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© International Institute for Family Enterprises
Family Business Conference 2010
Factors causing Family Business Failure
Paul Dietze | Managing Director
International Institute for Family Enterprises
By kind invitation of theYemeni Businessmen Club
29 September 2010 | Sana'a, Yemen
© International Institute for Family Enterprises
1
We are the premier advisor and knowledge-leader for
Middle Eastern and German family enterprises, delivering profound
improvement to our members for success across
generations.
We are the premier advisor and knowledge-leader for
Middle Eastern and German family enterprises, delivering profound
improvement to our members for success across
generations.
The International Institute for Family EnterprisesFactors causing Family Business Failure
What is the International Institute for Family Enterprises (IIFE)?
29 September 2010 | Sana'a, Yemen
© International Institute for Family Enterprises
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IIFE Executive Summary
• Founded in 2007 at Witten/Herdecke University in Germany
• Academic non-profit organization
• Pioneering approach (First-Mover in the MENA Region)
• 100% privately-financed organization
• Developing a selective “By invitation only-membership” for
Middle Eastern and
German family businesses and value-adding third parties
• Integrated and global best-practice approach in the fields of
research, education,
networking and advisory services
The International Institute for Family EnterprisesFactors causing Family Business Failure
29 September 2010 | Sana'a, Yemen
© International Institute for Family Enterprises
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The International Institute for Family Enterprises
IIFE Global Experience
Factors causing Family Business Failure
29 September 2010 | Sana'a, Yemen
© International Institute for Family Enterprises
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Joseph Astrachan, Ph.D., editor, Family Business Review & IIFE Board Member
“Family businesses are challenged.
Only 30% of all family-owned businesses survive into the second generation, 12% will still be viable into the third generation, and
only 3% of all family businesses will be operating at the fourth-generation level and
beyond.”
Family Businesses Dominate the Global Economy…
The International Institute for Family EnterprisesFactors causing Family Business Failure
29 September 2010 | Sana'a, Yemen
© International Institute for Family Enterprises
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Why Do Family Businesses Fail?
“Most family businesses do not fail because of high taxes, economic turbulences, or
technological revolutions. They fail because of family conflicts and the
inability of senior generations to let go.”Dr. Jürgen Hereaus, Chairman Hereaus Group & Patron of Arab-German Family Business Summit 2010
Poor Management, Insufficient Capital, Lack of Planning,
Overexpansion, Strategic Deficits, Competition,
Wrong Decisions,…
The International Institute for Family EnterprisesFactors causing Family Business Failure
29 September 2010 | Sana'a, Yemen
© International Institute for Family Enterprises
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Source: John A. Davis | Professor at Harvard Business School and IIFE Board Member
Family Members
Non-Family, Non-Manager Owners
Non-Family Employees
Family
Owners
Non-Family Owner
Employees
Family Owner
Employees
Family Employees
The Three Circle Model
The International Institute for Family EnterprisesFactors causing Family Business Failure
29 September 2010 | Sana'a, Yemen
© International Institute for Family Enterprises
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The Developmental Stages of the Ownership System
Controlling Owner
Sibling Partnership
Cousin Consortium
30%
12%
Source: Kelin Gersick, Ph.D. | Professor Yale University and Chairman of IIFE Academic Board
The International Institute for Family EnterprisesFactors causing Family Business Failure
29 September 2010 | Sana'a, Yemen
© International Institute for Family Enterprises
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Types of Family Business Ownership
Controlling Owner
Sibling Partnership
Cousin Consortium
Source: Kelin Gersick, Ph.D. | Professor Yale University and Chairman of IIFE Academic Board
The International Institute for Family EnterprisesFactors causing Family Business Failure
29 September 2010 | Sana'a, Yemen
© International Institute for Family Enterprises
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The Controlling Owner Stage
Owner - Manager
Source: Kelin Gersick, Ph.D. | Professor Yale University and Chairman of IIFE Academic Board
The International Institute for Family EnterprisesFactors causing Family Business Failure
29 September 2010 | Sana'a, Yemen
© International Institute for Family Enterprises
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Types of Family Business Ownership
Controlling Owner
Sibling Partnership
Cousin Consortium
Source: Kelin Gersick, Ph.D. | Professor Yale University and Chairman of IIFE Academic Board
The International Institute for Family EnterprisesFactors causing Family Business Failure
29 September 2010 | Sana'a, Yemen
© International Institute for Family Enterprises
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Sibling Partnership
Types of Sibling Partnership
First Among EqualsEgalitarian
Source: Kelin Gersick, Ph.D. | Professor Yale University and Chairman of IIFE Academic Board
The International Institute for Family EnterprisesFactors causing Family Business Failure
29 September 2010 | Sana'a, Yemen
© International Institute for Family Enterprises
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Types of Family Business Ownership
Controlling Owner
Sibling Partnership
Cousin Consortium
Source: Kelin Gersick, Ph.D. | Professor Yale University and Chairman of IIFE Academic Board
The International Institute for Family EnterprisesFactors causing Family Business Failure
29 September 2010 | Sana'a, Yemen
© International Institute for Family Enterprises
20
Governance Structure for a Complex Family Enterprise
Family Governance Business Governance
Shareholders’ Assembly
Family Council
Education Committee
Redemption FundFamily Foundation
Family Office
Governance
CEO
Council of owners
Family Family AssemblyAssembly
Board of Directors
Venture CapitalFund
Family Reunion
Career Planning Committee
Management
The International Institute for Family EnterprisesFactors causing Family Business Failure
29 September 2010 | Sana'a, Yemen
© International Institute for Family Enterprises
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Ownership
BusinessFamily
Family Governance
Family Council
Family Family AssemblyAssembly
Governance Structure for a Complex Family Enterprise
Business Governance
Shareholders’ Assembly
Council of owners
Board of Directors
The International Institute for Family EnterprisesFactors causing Family Business Failure
29 September 2010 | Sana'a, Yemen
© International Institute for Family Enterprises
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Avoiding Failure | Family Constitutions• Family mission/vision for the family, business, owners and governance• Core family values• Family commitment to the business and other activities
Preamble
• Family employment and compensation policies• Selection of future business leaders• Retirement policy
EmploymentPolicies
• Ownership transfer policies• Stock buyout process and valuation method• Dividend policy• Shareholder responsibilities and rights• New venture support• Perquisites (perks) policy
Ownership and Financial Policies
• Family office and service• Education plan• Philanthropy, civic and other key family activities
Other Family Activities
• Family ground rules – how to treat each other and support the family• Agreement on how to arbitrate or mediate disputes• Family council and family assembly structure
Governance Regulations
The International Institute for Family EnterprisesFactors causing Family Business Failure
29 September 2010 | Sana'a, Yemen
© International Institute for Family Enterprises
Thank You!
29 September 2010 | Sana'a, Yemen
The International Institute for Family EnterprisesFactors causing Family Business Failure