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“Emotions in intrafamily
business transfers”
Matti KOIRANENUniversity of Jyväskylä
Vincent MOLLYKU Leuven
Toni BRUNELLOStudioCentroVeneto
Marie DEPELSSEMAKERTRANSEO
FACTORS SHAPING THE SUCCESS OF A
SMALL / MEDIUM-SIZED BUSINESS TRANSFER
Matti Koiranen, Professor emeritus
School of Business and Economics, University of
Jyväskylä, Finland
[ GENS OY ]
BUSINESS TRANSFERS ARE CONTEXTUAL. THERE ARE SIMILARITIES BUT ALSO DIFFERENCES
• Seller’s situation: Voluntary vs. Forced sell-out; Planned vs. Unexpected;
Company vs. Business vs. Part of Business; Seller’s initiative vs. Someone else’s
initiative; Founder vs. Non-founder; Individual or Collective
• Buyer’s situation: Family member vs. Outsider; Individual or Collective; Ex-
competitor vs. Newcomer; MBO, Merger or Acquisition;
• Situation in the target to be transferred: Part of portfolio vs. the only one;
Profitable vs. Loss-making; Predictable vs. unpredictable future; Slow-
growing vs. fast-growing business environment; Turbulent vs. stable
environment; Fragmented vs. closely-held ownership (before, now, after)
WHAT IS TRANSFERRED?
• Ownership ? Legal-economic vs. Psychological vs. Socio-symbolic status. Ownership as a position, structure, task or relationship.
• Management and Leadership ? Can be transferred with/without the change in ownership. Earlier or later or solely. Power and Responsibility i.e. Rights and Obligations; Gradually (stepwise) or as a quantum jump.
• Visible vs. invisible items of the Balance Sheet. Goodwill or Badwill ? Accumulated knowhow and knowledge (human capital); Business Relationships(social capital); Image (reputational capital); Intellectual Property Rights (intellectual and immaterial capital)
WHY IS IT IMPORTANT TO COGITATE THE HUMAN FACTORS INVOLVED ?
• A SME transfer typically has legal, economic, mental and social consequences.
• May have a major impact on the stakeholder balance.
• Often a social drama which has an impact on the buyer and seller, their nearest and dearest(like family), and the staff
• Human considerations often take much longer time than do legal and economicconsiderations.
• Many SME’s are family-owned and family-driven. In family firms, there is a mixed interest of family economy and business economy which requires parallel planning between the two.
• The most advantegous financial alternative does not always work best in practice.
• The target of transfer is typically a combination of economic and emotional wealth
SUFFICIENT PREPARATION TIME IS NEEDED
• The seller’s motives may be very different from the buyer’s motives. The emotionalwealth is often valued very differently.
• The seller is giving up and moving out, whereas the the buyer is entering in. There is an information asymmetry between the negotiating parties, which can be partlyreduced with a proper Due Diligence Process.
• The evaluation of a not-publicly-quoted company can be difficult and open to various interpretations.
• The process itself may involve many steps, like non-disclosure agreement, letter of intent, due diligence analysis, S/P contract, non-competition clause etc.
ALTERNATIVES ARE MANY
• Selling-out and buying the whole company
• Selling-out and buying a part of the company
• Selling-out and buying just the business, but not the firm
• In-family succession: Trade, Gift, Pre-inheritance, Inheritance
• Targeted emission of shares to the new owner
• Buying out the old owner by using the company’s free equity capital as a payment of the shares
• Combination merge or Acquisition for merge
• Management-buy-out; Personnel-buy-out
• Leveraged buy-out by using future earnings as the method of payment
• Use of a venture capital company to make the process possible
TYPICAL REASONS TO FAVOUR IN-FAMILY SUCCESSIONS
• Desire to maintain the ownership and management in the family. Family tradition orheirloom. ”Successful transition is creating a legacy, not just passing a business” (McCollom)
• Confidence in the successful continuation of business
• Often a minor change in the stakeholder relationships
• Desire to maintain closely-held ownership with recognizable ”faces”. Cf. the faceless and heartless ownership of publicly-quoted companies as manifested by the institutionalowners.
• Thinking is strongly influenced by the emotional aspects, such as psychologicalownership, the future of next generation, trust, and altruism. Thinking is influenced bymultirationality.
TYPICAL REASONS TO AVOID IN-FAMILY SUCCESSIONS
• The next generation is not willing, competent or committed to continue, or there is no potential family member to continue
• The momentum is optimal now for the cash-out of one’s lifework
• Sometimes taxation or financial reasons
• Emotional burden: Feeling fed-up of the troubles or sacrifices caused by thefamily business as seen from the individual’s or the family’s perspective
• The business concept has become obsolete and cannot easily be renewed
• Conflicts between family members, such as nepotism, sibling rivalry, lack of trust, or disputes may be an obstacle.
PITFALLS OF IN-FAMILY SUCCESSION
• Insufficient preplanning
• Too limited knowledge of various alternatives
• Unprepared next generation
• Conflicting interests between the generations or between the siblings or cousins
• The loss of identity as experienced by the retiring generation. Business is sometimes seenas a symbol of life.
• The retiring generation cannot decide who would be the best representative of the familyas the main new owner or manager. Equality is not always fair or equitable.
• Talking about the succession can be a taboo in the family. This delay or ”silence” maylead to the situation of the forced and unplanned , delayed succession.
META COMPETENCES AND QUALIFICATIONS NEEDED IN SUCCESSFUL SME TRANSFERS
• Resourcefulness: to see alternatives and to overcome constraints
• Empathy: the ability and power of imaginatively enter into and understand another’s feelings; emotional intelligence
• Respect: the attitude of deference
• Adaptability and resilience
• Communication skills (Remember to communicate with two ears, two sides of brains and - only -one mouth)
• Integrity (both in sell-outs and in successions), incl. keeping promises.
• Understanding that often the process is slower and more complicated than one would expect at thebeginning or as seen from the external’s perspective
• Humbleness to ask for help and advise
Emotional dynamics in
family business
succession
Prof. dr. Vincent Molly
Content
• Introduction• Insights from Belgium• Emotions in times of succession• Importance of communication• Role of a coach• Conclusion
1Introduction
Houshi video : https://vimeo.com/114879061
“My sister has always been dad’s favorite””Why is dad not listening to us”
“My brother cannot be trusted, not as a child, and not now”“Me quitting? Never of my life”
“My kids? No, they are not interested! I guess…”
Introduction
2Insights from Belgium
Business transfer intentions
N = 421 Number Percent
Family succession 223 53%
External sale 164 39%
Liquidation 34 8%
Total 396 100%
Succession intentions
Source: Antwerp Management School, 2015
Succession planning:
1. Financial reasons (ownership)
2. Family reasons (ownership + management)
3. Economic reasons (ownership + management)
4. Incumbent does not want to hand over (management)
5. Other
Biggest obstacles
Source: Antwerp Management School, 2015
3Emotions in times of succession
Actors involved
Incumbent
Hesitant
Suspicious
Attached
Anxious
Unsure
Concerned
Lonely
…
Partner
Unpleasant
Not involved
Anxious
Uncomfortable
…
Successor
Unsure
Impatient
Inhibited
Under-appreciated
Disappointed
Miss-understood
…
Family
Restless
Concerned
Jealous
Frustrated
…
Employees
Unsure
Powerless
Anxious
Insecure
…
Source: Antwerp Management School, 2015
Incumbent: letting go
1. Monarchs
2. Generals
3. Ambassadors
4. Governors
Emotional challenges
Incumbent: tips
• From child to grandchild
• Don’t stay if you cannot leave
• Give space and freedom
• Clear roles and stick to them
Emotional challenges
Successor: challenges
1. Succession as a yoke
2. Feeling obliged
3. Being put in boxes
4. Generation gap
Emotional challenges
Successor: tips
• Follow your heart (affective commitment)
• (External experience)
• Dare to jump
• Co-creation
• Give space
Emotional challenges
Covering it up:
• Pretend there are no conflicts
• Avoid conflict out of love
• Perception that talking will make
things worse
Emotional challenges
Unspoken emotions will drive business decisions:
• Typical difficult subjects:• Remuneration, entrance and promotion family
members, ownership, treatment of family members
• Deeper underlying emotions:• Feelings of being neglected, need for parental love,
lack of trust, favouritism, impartiality
Emotional challenges
4Importance of communication
• Listening
• Avoid triangle communication
• Start from your feelings
• Put yourself in the other’s shoes
• Communication platform• Fixed meeting schedule
• Get a neutral partner on board
• Think broad about who will sit around the table
Communication
5Role of a coach
• The coach offers:• Neutrality, objectivity
• Mediation
• A sounding board
• A disciplining factor
• The coach helps to get insight into:• The emotions that are at play
• The different voices withing the business family
• The needs behind the emotions
Role of a coach
6Conclusion
“If you don’t evade the emotional challenges during family business
succession, the businesslike implementation will almost automatically
follow”
Conclusion
Toni Brunello
Member of the European Commission Expert Groups on Business Transfer
StudioCentroVeneto – Italy
Managing intra-family emotions in Business Transfer processes
A call to considering the individual human role
KÖLN – 25 May 2016
Effective transfer failureEfficient transfer planning
A basic practical conflict
In family business
What is success, what is failure?
Annette Lawson
Tavistock Institute,
Gender equality paladine
A previous provocation
Who’s safe?
Large small micro
The power of single individual person
veto
businesses
How to deal with field emotions?
The problems we have just mentioned about different sized businesses
ARE NOT LINKED TO TAX, LEGAL, FINANCIAL OR SIMILAR ASPECTS***
THEY ARE LINKED TO EMOTIONS, TO SINGLE INDIVIDUALS EMOTIONS
This is why this presentation is focused on how to deal with the practical emotional side
It is a report from the inside mission
Field experience: the predominant role of individual emotions
Leaders (power people )
≠family members, partners
Advisor same need: to promote
mindset/heartset changes
How can we
govern and manage them?
A basic difference. A. Leaders
Only understand the language of facts
Some “speaking situations” must be arranged *
•e.g. Padua University experience:• in Senior vs. Junior conflict decision making:•A. Senior: imposes his will by “a blow on the desk!”•B. Junior: poses a fait accompli
•(by taking an inner entrepreneurial risk)
-The voice of a colleague is more important than of an “expert”
A basic difference. B. Family members, partners
When they feel they areunderstood and respected
they also accept advice
Then a planned, steady, systematic action
can be successful
From the point of view of a Family Business consultant
Some suggestions for Colleagues (Advisors) after personal field-and-desk experience
How to front this trend?
1. Be tuned with the external scenario
*You can choose amongst several tools. The Shortkit Brunello is a EU recognised Best Practice.
http://www.studiocentroveneto.com/shortkit-brunello_ita.php
Open minded future-oriented approachfor Business Transfer planning
Use reliable tools, including - since the beginning -emotional aspects implications
Your project:your mainframe,your basic Polar Star
2. Design your Business Transfer Project
Mainly while dealing with emotions
3. Always keep in mind people will have different mindsets.
What kind of impact on single people feelingsfrom technical “rational” solutions?
4. Be focused on a multi-channel communication
The same message can sound different for different “actors”
Same role, different player:
expect a different approach,
a different style
Prevention
Real-time intervention
Preparation
5. Adopt a farsighted systematic approach
6. Be aware that single people is generally selfish
“Stomach” as Personal Manager
* Since everybody has necessarily•Interpersonal relationship experience in one’s life, •people believe they are expert on behaviour
People’s focus:
one’s own- hard interests- soft emotions - passions
Authentically
Listen! Listen! Listen!
Not onlythrough your earsand your mind…
… but by your heart too
7. Listen! Listen! Listen!
8. Talk with people.
Personally talk and involve single people in advance
Your project in your mind: your compass
“Better blushing now,
than feeling embarrassed afterwards”
… in the world of emotions there is no majority share
Each heart counts as 1!
9. The soft world of emotions...
- Interpersonal communication
- Real co-operation features
- Interpersonal perception
- Behaviour natural rules
- Group Dynamics rules
- Leadership rules
10. Plan systematic tuning actions
A first intermediate call to conclusion (and to responsibility)
Since we have realized – as I hope - that - an interpersonal relations management expertise is needed
1. How are we going to front such a need?
2. Are we going to let specific specialists to go on as non-expert peopleabout interpersonal relations?
3. I propose a “thinking pause” in order to systematically take on board, in a balanced teamwork management, multi-competence people in assistance teams
4. And that we promote, at European level, training plans aimed to enhance a practical tuning among different side experts.
11. Try to be aware of everybody’s needs
Be the transfer project watchdog
No matter a smile front,every single individual can “present” youwith the unwanted gift of a silent
veto intervention
NEVER underestimatesingle operators unhappiness or unexpected silence
12. Pick-up hidden disagreements
13. Openly take into account weak people opposition
Weaker family members andsmaller shareholders and players
can generally bring difficulties and strongest stops
14. Mediate
Practice a direct or mediate
mediation..
15. Get accustomed with basic behaviour rules
Human behaviour is an iceberg
Learn to read its “logic”
The Maslow Hierarchy of Needs
At least:
Highest flexibility,Highest strictness
16. Be flexible, be strict!
17. Be confident in the power of words
Passion is stronger than intelligence, but…
… when they feel they are respected,people can also think together
18. Be independent from everybody, mainly from the business owner
Don’t quarrel
with the Client system
but …
Pacta sunt servanda
19. Take your time! (And give it to people)
No hurrying when dealing with emotions
Give people the time they need in order to feel aware of proposed solutions
Be focused on people priorities, where self-esteem will always be in pole position
Be focused on expectations, not just on data or facts
Never forget Gertrud’s eyes story
20. General Advisor advices
Arrange the first business analysis by one-to-one interviews (never start by group interviews)
Ladies and Gentlemen,
these are my principles
… and if you do not like them…
… I have some more!
(… by Groucho Marx)
Large, small, micro businesses – (negative) field examples (I)
Company size / employees
Large : 1000+
- Pietro, Owner : 4 (female!) daughters, rather than transferring to nephews, prefers:- to sell to others, a third party.
- Franco, a nephew : being refused as successor,- starts a new successful company.
Middle sized : 100+
- Giorgio, Owner : 2 manager daughters in conflict between themselves- Anna, accounting clerk, and - Mary, marketing manager- in order to stop the conflict, Giorgio quickly puts Mary out of the company;
- Mary : 1. immediately, goes out of the family home too; 2. She insists convincing her mother to leave her husband/father; 3. Later, when the company in difficulties needs market energetic contributionshe - in competition with her family business - starts a new successful company.
Very small : 10+
- Fabio&Monica: (2 + 2 children) are in perpetual fight - Archaic remind : relationship with their father ,with mutual “moral”
accusations- The micro-company doors are closed to children‘s contribution.
- The 4 Children: each one is successful - abroad- in larger structures.
Micro : 2-5 - Giuliano, Owner : (2 children) wants to transfer the company to both.
- Giuseppe, son: jealous of his brother since babyhood:- forces his father’s company failure,- then starts up his own business, competitive in the same sector.
Company size / employees
Large, small, micro businesses – (Negative) field examples (II)
Small : 20+ - Maurizio&Silvano, Founders&Partners:
- Maurizio is better, creative, brain faster.- Silvano - his brother in law – is less brilliant.
- Silvano deliberately slows down the business development, - refusing to be in second position, until the situation falls. He gets to divorce. -- The company restarts competitively.
Middle sized : 100+
- Gianni, Owner : does not consider his son Andrea as a good successor- Andrea, asks for assistance, and is supported
- technically and on the communication side, in his father relationship- “The harder the conflict, the better for the enterprise future”.- Andrea builds up a renewed company.
- Andrea : 30 years later (!) : conflict with his children Paolo and Ivo; - He asks for assistance again; - Relation difficulties but effective communication mediation- While Paolo and Ivo manage the company with two more internal managers, - Andrea goes twice during 3 months on holidays to Asia deserts….
Large, small, micro businesses – (Positive) field examples (III)
Very small : 10+
- Giorgio & wife Livia : (2 children). Plumbing services. Time to retire! - Alex self – employer in plumbing assistance - Matteo – professional in financial and ICT services – asks for an assistance.
- No former business communication between Parents and Son.
- Problems, confrontation and solution, with father, mother and a minority shareholder.- Giorgio is in anxiety and fear for his child/business health and continuity.
- A transfer project is designed: large amount of psychological contribution.- Successful final Continuity Pact, with a new customer service business re-launch.
“Emotions in intrafamily
business transfers”
