infrastructure for the comeback of the US manufacturing sector and some of the upcoming electric car technologies.  He invests a significant amount of his time to testify in Congress and serve on CEO Forums as well as committees on behalf of the President of the United States.

Please comment and share.

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3 Reasons Why Family Business is Complicated

Posted on November 10, 2010 by Isabella McPeak

 

The 3 Circles of Family Business

Family businesses operate at the intersection of 3 circles.  Different individuals have different motivations and power in each circle. 

If you are the founder, you at the middle of this univeserse and have your foot firmly planted in each circle. 

Your spouse is obviously a big part of the family, but may not be active in the business, yet have a significant ownership position. 

And what about your children, siblings or cousins.  They might be working in the business, but not yet have any or only a minority ownership position.

The more family members are involved, the more complicated it gets.  That’s why successful family businesses use outside advisors to bring an objective perspective and help them navigate the murky waters of emotion, birth right, entitlement and perceived favoritism.

There are “Rules of the Game” for business as well as family.  In a family business, it is wise to establish and communicate these rules separately.  An example might be:  We love you as a person and as part of the family, but you’re not an effective leader to run the business.  A  qualified outside advisor combines empathy with reality and makes “tough love” easier to communicate.

Have you had a positive or negative family business experience?  Please comment and share.

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