The choppy waters of mergers and acquisitions can sink family-owned businesses if not done carefully. In this episode, we wade into the challenging process of M&A for family enterprises looking to continue their legacy.
Host and seasoned family enterprise lawyer Leah Tolton is joined by Ted Kouri, Founder and President of Incite, as he shares his expertise on mid-market M&A advisory services. They discuss critical steps like formulating an M&A strategy, conducting due diligence, maintaining brand identity post-acquisition and leading change management.
In this episode, we explore essential strategies for family enterprises poised for growth. Key focuses include solidifying internal foundations like brand, culture and processes, alongside defining clear growth objectives. Emphasizing the importance of effective communication, Ted and Leah look at steps to internally build trust and alignment, including the paramount role of strong governance with transparent roles and multi-generational decision-making proceedings. They explore the need for a thorough change management process—often extending 6 to 18 months—to avoid pitfalls. Lastly, they examine the importance of strategic branding decisions, whether maintaining a unified brand or differentiating between family and business entities.
Tune in to gain invaluable knowledge and practical advice for steering your family business through the dynamic waters of growth and change.
Transcript
Ted Kouri: [00:00:00] It's about the people or the teams that you serve. How do they get the information that they need? And I think owners and family members make the mistake of assuming that frontline employees don't need that information or they don't need to know that. And obviously there's certain information about an organization that doesn't need to be shared everywhere, but I think most family enterprises underestimate how much information can and should be shared and how helpful it can be to an organization when you've got everyone clear about what that is and not this sense of there's some mystery that happens when the family gets together and we have to wait and see what comes out of that magic box after they have a meeting.
Leah Tolton: [00:00:41] Welcome to Beyond Succession, a podcast series within the Bennett Jones Business Law Talks podcast that discusses topics around navigating the complexities of the family enterprise. I'm Leah Tolton, partner at Bennett Jones LLP, and I'm a family enterprise and corporate lawyer, passionate about helping family enterprise businesses thrive.
Navigate the complexities of governance, succession, and growth.
Before we begin this podcast. Please note that anything said or discussed on this podcast does not constitute legal advice. Always seek proper advice from your legal advisor as every situation is different and outcomes can vary. Today, we are turning our attention towards growth and mergers and acquisitions in the context of family enterprise continuity.
Navigating the complexities of growth or of a merger or an acquisition can be daunting, even more so when it comes to to a family run business. Our conversation today aims to unpack this challenging process, to shed light on everything from formulating a strategy, conducting due diligence, maintaining brand identity, to driving change management.
Joining me today is Ted Kouri, founder and president of Insight, a boutique mid market M& A advisory firm in Western Canada. Specializing in market strategy, communications, culture, and brand alignment and stakeholder relations.
Ted, thanks for joining me today.
Ted Kouri: [00:02:26] Yeah, my pleasure. Great to be here, Leah.
Leah Tolton: [00:02:27] Thanks. You have lots of experience in assisting family enterprises through various growth phases. Whether they're growing their business without an acquisition or maybe even in an acquisition setting. Can you tell us in your experience what key steps a family enterprise should take in the preliminary planning steps when they're getting ready for a growth phase?
Ted Kouri: [00:02:49] Yeah, great question. Probably two big ones that we see sometimes get overlooked or they're not fully thought through before an organization, particularly in a family enterprise environment. moves into a more active growth phase. One would just be the basics of making sure your house is in order. So for us and the work that we do, that would be looking at things like brand, like culture, communications.
Do you have the right processes and systems in place for that? Have you defined what you want those things to be? Are you able to share those consistently throughout the whole organization? Because any type of gap in those areas is just going to get magnified as you start to grow, whether that's just through organic growth, whether that's through adding products or services, whether that's through doing an acquisition, if you don't have the internal house really well in order before you start growing, we find those problems get magnified quickly and then can derail those efforts and you start to think that the growth strategy is wrong when really it was just that you didn't have some of the internal mechanics in place.
So just making sure things are well documented, everyone can speak to them. There's, there's clear alignment. And the second piece I would recommend family enterprises think about before they embark on a, on a growth journey would be being really clear about what are our growth objectives. You know, what does success look like?
Because there's lots of different ways to grow, different ways have different pros and cons. Some of them can create really great opportunities for, for family members. Often one of the goals of growth and family enterprise is to create enough space and opportunity for. So I think it's, do you have your house in order?
Number one, and number two, do you have really clear objectives as to what success looks like as we grow? And what will that mean for members of our organization and for members of the family themselves? Have we aligned around that before we start? So it's the, the typical have a good plan before you get started.
Leah Tolton: [00:04:42] Right. You know, take me through a process of planning with a family enterprise, you know, to get their house in order. What kinds of things do you look to them to think about or give you information about so that you can help walk them through that process?
Ted Kouri: [00:04:56] One thing we love to do is A series of individual conversations with key stakeholders within the organization, sometimes even without the outside the organization as well.
It could be key clients, key partners, um, you know, key community stakeholders that they spend a lot of time with, but individual conversations first. to get a really good sense of where everyone is at sort of unencumbered by the dynamic in the room. So when you start to bring everyone together, sometimes the tone of the way things get said or the full honesty or transparency in what gets said changes when there's multiple generations in the room.
There's, you know, it could be sibling rivalry in the room, different things. So the first step from our perspective, in addition to just sort of doing a base assessment of an organization is to individually interview folks. And I would highly recommend a family enterprise. Engage an outside person to help with this because They're not biased by what they want the outcome to be so that outside advisor can help them see where there may be gaps and gaps are okay.
Points of tension are okay, but they're not okay when they're not recognized and not addressed and not discussed. So, so a series of individual interviews to then bring folks together, we often recommend you need to do some type of an offsite then, you know, a couple of days, uh, the right people in the room, leadership team of the organization.
Sometimes, depending on the size of the organization, that could be a, a session just with family members and then one with an executive team, if there's differences between those, those two groups, sometimes that can all happen together. Having those individual conversations up front allows you to say, okay, there's three issues we need to get into, and we know what those are going in so that you make really good time when you do one of those leadership team or, or family offsites, you're already working with a set agenda of, of key topics that, you know, have surfaced versus sort of being blindsided by an issue halfway through that someone brings up and no one knew.
Uh, was a pain point that would be a bit, that would be a big step. So it sounds simple, but individual interviews leading into an offsite, I think that would be a key way to start for an organization. The other thing I think that they need to do as a family enterprise is a thorough assessment of, of not just the corporate objectives that I talked about before, but the individual family members objectives.
What role do people want to play? What kind of time do they want to spend on a business? Even location might be an issue. Where do folks want to be, be living? Uh, what is their age and stage? What's their, their individual family dynamic within the broader family? I think an understanding and a fleshing out of those things, which would then lead you into governance, which isn't a space that insight particularly plays in, but obviously, you know, as part of an advisory team, you would want to make sure that they have strong governance that reflects those roles and reflects those objectives.
Leah Tolton: [00:07:22] So you've raised a lot of interesting points there and you know, I've heard you comment that it's important to speak to individual family members. I've heard you comment that it may be important to speak to people who may not be family members who work in the business. And I've heard you speak to the concept of having some communication and some decision making processes among the owners.
And those three groups may or may not have the same people in them. You know, it's interesting to me to hear you suggest that we should speak to everyone there. One of the things that I often see cause issues is when, uh, people are not clear which hat they're wearing. Even if they happen to sit in multiple of those chairs.
And it can really cloud their, their thinking because they may actually have two Ways that they're affected by a piece of information or by a big decision and so it's important to for them to keep clear or to help them stay clear about which hat they're wearing at the time that they're getting the information.
Another thing that I see that, that really, uh, is important in these kinds of situations is that people feel consulted and they have a voice and that tends to reduce, um, feelings of alienation, feelings of being excluded, things like that. Can you speak to that kind of dynamic and how you may have seen that play out in these kinds of strategy decisions for family enterprises?
Ted Kouri: [00:08:49] Absolutely. The feeling of not having your voice heard, particularly. I'll use the phrase maybe more junior family members that are more new to the family enterprise. Um, not always, but potentially younger, uh, members of the family. They don't often feel like they have an opportunity to help shape the future that they're going to inherit or be involved with.
So I think having their voice spoken to and then also. non family members. That's a huge deal in family enterprises is when you've got some really talented senior leaders within the organization who aren't part of the family, they often feel that there's two levels of conversation. There's the, there's the formal level of conversation that happens around the leadership table or at a management meeting, or even potentially at a board meeting.
And then there's the conversations that happen. Uh, at Sunday dinner, uh, or on a vacation that they're not a part of. And again, I think trying to reconcile those perspectives and that's where I think you do need to have very clear governance structures. You talked about the idea of what hat are you wearing.
So are you, are you wearing your shareholder's hat? Are you wearing your management hat? Are you wearing family member X or Y hat at that particular time? And what role are you playing in those times? I think is a really. Great piece of advice that you're offering is to be clear about what hat you're wearing and when but also to then have a planning process That allows for all those different voices to contribute Maybe not equally and maybe not all the time through the whole process But it's very clear to everyone what the process looks like Where their opportunities are going to be for them to both be heard and also though to learn and to hear from others which might Shape their thinking if you can map that out and and let people know this is a process that we're going to go through Here's a three to six month planning process There's different engagement points.
I think that helps a lot. It's not that everyone has to feel like they got to be in every decision. It's when they don't really understand when and how and who the decisions get made, I think is when feathers get ruffled or feelings get hurt or people feel left out. Right.
Leah Tolton: [00:10:42] Let's talk a little bit about, you know, the role of communication, because I think that is the issue here, is, you know, how information is shared, what information is shared, um, who gets that information, uh, and who gets to do things with that information, and if so, what?
Tell me a little bit about You know, the role of communication, the success of a growth strategy, whether it be an organic growth strategy or a merger acquisition.
Ted Kouri: [00:11:11] The best analogy that we like to use when you think about communication is to think about the rings on a tree. So you know, the concentric rings on a tree as they go out and as the tree ages, you get additional rings.
Working your way out and to think about the organization being right at the heart of that series of concentric rings, and then thinking about your communication strategy from an inside out perspective. So too often organizations get ahead of themselves and start announcing things to some of the outer rings without having fully vetted or discussed or shared them with some of the inner rings.
And that can be really inner meaning. Leadership team, family members, board members. It can be still fairly inner, you know, staff, you know, existing clients, people that we work closely with, and then outer rings, prospective clients, vendors, suppliers, other folks that we work with. And if you think about all those rings.
I would recommend that what you need to do first of all is map them. Do you actually know who all your stakeholders are? Right. Second, are we clear what communication and information they need and when they need to get it? Is that clear? And then third is what's the, the right and the best mediums to use to, to reach those different folks.
But ideally that communications plan is getting to your inner rings of your communication tree first and working out because there's nothing worse than a client on the street bumping into a frontline salesperson or a customer service rep and having a conversation about the organization and that staff member finding out something about the organization of their own organization that they didn't know because it didn't get rolled down from the top. And that senior person in the organization communicated outward of the organization before bringing everyone inside along. I think that's what results in people feeling out of the loop, people feeling frustrated, people feeling confused.
The, the rumor is starting to spread, particularly when you get into acquisitions, which we could talk about further, but if you're going to do some of that kind of work, there's obviously a lot of stuff that has to stay confidential. Are you really clear about who we bring in when and how so that the right people get told in the right sequence and you don't end up getting too far removed from the heart of that organization?
And you don't skip a ring. I think that's the key thing is that it's like inside out is, is the way to go. Um, even at the expense of sometimes, you know, worrying a little bit about, you know, confidentiality or leakage, I would rather err on the side of more people internally knowing more things before the general public finds something out and we've left our team behind.
Leah Tolton: [00:13:33] Right. I'd like to connect a couple of concepts that you've raised here. We've been talking about communication, internal and external, and you in a prior comment, you mentioned governance, and to my mind, governance is a way to communicate information to facilitate people being able to make the decisions.
Can you speak to some governance strategies that you've seen employed that are particularly effective or particularly ineffective?
Ted Kouri: [00:14:01] Well, the smaller the organization, obviously the more nimble and flexible their communication and governments can often feel. And sometimes. That's legit. And I think that that can work.
I just think the, the main advice I would have is, do you have clear governance? Is it clearly established and at a basic level roles who, who has which roles, how do those roles interact with each other? How does an organization discuss matters, make decisions? Is that all clear? That to me is like the, some of the very, very basic parts of governance that need to be in place regardless of size.
The part that I think most organizations miss though, is they don't communicate that governance piece. Peace. out to the organization. So I don't think most of the organization has to play an active role in making every decision. But I do think most of the organization should understand how a decision is going to get made and understand how it's going to get communicated, understand when that's going to happen, and therefore there's no surprises.
So an organization knows that, oh, we have board meetings every quarter. An organization knows that two weeks post board meeting, there's some typos. Sharing of that information of what was made, what decisions were made, what strategies are going to be embarked upon, how the organization is going to grow and whether that comes through a series of town halls, whether it comes through internal memos, whether it comes through one on one conversations with a manager, typically we'd probably recommend a combination of all those types of things.
Um, the, the, how you do it's less important than people knowing in advance what to, what to expect. So I think the governance clearly outlines all of that. It puts people in the right roles. It talks about how you make decisions and then it talks about how those decisions will get communicated. to all stakeholders, both inside and eventually outside the organization.
And I think when you've done that at a clear level and that everyone involved in that has not had an opportunity to get clear and get aligned around that, you're going to have a lot more success. Bigger organizations tend to put more time into those things just out of necessity, but I think smaller organizations run the risk of thinking that we don't need that because we're so small.
But the so small means that, you know, you and I are siblings. Um, well, we, we had a little chat at the family picnic. We don't realize that Half the decision was then made and the three other members of the leadership group weren't even included in that, um, because we didn't really define that that's how we make decisions or when we make decisions.
So I think. So you don't need to have, you know, so much documentation and paperwork that it's going to kill a small business, but you do need to clarify those things in a small organization because sometimes that sense that we're small, we're nimble, we're flexible, I think results in key steps getting missed.
And then you're backtracking and wondering where we went wrong.
Leah Tolton: [00:16:33] So to put it a different way, you'll back to my hats analogy. If you are in, you know, in the family group and you're wearing the family hat, then this is the way we make decisions and we have a conscious process about how family makes decisions, whether it's at the family picnic or whether we have a separate meeting or whatever we do.
If some of the family members are owners. Then the owners also have to make decisions in respect of what this growth strategy will do to their return on capital, what direction they're giving to the board of directors in order to oversee the strategy and the owners have a role to play when they're wearing the owner's hat.
And then the other aspects that you've been talking about here, to my mind, relate to Uh, what occurs when you're wearing your business person hat. You're actually in the business, you're running the show, you're talking about how you're going to grow the business.
Ted Kouri: [00:17:21] Yeah, correct. I think that's really well said.
And I do think that that last bucket of like when you're wearing your business person hat. It impacts everyone then in your organization. So it's not just about you getting the information that you need. It's about the people or the teams that you serve. How do they get the information that they need?
And I think owners and family members make the mistake of assuming that frontline employees don't need that information or they don't need to know that. And obviously there's certain information about an organization that doesn't need to be shared everywhere, but I think most family enterprises underestimate.
How much information can and should be shared and how helpful it can be to an organization when you've got everyone clear about what that is and not this sense of there's some mystery that happens when the family gets together and we have to wait and see what comes out of that magic box after they have a meeting or the same can be true whether it's family or not, whether it's a board meeting, whether it's a management meeting, if your team sort of has this sense that all the magic happens in those conversations and we're just left waiting to find out And we might not even get to find out what came out of that.
I think that's a mistake that you can avoid through more transparent communication.
Leah Tolton: [00:18:28] Yeah, that's a great point. I'd like to shift now into another aspect that's really important to growth. And I'm going to have you put your business person's hat on again. We'll take it from that perspective, but I wonder if you could speak a bit to branding and messaging.
I, I think it's related to communication, but perhaps a different form of communication and a different message. I wonder if you could speak to how a family enterprise should approach
Branding and messaging while it's in a growth phase, whether it's considering an acquisition or whether it's growing organically.
Ted Kouri: [00:19:01] Yeah, a couple things that are interesting when you speak about branding from a family enterprise perspective. So, overall branding, just to set the tone. From our perspective, too often the word brand gets used to just describe your logo or your visual identity. It's a lot bigger than that for us. It's the, the underlying sort of story or narrative about the organization and how you want to show up in the general market, in the community and, and even internally, there's an internal brand as well.
So understanding how all of those things are positioned internally and externally, that's what really forms your brand. And I think that's. A key thing, regardless of whether you're a family enterprise or not, is being really clear of, can we accurately describe what our brand is, what promises we make that relate to that brand.
And then every touch point within the organization should be an accurate reflection of that brand. Because the key with branding is consistency, that people know what to, what they're going to get every time they interact with you, with your organization, with a member of your team. When you've got that clear brand in place, I think from a family enterprise perspective, what gets interesting is there's often.
The family's name, family legacy, the family brand, which may or may not be synonymous with the organization's brand. And that depends, you know, there's examples where those two are almost exactly the same thing. It is the family name or the family brand that is the organization brand. In other cases, they're very far removed.
You know, the family may look at the, that they're at their business investments more as arm's length investments, and that brand is serving a different type of market than the original family business. And we may need to have a different set of branding. Um, messages, you know, different brand narrative in the market around that.
So I think you've got to be really clear about what it is your branding and where the lines stop or don't stop or where they blur together. And how do we, how do we convey around that? So if I was a, a family business with four or five different entities, but all generally serving a similar market, we probably can have one brand that represents all of that.
And there's just different service offerings or different product lines that are out into the market. But if I'm a business that's investing in. seven completely different industries. Some are retail, some are very corporate. A couple of them might be purely from a capital investment perspective, and I'm not day to day involved in the business.
The brand implications might be different and we need to decide that. So I think in a family enterprise, there's brand implications. For the family. Then there's brand implications for the business. And I'll use that word business broadly. And then the individual businesses. Right. And where and how those align.
There's no right answer. It depends on what the objectives are. There's times where I think those brands should all be the same. There's times where I think some of those brands could be very, very different. But do you have, have you had that conversation? Have you thought through what that looks like?
Have you built out a very clear defined brand? I like the word brand narrative. Like what's the narrative behind the brand? How do we talk about it? How do we live it? How do we walk it? All of those things I think should be clear to everyone within an organization and everyone within the family that's part of the business.
Leah Tolton: [00:21:48] So then, I think I'm hearing you say that those are the factors that a family enterprise should consider. Um, to make sure that you're going to have a successful integration after a growth phase has been completed or an acquisition has been completed.
Ted Kouri: [00:22:01] If you're going to, if you're going to, so let's say you're going to do an acquisition.
I think the, the brand implications from an integration perspective are the same, whether you're family enterprise or not, there might just be one more layer, as I talked about with the family side. You know, I think the first question you have to ask is, are we looking to do a real in depth integration and is this going to operate as one business?
And if it's going to operate as one business, it definitely needs one brand. If it's going to operate as two businesses, but there's a lot of overlap, we still need to consider that, that brand, or is it going to operate as two businesses that are owned by the same entity, but really don't interact?
They don't share a lot of resources. The people are different. The customers are different. The product or the service that they sell is different. That might make a lot of sense to have two distinct brands and to keep them separate. And I think that's a formal evaluation that needs to happen every time you enter into a potential integration is, are we looking to formally integrate?
If so, when and how fast. And if we're going to formally integrate, is it under one brand or two brands, but with shared elements that people could say, Oh, that's a brother and a sister, but they come from the same family. Or is it going to be their identical twins? Or is it going to be no, they're, they're distant cousins or they're perfect strangers.
You know, all those as a, as a bit of a silly example would be a way to think about what you're trying to do. And I think that, that question has to be asked. Ideally, before you even start the process, and then certainly as you, as you roll it out.
Leah Tolton: [00:23:21] So let's assume that a family enterprise has made the decision to, uh, enter a growth phase or, or acquire a strategic growth partner.
How should the family enterprise approach change management during that process? What strategies can be adopted to mitigate risks you see or manage resistance?
Ted Kouri: [00:23:44] Promote positive change. Biggest thing is don't underestimate that change is real. Change is really difficult for almost everyone and typically the people that were involved in making the decision that's driving the change, so in the example of doing an acquisition, a very select handful of members of the ownership group are often involved in that decision.
Often the process is highly confidential until the deal gets closed. Many people within the organization don't even know what's happening. The, the biggest mistake we see is people underestimate that impact of change because they've spent six, eight, 12 months working on a deal, getting comfortable with it in their own head.
And they underestimate that everyone else is going to need that same six, eight, 12 months to get comfortable to it. They think they can do it in two weeks. So they underestimate the necessity for a change management process because they think. But we'll just tell everyone about it, we'll answer a couple of their questions, and we'll be good to go.
We'll have a town hall, and we'll be good tomorrow. Send a press release, and we'll be done. And it just doesn't work like that. In fact, most impl negative implications of change, which are either people leaving or customers leaving. Don't happen in the first six months post transaction. They happen six to eighteen months after.
Because it takes people a while to get used to it, to see what it's going to be like, to decide whether they like it or not. So your change management process, you actually need to be thinking about it in the time frame of six to eighteen months, not in a matter of a couple of weeks. So everyone always talks about the hundred day plan, and I think, yeah, there's a lot to do in that first hundred days.
But your plan really needs to be looking over a six to eighteen month time horizon, and key basic things like communication, like engagement, like culture. You need to be hitting those points multiple times in multiple different ways for people to become familiar and accustomed to that. And like any good change management process, there's going to be some naysayers.
Ideally, you're identifying who those might be, you're finding ways to engage with them, to bring some of them on board. You're not going to make everyone happy and you can be okay with that too, but you should think through all of those pieces of who are our champions, who are our detractors, what's the message that we're going to tell, what mediums are we going to use, but the notion that we're going to announce the deal and a month later everything's going to be great, I think is a mistake.
And I also, I also think it's a mistake sometimes to make it too positive. There's some negatives with change, like not everything about change is positive and that's okay. I would rather be open and transparent about some of the negatives or the challenges. That are going to, that are going to pop up and emerge and how we're going to work through them together.
Then these messages that come out typically that nothing's going to change, everything's going to be great. And inevitably some things do change, and not everything is great, and then they wonder why people feel a little bit let down or misled. It's because they, all they heard was nothing was going to change and everything was going to be great.
Right. And that's almost impossible to actually deliver. So we should be more honest about some things are going to change. Some things aren't. Here's what's going to change, here's what's not. Some things are going to be great, here's what those look like. Some things are going to be a challenge, here's what those are.
Some things we don't even have answers to yet, here's what those questions are. And we're going to work on those together to get to them. And I think the more authentic and engaging leadership can be about those conversations, but go into it with, like I said, a 6 to 18 month mindset of that's how long it's going to take us to work through a change management process.
Some real large integrations, it's years. Um, but I would think for most small mid market family enterprises, six to 18 months is about the time horizon. And that's six to 18 months from the time the deal closes. You're often working on the deal, as you would know, um, six to eight to 18 months in advance of it.
So maybe it's a three year process when you think your way all the way through pre close and post close.
Leah Tolton: [00:27:11] You know, I'm just thinking back to the comments we made earlier about providing information to people, allowing them to have a voice, you know, not everyone would have the same voice in every setting, but, you know, to the extent people have a voice and they've heard the information, we tend to see a greater uptake or buy in to the decision or to the The outcome is, is that applicable here when we're talking about change management as well?
Ted Kouri: [00:27:34] For sure. You obviously can't let people weigh in on every single piece and they can't necessarily get to make a decision on every single piece, but where they can, I think the more people can be part of a process, the more you're bought into it. It's. You know, the age old thing, if you can make someone think it was their idea, they're more likely to want to do that.
So if you can bring them to the table sooner, um, but also just being, I think, less scripted as a, as a leader. If you know, oftentimes it's like, well, here's the speaking notes. We do need to have some key messages that we need to be consistent with. But I think it's also very genuine communication around.
Here's what I know. You know, Leah, I know the answer to these three questions. What other questions do you have? And the answer to some of those questions is, I'm not sure. What do you think might work well? Let's talk to some other people, think what, see what they think might work well, and let's make the decision together on what will be the best for the organization.
We'll move it forward that way. So identifying, I think, which things are non negotiable, which things are open for input, but we've already got a path, and then which things are unknown and we really want those ideas, and being clear about what's what. And I think engaging people from that perspective works, works really well.
We've had a lot of clients. One of our client named them, uh, an AMA session, ask me anything session. And we've been using those successfully now for the last couple of years with other clients where every time there's an integration and it doesn't even have to be a, an acquisition, like what other big changes could happen, whether that's new family members entering the business, whether that's leadership changes, whether that's a, an ESOP, you know, any type of sort of organizational structure change, have a series of sessions where people both.
Confidentially and in person where you know who's asking the questions can ask whatever they want and leadership's prepared to answer those questions, even if some of the answers need to be. That's a great question. We don't have an answer to that. We'll have to get back to you and then making sure that they actually do that and get back to them.
I think it'd have a way bigger impact than what seems like a perfectly polished two minute video that we send out to everyone. But we never talk about it after that. It's sort of like, well, no, watch the video. That gives you all the information you need to know. And then we'll move on. I think that's a mistake is underestimating both the time it takes and the repetition that's probably necessary.
People need to be able to hear the same information three or four times before they internalize it.
Leah Tolton: [00:29:38] The thought that's going through my mind is you talk about repetition and you talk about giving people information and allowing people to ask questions. The thought that's going through my mind is really what we're talking about here is establishing trust.
We're talking about getting trust from, uh, your Business leadership, we're talking about getting trust from your business contributors, whoever they are, whether they're people who work for you or whether they're family members. We're talking about getting trust from the people that you do business with externally, and we're talking about being vulnerable and being ready to respond to them in a way that's authentic, so that they trust that you're telling them the truth.
Ted Kouri: [00:30:14] Absolutely, great point. And I think if you go all the way back to where we started this conversation, where you asked about things an organization should do to get ready. That's a great point. Is there a spirit and a culture of trust within the organization on a day to day basis? And do you know that?
Have you assessed that? Have you gotten feedback on that? Have you gotten independent feedback on that, not just made the assumption? I think that's a great place for an organization to start because it's if you think about like a sports team that wants to win a championship. To do that, there's gonna have to be some changes along the way.
We're gonna have to probably bring in some new players. We might have to make a few trades. We might have to change some of the way that we play. All of those changes will be easier. If we start from a place where we establish protocols around how we communicate, how we make decisions, who plays which roles, even if we're not quite as successful as we want to ultimately be because we haven't added the missing talent or we haven't made the big acquisition or the big trade, we've already established a culture of how we play and how we think and how we do things.
I think organizations that, that have that in place and then embark on a growth path do far better than ones that are trying to like address their gaps by growing. I don't think it works that way. It usually goes worse. Like whatever your number one problem in your organization is, it probably will get worse after the acquisition, not better because of it.
Leah Tolton: [00:31:30] To harken back to the comments we made at the outset. It's important for information and decision making to be clear in the family, so the family trusts what the decision is. That they give direction to the owners, who may or may not all be family. So that the owners know what the family wishes to obtain, and the owners are ready to engage in a process that the owner's trust is going to generate the result they want.
Yep. And then they provide that information to the business people, who then carry that out in the form of strategy, and the business people can trust that they're getting direction from the owners. Who then, and the family also trust the owners have given the proper direction.
Ted Kouri: [00:32:08] Yeah. Bang on.
Leah Tolton: [00:32:10] You know, we've talked a lot about, you know, things that you recommend, things that you hope to see, things that have been successful, et cetera.
I wonder if you could, you know, reflect on your experiences and if you could share with us any major learnings from past growth processes that you've seen in a family enterprise and tell us what. Key takeaways that you've learned that, uh, were things you wish you knew before, that you know now.
Ted Kouri: [00:32:38] Yeah, three, three things jumped to mind.
The first is, most family enterprises, where I find the biggest struggles happen, at least the point that we're coming into working with those organizations, there's often a significant change in either strategy or brand often, where the brand needs to change to be modernized, because it's been around for 40 or 50 years, but there's been a shift in the business and something's different.
And it's often second gen that's leading those efforts and they feel, and I think believe that they're well established in that leadership role, but first generation's still around. It's not, it's, they haven't totally exited the business. They haven't totally turned over the keys. You're nodding. I'm sure that you see that all the time.
I see it all the time. And. I think lessons that we've seen with clients is that first generation should be actively involved in the process, right? Especially the ones I'm thinking of right now have brand implications. So when you start to talk about things that may impact name, that may impact how the story gets told in the market, that may impact legacy.
Even something as simple as, you know, the, the sign out front, all of those decisions I find can be emotionally triggering inside a family business. And I think it can probably happen at all different stages or different, but the biggest one I see is often second generation that's already in mostly the leadership seat, assuming that they don't need to consult the first generation on it, or that the first generation's opinions are dated, or they did a great job of growing the business, but what got us here won't get us to the next place.
And while there may be some truth in that, I just think it's a real big mistake to neglect engaging, I'm saying first generation, I would say neglect engaging any elements of the family in a process like that in the beginning. Don't just ask them to come in and approve the, the end product or the decision, I would engage them early.
So engage family members in the process early would be my first takeaway. And I can think of, you know, half a dozen in my head of, of client examples where they tripped up or we tripped up with them, not having done a full enough job of consulting. Um, often the founder, um, often, you know, mom or dad early in the process, that'd be one.
Two would be to think about. Some of the pieces that we've talked about around, do you have effective and transparent communication both within the family and then from the family into the organization? I think that's the, the beauty of family businesses is how it mixes business and family and there's, there's such an overlap, but it also causes all kinds of tension and grief because you get, you know, different elements of that family that have stronger relationships and bonds outside the organization, outside the workplace.
A level of communication and trust and authenticity happens that doesn't happen equally with everyone and then you start to get, uh, walls built up and you start to get misunderstandings and you start to get a lack of communication flow. And then the same thing, even if the family's got that down, Pat, they don't do the same thing of engaging their leadership group.
And I remember an organization that was, that was a family enterprise, but the number two in the organization was not a family member. And their comment to me was, you know, on the org chart, I'm number two, but in reality I'm number five or six because there's a spouse and a parent and a sibling who all talk about the business over family dinner.
And I'm not there. I'm not part of those conversations. And so it makes it very difficult. To really serve the role of a number two when you're really being communicated to like your number six or number seven. So I think that, that communication process both within the family and then from the family into leadership and eventually to the whole organization, which we've talked a lot about today, I think is often a big miss and it's just It sounds so easy when you and I talk, talk about it right now, just sitting here, chatting back and forth.
I think you need to put the time and the effort into the rigor around that to make sure that it's effective and not just assume that it is right. And then the last lesson that I would have probably relates to some of the governance piece. It's around clarity of role. And then also are people in the right roles based on their capabilities or simply based on their last name.
And we've seen that with a lot of organizations where trust can get eroded very quickly because. You've got two or three siblings, all great people, but not equally great business people. And yet they're treated the same within the organization. And that causes issues because the rest of the organization sees that and can cause cause problems or they're put into roles that they're not well suited to.
Right. You know, perhaps they're really well suited to a certain role within the organization, but that role doesn't seem to align with the traditional family succession plan. That's a really tough one for families to navigate, but I think getting the right people in the right roles and ideally. Family members are only in those roles if they are equally as good at doing that role as somebody else.
Um, they don't necessarily have to be better than everybody else to do it. If it's a family enterprise, it makes sense that there's going to be some family connection and ties to that business.
But if they're significantly weaker at a role than somebody else, I think you have to be able to, to look at that objectively.
Difficult for, for most family members to do, but I think family members, where there's family in the business who don't have a role that is easily articulated both within the family and throughout the organization. I see a lot of stumbling blocks around that. Like we do assessment work with new clients all the time that are family enterprises, and they'll make a comment about, Oh, that, that Ted, yeah.
We, no one really knows what he does. And I think that causes a lot of grief with inside your organization. So those would be my three pieces involve the different generations and decisions. Don't neglect up or down the family tree in terms of, uh, of, of engaging people, if you're going to make a major decision or a major change or a growth initiative in your organization.
Two would be communicate equally well within the family and with outside the family and three would have be very clear roles that everyone knows and can speak to and then to your, to your line, which I like a lot, know which hat you're wearing and when.
Leah Tolton: [00:38:09] Ted, this has been terrific. Thank you so much for taking the time to share your wisdom with us and with our listeners.
I really appreciate you taking the time and. Thanks so much.
Ted Kouri: [00:38:17] Yeah, my pleasure. Always great to connect. Thank you.
Leah Tolton: [00:38:19] Thanks for joining me on this episode of Beyond Succession, a series within the Bennett Jones Business Law Talks podcast. Make sure to hit the follow button on whatever platform you are listening from so you get notified whenever we release new episodes.
Also, don't hesitate to reach out if you have any questions about challenges or issues that you are facing in your family enterprise. Take care. I'll catch you in our next episode.
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