Berghmans Lhoist Chaired Professor in Entrepreneurial Leadership

Founding Director, Wendel International Centre for Family Enterprise

INSEAD – Asia, Europe and the Middle East

Parallel Planning for the Professionally Emotional Family Businesses

Professor Randel S. Carlock

Carlock and Ward, (2010). When Family Businesses are Best.

Why do Business Families Need to Plan?

•Increased business complexity

•Larger, multi-generational family

•Separation of ownership and management

•The conflict between family solidarity and the new nuclear families

•The division of shares create less resources to support the family and the potential for ownership inequality

•Divisions into branches and the loss of a shared purpose when making decisions

•The loss of order and the possible chaos created when the matriarchs and patriarchs are no longer around

Carlock and Ward, (2010). When Family Businesses are Best. 3

Planning: Addressing the Five Family Business Issues

CONTROL

How are decisions

made?

CAREERSWho holds leadership roles?

CONNECTIONHow do we

protect family relationships?

CULTUREWhat values drives our behavior?

CAPITALHow are

resources invested?

Carlock and Ward, (2010). When Family Businesses are Best.

Five Action Steps of the Parallel Planning Process

Family

Contribution

Business Vision

Family Values

Business Culture

FamilyMeeting &Agreemen

ts

Board ofDirectors

Family Human

FinancialCapital

FamilyEngagement

Business Strategy

Plans

Governance

Vision

Values

Investment

Carlock and Ward, (2010). When Family Businesses are Best.

Family Strategy is a Capable and Committed Family

Encouraging talent development

• Family leadership talent development programs

• Internships and career planning

• Active roles in the family council and foundation

• Family talent bank for boards and leadership roles

Building family commitment

• Transmitting values based on performance

• Fair Process to ensure family expectations are considered

• Effective family agreements and family and business governance

• Long-term estate, liquidity and ownership planning

• Fun and social activities to strengthen family ties

Carlock and Ward, (2010). When Family Businesses are Best.

The Professionally Emotional Business Family

Families are about caring and businesses are about money; not a likely

formula for a successful partnership. Yet those are the facts and

successful family businesses around the world have found that using the

Parallel Planning Process for aligning a family’s emotional commitment

based on values and vision with sound strategic, investment and

governance thinking creates a new model for the entire business

community.

We argue that the best family businesses outperform their widely

traded competition because they plan and govern based on professional

process but they lead based on passion and emotions; they are

professionally emotional. This creates a unique and defendable

competitive advantage because widely-traded firms by definition strive to

eliminate emotions from their planning, decision making and actions.

Carlock and Ward, (2010). When Family Businesses are Best.

Family Business Commitment Drivers

Social Spiritual Emotional Economic

Individual •Power•Prestige•Networks

•Service to others•Personal meaning•Religious beliefs

•Achievement•Challenges•Recognition•Talent development

•Freedom*•Security*•Self expression*•New ventures*

Family •Family legacyor heritage

•Service•Philanthropy•Shared purpose

•Cohesion•Relationships•Shared experiences

•Wealth creation & protection•New investments/opportunities

Business •Industryreputation•Products•Employees•Brands

•Corporate social responsibility•Economic development

•Businessrelationships•Belonging

•Wealth creation•Dividends•Liquidity•Growth•Sustainability

Carlock and Ward, (2010). When Family Businesses are Best. 8

 

Family constraints have their benefits

On Management Column

By Philip Delves Broughton

Randel Carlock and John Ward, professors at Insead and the Kellogg School of Management respectively, have studied family businesses around the world and report their findings in a new book, When Family Businesses are Best. The best family businesses excel at two things: balancing emotion and reason; and retaining a long-term perspective.

Professionally Emotional as a Competitive Advantage

Carlock and Ward, (2010). When Family Businesses are Best.

Porsche also makes great cars, remember?

The global automobile industry is in a shambles with a share in Ford Motor Company selling for less than a Starbucks latte and GM and Chrysler discussing a merger that resembles two drunks hoping they can make it to the next lamppost (government bailout).

Somewhere in all this chaos the Porsche family has managed to create two highly profitable automobile firms that are the world leaders in designing, manufacturing and marketing cars.

The family's values and vision are the foundation for a planning process where each critical factor adds synergy based on a unity of purpose between the family and the business.

The Porsche family and specifically Ferdinard Piech, the VW Chairman, sees combining Porsche (the firmthat bears his grandfather's name) with the muchlarger VW (founded by his grandfather) as making strategic sense and strengthening the family legacy.

Campden Families in Business Magazine, No 41 November/December 2008By Randel S. Carlock

Carlock and Ward, (2010). When Family Businesses are Best. 10

Reuters, Oct 28, 2008

When you refer to VW and Porsche as two highly profitable firms, I am not sure how much that will apply going forward given that Porsche, and to some extent VW, produce high-end cars that are going to take a big hit in the ongoing crisis (and this is what the hedge funds were betting on).

As for whether a tie-up makes sense, here's an excerpt from a recent FT article:

More crucially, on the car making side analysts have long described the tie-up as an unequal match, benefiting Porsche far more than VW.

“There’s very limited industrial synergy between the two companies,” said Philippe Houchois, analyst at UBS.

Did the Porsche Merger Make Business Sense for VW?

Carlock and Ward, (2010). When Family Businesses are Best.

VW Blows its own Trumpet on Recovery

11

By Chris Bryant in Frankfurt and John Reed in London19 December 2011 Financial Times

When Martin Winterkorn, the 64-year-old engineer, took over as chief executive in 2006, VW sold just 6.3m vehicles. The carmaker was struggling to make a profit with its flagship VW brand and had to ask workers at some of its German factories to work longer hours for the same pay. Five years later, VW now has more than 90 plants building 200 different vehicle models for its portfolio of 10 brands. Its revenues jumped by 26 per cent to €116bn in the year to September, and its €13.6bn net profit underscored the carmaker's new regard for financial discipline.

Competitors increasingly view VW as the car industry's benchmark for profitability and manufacturing efficiency - a spot formerly claimed by Japan's Toyota. As the year draws to a close, industry forecasters are describing VW as the world's largest carmaker, ahead of General Motors and a disaster-weakened Toyota.

While it was Mr. Winterkorn who took the floor in Wolfsburg, VW owes its rapid growth mainly to the obsessive vision of another man: Ferdinand Piëch, its powerful chairman and family patriarch. The grandson of Ferdinand Porsche, Mr. Piëch is widely regarded as the sharpest strategic mind in the car industry and the driving spirit behind VW's ascent. "VW is his life's work, he's absolutely driven to create the biggest car company in the world."

Carlock and Ward, (2010). When Family Businesses are Best.

Defining Emotional CommitmentDefining Emotional Commitment

12

-A belief in family values and vision

-Willingness to invest talent and resources

-A desire for a family connection or legacy

-Expectations of personal and family rewards

Carlock and Ward, (2010). When Family Businesses are Best.

Parallel Planning Process: Systemic Planning

13

Family Planning Questions

Business Planning Questions

Governance Governance Investment Investment Strategy Strategy Vision VisionValues

How do we ensure

stewardship?

How do we prepare the

family?

What will the family contribute?

What culture drive our firm?

How is family financial capital

invested?

What values drive our family?

How is family human capital

invested?

How does the business remain

competitive?

What kind of business does the family support?

How do we align the family actions?