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Published

Friday, October 11, 2013 …

Friday, October 11, 2013
10:30am - 12pm

Transitions from one generation to the next have the power to paralyze or energize family enterprises
facing family and enterprise challenges. The four presenters, an academic in the field of family business
and three mediators experienced in the area will provide their perspectives and experiences in family
conflict resolution based on real disputes. The discussion will provide the basis for an interactive analysis
with the participants. Among other areas, the presenters will lead a discussion of successful tools and
strategies used by the presenters in this complex area. By focusing on real life family business dilemmas,
the speakers will discuss how the lack of open communication, understanding and clear family and
business goals can jeopardize the survival of a family business.

Published in Education
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  • 1. ! " "# $ %& "'()( " * + (,( (" * -.- & "'# (/ 0('"1*$ 23232 45-67 82.9-583 " & "# : &'*; !!" #$!%
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  • 6. (312) 549-1350 (o) (312) 848-1350 (c) Warren.Baker@dbr.com 191 N. Wacker Dr., Ste. 3700 Chicago, IL 60613 Phillips Academy Andover 1966 University of Pennsylvania B.A. 1970 The John Marshall Law School J.D. 1975 Warren has been counseling families and their enterprises as their primary counsel on a wide variety of issues for over 35 years. Having substantial experience in complex commercial litigation, arbitration and mediation, often involving family and privately owned enterprises, Warren focuses his practice exclusively on conflict avoidance and resolution for families and family owned businesses. Recognizing that family cohesion is often a key component of enterprise health and generation-to-generation sustainability, Warren uses a non-adversarial approach as a third party neutral facilitator and mediator in finding solutions to family and family enterprise conflict. The many families and enterprises Warren has worked with value his objectivity and ability to resolve what are often emotionally charged issues. Warren maintains many active charitable and civic commitments that have included for many years serving as a Big Brother mentor with Big Brothers Big Sisters of Metropolitan Chicago. Warren has also served on the Executive Committee of the Capital Campaign for the Big Brothers Big Sisters of Metropolitan Chicago and the Capital Campaign Committee for the Latin School of Chicago. Warren was a co- founder of the Phillips Academy Andover Abbot Regional Association and remains active as its President. Warren and his wife, Deborah, live in Chicago and have two daughters who are working in the not-for-profit field. Professional Affiliations Member of The Family Firm Institute (FFI); Chapter Officer, FFI Midwest Chapter. Member of the Association for Conflict Resolution (ACR), active in the Family, Commercial, Workplace and Elder Sections. Member of the Commercial Section Advisory Council. Founding member of the Family Owned Business Group within the ACR’s Commercial Section. Routinely presents at industry conferences as well as to family offices and trust companies. Facilitator and Certified Mediator Avoiding & Resolving Conflicts Received his Mediation Certification at Northwestern University. Leads the firm’s Alternative Dispute Resolution (ADR) Task Force. Has facilitated or mediated issues in innumerable matters for families and family enterprises, including those involving succession, governance, sustainability, wealth transfer, exit strategies, among many others. Advises single and multi-family offices, bank trust departments, trust companies and wealth management firms on strategies to help their clients avoid and resolve conflict. Peer Review Rating AV Preeminent - 5 out of 5 — The Highest level of excellence as rated by his independent peers. (Martindale-Hubbell) Warren Baker Partner
  • 7. WORKING WITH FAMILY 3 pathways that strengthen the family and the business. A framework to understand health family enterprises. Association for Conflict Resolution Conference
  • 8. Working With Family… • Is very common • Incredibly rewarding • The returns can be much more than money • Socio-Emotional Wealth & Financial Wealth • There are risks… • Values and work-styles can be at odds • Credibility can erode • Damage to family relationships • Financial loss
  • 9. Three systems working together Family BusinessOwnership
  • 10. Three systems working together Family BusinessOwnership • Issues in one sphere impacts the others • People Have Multiple roles • Unconditional & merit based relationships present
  • 11. The Research • Three Pathways to Evolutionary Survival: Best Practices of Successful, Global, Multi-Generational Firms • Completed by Dennis Jaffe with support from Family Business Network and Family Office Exchange • Surveyed 192 global family firms • Average worth of $400mm • Age of the businesses ranged from 1st & 2nd generation to 7 generations. • Asked… “what do you do to keep the family firm alive and thriving from generation to generation?”
  • 12. The Research Stewarding the Enterprise Developing the Next Generation Nurturing the Family
  • 13. The Research Pathway 1: Nurturing the Family • Clear compelling family purpose and direction • Regular family gatherings • Climate of openness, trust and communication • Sharing respect for family history and legacy • Shared family philanthropic and community service
  • 14. The Research Pathway 2: Stewarding the Family Enterprise • Strategic plan for family wealth and / or enterprise development • Active, diverse, empowered board guiding each enterprise • Transparency about financial information and business decisions • Explicit and shared shareholder agreements about family assets • Exit and distribution policies for individual shareholder liquidity
  • 15. The Research Pathway 3: Cultivate Human Capital for the Next Generation • Employment policies for family members working in the family enterprise • Agreement on values about family money and wealth • Support for development of next generation leadership • Encouragement for all family members to seek personal fulfillment and life purpose, regardless of personal or financial involvement in family enterprise • Age-appropriate education to teach financial skills to young family members
  • 16. Simply put… • Pathway 1…. keeping family connected • Pathway 2… business policies and structures • Pathway 3… planning for the future
  • 17. Associa on for Con¯ict Resolu on 2013 Annual Conference Workshop—October 11 at 10:30 am Family Business Disputes: How Media on Techniques can help Prevent Genera onal and Sibling Con¯ict from Killing the Proverbial Goose Ma hew L. Caras Leaders LLC Portland, Maine (207) 318 1893 MCaras@Leaders LLC.com
  • 18. Smith Company Don Smith, CEO age 70 20% wants to cash out Joe Jones, President age 67 20% wants legacy Jane Smith Not An Employee age 36 6% cash out Frank Smith Sales Manager age 34 12% career Al Smith COO age 32 6% legacy Jon Jones Engineering Manager age 39 10.5% cash out Ann Jones CFO age 40 15% legacy cousins Don’s children – 30% total 6% total to 3 children 4.5% total to 3 children Joe’s children 30% total Al’s children Jon’s children Total Company 41% Cash out (through sale or buyout) 47% Legacy (no sale; no debt for buyout) 12% Career (need for put op on) By Smith Family 52% Cash out 24% Legacy 24% Career By Jones Family 30% Cash out 70% Legacy
  • 19. Smith Company, a second genera on family owned business founded by ®rst cousins Don Smith and Joe Jones, is a petroleum marke ng company with annual revenue of $600 million. The Company is pro®table, but its working capital requirements are high. The Company has signi®cant market/enterprise value and would be an a rac ve acquisi on for a strategic buyer. The founders, Don Smith and Joe Jones, are about 70 years old. Don has three children between 32 and 36 years old, two of whom work in the business. Joe has two children, age 39 and 40, both of whom work in the business. There are a total of 10 grandchildren, ranging from 5 to 18 years old, none of whom work full me in the business. For years Don and Joe each owned 50% of the Company. Several years ago Don and Joe agreed that each would give 30% of his stock to his children. Thus Don and Joe each currently owns 20% of the Company. Don and Joe want to re re. However, Don would like to cash out at the me of re rement and Joe’s wish is for Smith Company to con nue to be owned and operated by the Smith and Jones families inde®nitely. The heir apparent to run the Company upon the re rement of Don and Joe is either Don’s son, Al (who is COO), or Joe’s daughter, Ann (who is CFO). While Al and Ann would like the Company to be a legacy family business, each has a sibling who wants to cash out now. The ® h member of the second genera on doesn’t care what happens as long as he con nues to be employed and has a means to exit when he wants to re re in the future. There is no shareholder agreement, and votes follow shares. Sale of the Company will sa sfy the objec ve/demand of about half the ownership that wants to cash out, but will not achieve the objec ve/demand of those who want to keep the business in the families. Those who want to con nue to own and operate the business are not willing to consider a buyout of the others because the debt the Company would incur in connec on with the buyout would make the Company vulnerable and without the working capital necessary to con nue growing. There exists a deadlock, with poten al for li ga on—the outcome of any li ga on is unpredictable because there is no apparent legal basis for any ac on by one fac on or family against the other. It appears that a consensual resolu on is the only way to avoid a paralysis that would cause irreparable harm to the Company. But what possible resolu on exists where the objec ves/ demands of all family members are sa s®ed? A crea ve transac on, focusing on the interests of each party involved, was the resolu on that allowed each member of the Smith and Jones families to accomplish his or her individual objec ves. Use of a neutral nego a on facilitator with investment banking experience as well as media on skills was cri cal in nego a ng and closing the transac on. A “merger of equals” was the transac on that resolved the deadlock. The merger target was a company that lacked successor management (a strength of Smith Company) and that as a result was willing to permit MergeCo to be controlled at the board level and managed on a day to day basis by members of the Smith and Jones families, provided the owners of the target retained a roughly 50% ownership interest in MergeCo. The combined balance sheets and cash ¯ows of the two companies provided the ability to structure put op ons for family members who wanted to cash out.
  • 20. “FAMILY BUSINESS DISPUTES : HOW MEDIATION TECHNIQUES CAN HELP PREVENT GENERATIONAL AND SIBLING CONFLICT FROM KILLING THE PROVERBIAL GOOSE” STAGE ONE RELATIONSHIP AND SUCCESSION ISSUES ACR ANNUAL CONFERENCE OCTOBER 11, 2013 RICHARD LUTRINGER MEDIATION OFFICES IN NEW YORK CITY AND SOUTHERN CALIFORNIA RLUTRINGER@MAC.COM MEDIATE.COM/RLUTRINGER I. FAMILY BUSINESS DISPUTES/ISSUES INCLUDE : SUCCESSION [SELECTING, NURTURING, TIMING, RETIREMENT OF FOUNDER] EMPLOYMENT EXPECTATIONS [HIRING STANDARDS, LEADERSHIP ROLES, RELATIONSHIP TO NON-FAMILY EMPLOYEES] DISTRIBUTION OF PROFITS [BEFORE, DURING AND AFTER SUCCESSION] ONGOING MANAGEMENT / SALARIES/ PERKS [OF SIBLINGS WITHIN BUSINESS] II. THE “FOURTH CIRCLE” — LEGAL BACKGROUND GENERALLY, 51% = ABSOLUTE CONTROL OVER ORDINARY BUSINESS DECISIONS [I.E. LIMITED DEMOCRACY]
  • 21. “BUSINESS JUDGEMENT RULE” LIMITS COURT REVIEW OF MANAGEMENT DECISIONS WITHOUT PRE-EXISTING BUY-SELL OR MANAGEMENT AGT, MINORITY MAY BE LIMITED TO THE “NUCLEAR OPTION”—SEEK DISSOLUTION [CORP :DUE TO OPPRESSION OF MINORITY,NY BCL SEC. 1104-A; LLC “NOT REASONABLY PRACTICAL TO CARRY ON THE BUSINESS IN CONFORMITY WITH THE…OPERATING AGREEMENT” NY LLCL SEC. 702] III. ISSUES REALLY UNDERLYING FAMILY BUSINESS DISPUTES : FAIRNESS RESPECT CONFUSION OF FAMILY AND BUSINESS ROLES “CULTURAL” DIFFERENCES (GENERATIONAL, GENDER, BIRTH ORDER, ETC) LACK OF COMMUNICATION [WITHHOLDING INTENTIONS OR CONFUSING MESSAGES] SYSTEMIC DYSFUNCTION : SUBCONSCIOUS COLLABORATION OF FAMILY MEMBERS TO
  • 22. PROTECT THE SYSTEM FROM UNDISCUSSED FEARS AND ISSUES [MORE THAN A MEDIATOR’S JOB-BUT AWARENESS OF ISSUE CRITICAL] LAIUS COMPLEX IV. FAMILY BUSINESS DISPUTE OUT –ORANGE COUNTY CHOPPERS (VIDEO CLIP) GENERATIONAL CLASH OF FATHER (80% OWNER/CEO) VS. SON (20% OWNER/ SR EMPLOYEE) CLIMATE OF OPENNESS, TRUST, RESPECT AND COMMUNICATION ? CLEAR EXIT POLICY ? AFTERMATH V. TOOLS OF THE FAMILY BUSINESS MEDIATOR DETERMINE WHICH SYSTEM IS DOMINANT –FAMILY OR BUSINESS [LOOK FOR SYSTEMIC CAUSES, RATHER THAN FOCUSING ON THE IMMEDIATE ISSUE] WHAT IS THE REAL PROBLEM ? IS THE BUSINESS ISSUE RELATED TO “UNFINISHED BUSINESS” IN THE
  • 23. FAMILY SYSTEM ? DOES THE PROBLEM INVOLVE “SCAPEGOATING” (E.G. WHO CAN WE BLAME ? ) ENGAGE ALL INFLUENCERS ( WHICHEVER CIRCLE THEY FALL INTO) DISTINGUISH ROLE AS MEDIATOR FROM FAMILY BUSINESS ADVISOR UNLIKE MEDIATION OUTSIDE OF A FAMILY RELATIONSHIP, IF PARTIES “WALK”, FAMILY PROBLEM NOT RESOLVED BY MONEY/COURT [DIFFERENT BATNA] UNDERLYING “INTERESTS” AMONG ALL PARTIES OFTEN THE SHARED INTEREST OF KEEPING THE FAMILY INTACT---RECOGNIZE THAT FAMILY BUSINESS DISPUTES CAN SPAN GENERATIONS AND ARE RECURRING DISPUTES [SEE MAYER, STAYING WITH CONFLICT ] REFERENCES :
  • 24. DISTELBERG AND SORENSON”UPDATING SYSTEMS CONCEPTS IN FAMILY BUSINESSES” (22 FAMILY BUSINESS REVIEW, MARCH 2009,) PP. 65-81 HILBURT-DAVIS AND DYER, CONSULTING TO FAMILY BUSINESSES , (JOSSEY-BASS/PFEIFFER, 2003) KAYE , “PENETRATING THE CYCLE OF SUSTAINED CONFLICT” (THE BEST OF FBR II, 1991), P. 283 LUTRINGER, MEDIATING BUSINESS DIVORCE DISPUTES”, NEW YORK DISPUTE RESOLUTION LAWYER, NEW YORK STATE BAR ASSOCIATION (FALL 2009) MAYER, STAYING WITH CONFLICT , JOSSEY-BASS (SAN FRANCISCO 2009) SPECTOR, THE FAMILY BUSINESS CONFLICT RESOLUTION HANDBOOK, FAMILY BUSINESS PUBLISHING CO. (PHILADELPHIA, 2003)
  • 25. TEUTEL V. TEUTEL, 2010 NY SLIP OP 09248 (2D DEPT DEC. 14, 2010) Richard Lutringer is a private mediator in New York City. He has been certified as a commercial mediator by the Centre for Effect- ive Dispute Resolution (CEDR), the American Arbitration Asssociation (AAA), and the Internat- ional Mediation Institute (IMI),as a community mediator by CMS, Queens, NY and is on the mediation panels of FINRA, NADN and federal district courts in New York and New Jersey. Disputes mediated by Mr. Lutringer include disputes among members of family owned businesses as well as domestic and international industrial, investment and financial companies. Mr Lutringer has been a member of the Board of Directors of ACR-GNY and is currently a member of the board of the New York State Dispute Resolution Association. He has been a regular competition judge and mediator for the International Chamber of Commerce Annual Mediation Advocacy Competition. Full bio available at mediate.com/rlutringer