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Episode 25: Working with Family Owners That Don't Work in the Business

In this episode of the Family Business Show, host Michael Palumbos, from Family Wealth and Legacy in Rochester, New York, dives into the crucial topic of non-managing family shareholders in family businesses. The discussion highlights how ignoring these stakeholders can potentially undermine a business's success.

The episode features insightful contributions from two guests: Pat Armstrong, a seasoned family leadership coach from the West Coast, and Arne Boudewyn, a trained psychologist with a deep understanding of family business dynamics. Armstrong and Boudewyn share their professional journeys, emphasizing the importance of their psychological expertise in addressing the unique challenges family businesses face.

A significant portion of the conversation revolves around the necessity of involving non-managing family shareholders in the business's governance and decision-making processes. The guests stress the value of communication, education, and the establishment of clear policies that guide the participation and contributions of all family members, irrespective of their active involvement in day-to-day operations.

Moreover, the episode touches on practical strategies to engage family members, such as family meetings, internships, and creating a family constitution. These approaches not only promote a sense of ownership and belonging among family members but also help in aligning their interests with the business's long-term goals.

In summary, this episode serves as a comprehensive guide for family business owners and stakeholders, offering actionable insights on enhancing the integration and satisfaction of non-managing family shareholders, thereby fostering a robust foundation for enduring business success.

Watch the entire episode!

Episode 25 Transcript


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Michael Palumbos: Welcome everybody to the family business show. I'm your host, Michael Columbus with family wealth and legacy here in Rochester, New York.

 

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Michael Palumbos: And today's show, we are going to be talking about ignoring non managing family shareholders and how it can undermine your business.

 

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Michael Palumbos: We have two incredible guests that I'm happy to introduce pat Armstrong, a family leadership coach in the west coast and our nab Baldwin, I did I get it right. I always struggle. I apologize. Um, can you tell us a share, where that name comes from

 

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Arne Boudewyn: Sure. First, the first name. Well, well, thank you for welcoming us code so happy to be here. It's aren't a boon for sure you got it 100% right first name Arna is Swedish direct derived from us from Swedish and the second is Dutch my dad from the Netherlands and that's where it comes from.

 

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Michael Palumbos: I love, I love it. I always love you know having an interesting name pat your pad. I'm Michael, you know, there's

 

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Michael Palumbos: Like 30 of us and we're going

 

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Michael Palumbos: Through school right

 

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Michael Palumbos: Welcome to both of you are really appreciate you joining us and sharing your expertise today what we like to do when we start the show is if you know if each of you would just take a couple of minutes.

 

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Michael Palumbos: This, this idea of working with family on businesses. I think in the last maybe five or five years or so has really started to become a

 

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Michael Palumbos: more well known study, but even today. It's not really that well known. So where did you come from and how did you get into working with family owned businesses. What was your journey. So Pat, if you don't mind, I'm going to ask you to kick us off.

 

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Pat Armstrong: Sure, I'd be happy to. Michael. Um, well, I'm a psychologist by training and so started out in public mental health and then developed an interest in organizational psychology and so

 

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Pat Armstrong: You know I I pursued, you know, work in a in a variety of perspectives.

 

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Pat Armstrong: Really probably most directly came to the family work by way of serving as the head of human resources for a decade of Wells Fargo's private bank.

 

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Pat Armstrong: And in that context, learned a lot about the trust business family businesses, you know, working with families and so after a decade doing that.

 

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Pat Armstrong: Had the opportunity to work with Ariana at the company's multi family office which is Abbott downing and so

 

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Pat Armstrong: At that juncture in my career. It was really an opportunity to go back and work directly with clients but within the context of their family businesses within the context of leadership development and really helping them.

 

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Pat Armstrong: achieve the objectives that they hope to so it was kind of a path through organizational psychology and human resources. Yeah.

 

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Michael Palumbos: And there's probably no more interesting organization in the family at sometimes right

 

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Pat Armstrong: Well, that, that, that's right, the what, you know, wonderful dynamics and then just on a personal note, I mean, I didn't make this connection intentionally

 

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Pat Armstrong: But my parents had a small family business. So I certainly had an appreciation for how

 

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Pat Armstrong: You know when you have a family business. It's all hands on deck and and then also my grandparents had a had a farm. So I'm the third generation steward of that of that farmland in Illinois and you know you learn a few things about about that as well. So

 

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Michael Palumbos: Read love it or not. Tell us about yourself.

 

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Arne Boudewyn: Sure. Well, like, Pat, I was. I've also been trained as a psychologist and originally started out in private practice when I received my PhD.

 

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Arne Boudewyn: In San Francisco where I was born and raised and moved into an interest in health, psychology, particularly behavioral health interventions in primary care and because of that interest pursued.

 

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Arne Boudewyn: Working with the neurology department and the multiple sclerosis clinic at the University of San Francisco, California and San Francisco.

 

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Arne Boudewyn: And subsequently with Kaiser Permanente, one of the big he most in our country and their corporate offices, helping to design

 

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Arne Boudewyn: Psychosocial interventions for chronic health conditions like diabetes healthcare heart attack, I should say, and so forth.

 

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Arne Boudewyn: I was recruited over to Wells Fargo actually our parent company in 2003

 

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Arne Boudewyn: To help run our employee assistance program, which at that time was one of the largest internal employee assistance programs in the world. And after about seven years in different HR roles there.

 

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Arne Boudewyn: moved over to the well side of the business now 10 plus years ago I immediately found that I was just passionately interested in

 

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Arne Boudewyn: The organization or, you know, psychology aspects, the systemic approach to helping families managed through transitions and I've never looked back. It's

 

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Arne Boudewyn: There's so much you can do so many interesting families to get to meet across the country. And also, I just find myself inspired by these families every day and how they navigate some of the natural inherent challenges and family business.

 

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Michael Palumbos: Love it. That's I think it's that piece that probably drives all of us is that it is

 

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Michael Palumbos: You know so different in and so inspiring to watch what's happening inside of the family dynamics, the family business. And you know that how they manage things that it just, it makes every day exciting and fun. And that's, that's great.

 

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Michael Palumbos: Thank you both. Again, for sharing. So today, you know, the topic and, you know, we put the title out there. Danger, Will Robinson, which I'm aging myself, you know, but

 

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Michael Palumbos: Ignoring non managing family shareholders can undermine your business. And that's really interesting. It's not something that we've talked about to this point and because you know

 

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Michael Palumbos: Not every family business. His ownership outside of those working in the business so that a lot of times the family says, you know, if you're going to, you know, be an owner, then you have to work inside of here, but what oftentimes happens and tell you know, help me, you know, help our listeners.

 

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Michael Palumbos: Is it when a business gets so big you know there's oftentimes the you know the the founding generation or whoever the controlling generation when they pass that on

 

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Michael Palumbos: The, you know, in order to do estate planning properly and to do keep things fair, they end up passing ownership to people who are working in the business and

 

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Michael Palumbos: That has its you know pros and cons and that's what we're gonna be talking about today. Right.

 

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Michael Palumbos: So when when we're talking about this, I guess, you know, before we dive into some questions. Is there any you know

 

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Michael Palumbos: Um, do you want to lay the groundwork, a little bit. Do you want to just give a little you know background on why why this topic came up for you. What was percolating when this, you know, when we were talking about this topic.

 

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Pat Armstrong: Well I, I think it's probably our psychology backgrounds. Right. You know where we're interested in the dynamics and families and, you know, and I think for me.

 

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Pat Armstrong: To to see incredibly well intentioned family members, both within the business as well as shareholders.

 

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Pat Armstrong: struggle to understand how to

 

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Pat Armstrong: Communicate with each other about the business, you know, if you'll if you ask any

 

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Pat Armstrong: Anyone who values family businesses, perhaps, helping them get ready for a sale or, you know, helping them, you know, strategically.

 

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Pat Armstrong: They will tell you that paying attention to the shower shareholders that may at some point have to vote on an action to sell the business or to, you know, buy a new company and so forth that that often that is

 

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Pat Armstrong: Those voices are neglected because they're not in the day to day business but at those critical junctures it becomes incredibly important and so

 

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Pat Armstrong: You know, I think that's what has interested us is, and then we're both interested in in governance work helping families, you know, develop structures and communication processes. And so really underneath that is to understand

 

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Pat Armstrong: The challenges of communicating when you're just partially in the business IE through ownership. Gotcha.

 

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Arne Boudewyn: Yeah, I would. I agree 100% with what you just said, Pat and I would just add, you know, I think my interest really came back to a

 

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Arne Boudewyn: Family that I had a conversation with I got to know a little bit over about a year, year and a half, three principals who are G to themselves all over 60 years old.

 

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Arne Boudewyn: This a sibling group thinking about how they could transition their business to the next generation and whether they should actually contemplate a sale. They only had one or two. First one, then a second

 

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Arne Boudewyn: Next generation family members working in the business. They weren't sure if they were the right ones to sort of fully inherit the business and run it in the way they had granted, they haven't had as much experience as that senior generation.

 

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Arne Boudewyn: But one of the things that was interesting is, there were so many other next gen stakeholders in that next generation and they had so many questions around whether they could participate in the family business. I

 

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Arne Boudewyn: Was interesting to me to see some of them didn't realize there were no jobs for them in the family business and

 

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Arne Boudewyn: As the senior generation said it's not like we can just hand out jobs left to right here. We have to be profitable to there has to be a need, but there was such an education gap there around will Why do some family members get that opportunity and the rest of us don't

 

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Arne Boudewyn: And then for those who might be interested. Could there be some other leadership opportunities for them as part of the larger sort of family enterprise. The other piece. Michael was

 

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Arne Boudewyn: This family. Some of those shareholders who did not fully feel like they understood the business they want they wanted to. Now, how they can exit.

 

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Arne Boudewyn: And take their shares with them. And, of course, that was another opportunity to educate them about if you actually all did that the business would collapse. So, you know,

 

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Arne Boudewyn: I never forget that family around how important it is. There's so much to do about trying to bridge that the communication gap as Pat said there.

 

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Michael Palumbos: That's very helpful to frame that between the two of you. I appreciate that. So we're talking again, we're talking about the non managing family shareholders want to make sure that we keep emphasizing that but

 

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Michael Palumbos: There's, there's got to be there has to be a way to give them a voice and allow them, you know, some perspectives and understanding, you know,

 

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Michael Palumbos: Give voice of the perspectives and the challenges that they have a being non family, yet not managing shareholder. So they you know it's it's like I don't own us, you know,

 

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Michael Palumbos: I don't have anything to do with XYZ stock that can put any any any any simply you know symbol out there, but

 

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Michael Palumbos: Just because I own the stock. I don't get any voting rights, other than the shareholders vote, I just, I can vote for the shareholders, but my little you know stake in that company, regardless of you know who that is, is tiny.

 

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Michael Palumbos: But that that's a natural. We all know those rules when we buy the stock with a family business, it's much different than that, isn't it. And so the education process and how do you give those people voice.

 

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Pat Armstrong: Well, well, it is and and i and i want to share an example about that was so

 

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Pat Armstrong: Touching to me in terms of the importance of that voice and so

 

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Pat Armstrong: You know, this was a family with multiple locations all in small towns and it was a family with multiple branches. So the third generation was for the third generation from the founder was running the business.

 

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Pat Armstrong: And so in the process of starting the communication process, someone who was described by the people in the business as quite disengaged when given the opportunity to talk about their experience described the experience

 

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Pat Armstrong: Of being someone whose last name was the name of the business, but really knew virtually

 

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Pat Armstrong: Very little about the business and but but because they operated in small towns in his community. People would approach him on the street and say, Hey, I heard about this or what's going on about that.

 

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Pat Armstrong: And he was profoundly embarrassed to not be able to communicate about what was going on in the business and, you know, sort of, you know, it bothered him, but there was no vehicle to be able to

 

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Pat Armstrong: Voice that concern. Right. And I'm not sure he even you know verbalized it as a concern to himself until given the opportunity to talk about potential questions or information that he had

 

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Pat Armstrong: So you know i i think we we underestimate.

 

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Pat Armstrong: The emotional connectivity and don't always anticipate where those emotional connectivity is come from.

 

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Michael Palumbos: That's a great story. I appreciate you sharing both of the stories. It's this summer, we, we did a family meeting and it wasn't

 

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Michael Palumbos: It wasn't non managing shareholders, but it was spouses and children of the family, you know, family business members so much the same thing was really interesting. We did you know we put up a video of what the family does. We won't get into exactly

 

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Michael Palumbos: But it was

 

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Michael Palumbos: You know, during the construction industry and and so that you know just an interesting video that showcased the business.

 

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Michael Palumbos: And one of the nine year old kids you know just looked at the video and she stands up and just looks every because

 

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Michael Palumbos: Justice. It's so neat. And it was just that same kind of concept. The of sharing that so are not talking about, you know, what are some of the ways that we can provide you know give that voice to those non managing shareholders.

 

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Michael Palumbos: And and tackle some of these challenges.

 

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Arne Boudewyn: Yeah, absolutely. I think one of the key ones is really around having some structure or process that really, sincerely conveys

 

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Arne Boudewyn: That we recognize you benefit from education we recognize your importance as supporters of the business right

 

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Arne Boudewyn: So family meetings are really important one with the example that I shared a little bit ago

 

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Arne Boudewyn: Those three siblings g to the ones all in their 60s, the senior generation they recognize that they needed to do a better job of engaging non managing shareholders through a family meeting structure, not the once a year.

 

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Arne Boudewyn: Vacation based family vacation based sort of family reunion structure that they had done for

 

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Arne Boudewyn: 20 years Austin's around parents were alive, where there was a little bit of information shared, but it was really a family reunion, but to actually have more regular

 

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Arne Boudewyn: family meetings. And so that was a huge undertaking for them among the siblings. There was not uniform agreement around how often they should do those meetings. How much information should be shared. Or even why those non managing shareholders deserved.

 

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Arne Boudewyn: To have, you know, four or five times a year family meeting.

 

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Arne Boudewyn: The other piece was then, you know, what do you share at those meetings. Right. And I think one of the key learnings there Michael for me was that some of this, the sibling.

 

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Arne Boudewyn: Owner group they were worried that somehow inviting those non managing shareholders to a family meeting conveyed that they would have voting rights around the strategy of the business.

 

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Arne Boudewyn: And so, you know, again, another really key communication aspect, both for

 

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Arne Boudewyn: The managing family member and the non managing shareholder family member around. What are your rights and responsibilities as shareholders and where do your rights and responsibilities.

 

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Arne Boudewyn: End and those who are managing the business, which in this case is feeding into those trust that you will benefit from someday.

 

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Arne Boudewyn: Where do they, where do they have the voting rights that you don't have. But what was in between, of course, is everyone's right

 

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Arne Boudewyn: To communicate better educate better understand better and I think there was some recognition in that senior generation that, in fact, the closer you drew those non non managing family members in the more likely you are to get that support you needed around how you run the business.

 

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Michael Palumbos: That's interesting. It's, it's almost like what we fear most is when you dive into it directly is when you get the best results.

 

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Arne Boudewyn: Exactly.

 

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Michael Palumbos: Love that.

 

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Michael Palumbos: Pat anything you'd like to add

 

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Pat Armstrong: Um, well just just building on that, in the example that

 

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Pat Armstrong: You know I shared about the families kind of coming together regarding how they would communicate

 

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Pat Armstrong: One of the things that that it's important to think about is sharing information from the perspective of the recipient. So with this particular family is Arna you know referenced.

 

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Pat Armstrong: There was a practice of annual meetings and information was shared but prepared by the CFO prepared in a way that

 

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Pat Armstrong: That didn't really ask the question, Is this what you want to hear. Is this what you're interested in. Is this the level of detail. So being able to drill into what is of interest you, what would be helpful and frame those discussions in a user friendly way.

 

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Pat Armstrong: You know, is important in your example, the video of what we do. Right. You know, if you want to. If you want to think about engaging

 

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Pat Armstrong: You know, the teenagers, the younger folks. One of the things that's exciting about family business is is the contribution that's made the profound contribution.

 

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Pat Armstrong: In the country around the world of family business. And the cool stuff that people do that family members are often sort of tangentially aware of, but when you really drill down into

 

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Pat Armstrong: What it is that we do and what's important, that can be very engaging and builds a kind of pride that is invaluable in terms of long term engagement.

 

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Pat Armstrong: You know, I think Arna raised a really important point about the issue of the fear around

 

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Pat Armstrong: Well, are you going to try to tell me what to do.

 

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Pat Armstrong: And and so I think at the heart of that is that when you have shareholders who are who are owners literate who see themselves as own, you know, what does that ownership mean doesn't mean I can tell you what to do. Well, no, but what it does mean is that you have

 

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Pat Armstrong: The right to understand the key drivers of the business and how those are going. So in a, you know, taking another example of a sibling group who, one of whom ran the business.

 

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Pat Armstrong: Lost their lost their parents suddenly

 

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Pat Armstrong: And and even though the sibling who was running the business had been cultivated in that role by

 

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Pat Armstrong: The Father, the sudden loss. Put the siblings into an interesting position because all of a sudden the the middle kid right was

 

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Pat Armstrong: Was in control of what they now all had equal shares in

 

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Pat Armstrong: And so they were making each other crazy with questions about, well, what about this. And what about that and the you know the managing you know sibling was feeling like you know

 

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Pat Armstrong: unduly questioned and, you know, potentially undermined and so just the process of helping them step back to say

 

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Pat Armstrong: What are the key variables that influence your interest in this business and things like, you know, this happened to be kind of commercial real estate. So things like occupancy

 

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Pat Armstrong: Things like debt load on some of the properties, you know, a process of going through and and figuring out the key drivers that they really did have a right to know and communicating that information in a proactive way.

 

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Pat Armstrong: Put some structure around that constant questioning, because if you ask the other siblings, they would say, well, where we feel like we're responsible now and we have to ask questions and we need to know

 

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Pat Armstrong: But it was not

 

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Pat Armstrong: organized in a way that was helpful to anyone. And so, you know, thinking about the drivers of the business and how that's relevant to shareholders is a valuable activity.

 

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Michael Palumbos: Right.

 

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Arne Boudewyn: Add to that, um, you know, Pat. You really you started to talk a little bit about the concept of dual role relationships and families and

 

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Arne Boudewyn: This is I think one of the biggest educational opportunities in terms of how to manage that dynamics right between managing

 

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Arne Boudewyn: Family members and those who are non managing shareholders, the business, but to sit down and actually acknowledge where there's all these dual roles that were playing at once with each other right so let's say it's Michael you and Pat and I are the same family.

 

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Arne Boudewyn: It could be that at work. Pat is our boss and CEO could be at home, you're the trustee Michael about Pat and I am I trust.

 

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Arne Boudewyn: And it could be that in another scenario. Pat actually has a majority voting share

 

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Arne Boudewyn: Because the way our senior generations died more of it and ended up and you know and so to sit down sometimes and acknowledge these are the different roles we play. Now let's shuffle it again. Now we're siblings. Now, where

 

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Arne Boudewyn: Owners own family members and we're all messing group but you manage. I don't. And then to really specify what are the roles we each need to play and the boundaries of those roles in each one of those setups.

 

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Arne Boudewyn: That is so helpful to families and I find as we move around and talk to family business owning families. Every, every month of the year. I'm always surprised that people don't spend a little bit more time acknowledging

 

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Arne Boudewyn: The how the pressures and the dynamics of those Douro relationships.

 

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Arne Boudewyn: Do really need to be acknowledged and then spelled out once you do spell it out for families, I find it's a lot easier to then say, let's put some ground rules around how we act.

 

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Arne Boudewyn: In terms of each of these different types of relationships we play because at the end of the day, I think we all know this. Most families, maybe this year is an exception because of

 

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Arne Boudewyn: Kobe restrictions around Thanksgiving. But at the end of the day, all families want to be able to sit down around the Thanksgiving table together and not feel like all these dual role relationship dynamics have gotten in the way the more we sort them out as a family and

 

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Arne Boudewyn: revisit them from time to time, the more it gets clear around how we can really navigate those different roles in the different settings. Great.

 

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Michael Palumbos: I want to talk about some best practices and doing that. But before I do that, you just something that popped into my head is that we identified real clearly what the some of the challenges and perspectives were especially in that

 

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Michael Palumbos: When we're talking about the I have the same last name I'm walking through town and people are asking me, what are some of the other challenges.

 

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Michael Palumbos: I mean, do you have like in your head. There's three or four other challenges that I can just list so people can hear some of the other thoughts that the non managing shareholders might be thinking about or perspectives.

 

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Arne Boudewyn: I, I had one right off the bat, and it was referenced just a little bit earlier, but the concept of an exit strategy.

 

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Arne Boudewyn: I think for some families. They are more restrictive sort of covenants around who can exit and when, if they're a shareholder and a business.

 

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Arne Boudewyn: For other families, it's, it's a little bit simpler, but they did. But in either scenario there may be no education for the shareholder around whether they're allowed to exit.

 

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Arne Boudewyn: As you know if that's a strategy is open to them how that would look there's often as I said earlier misunderstanding for the managing

 

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Arne Boudewyn: The Family. Family members around whether someone's allowed to or not. And often, legally, they aren't allowed to

 

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Arne Boudewyn: Um, but the more than families can kind of educate shareholders not managing shareholders around what what would actually happen in the business if they did it.

 

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Arne Boudewyn: At the same time, as we know, Dennis Jaffe, who's a another psychologist great colleague of ours and years to Michael

 

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Arne Boudewyn: If he just did this great study of 100 enterprise hundred year enterprising families right businesses that have survived for 100 years or more.

 

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Arne Boudewyn: And one of the interesting findings. He had sort of seven key findings that describe these these different families.

 

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Arne Boudewyn: But one of them was that they had very clear exit strategies for shareholders who wished to literally take fairs and leave the business.

 

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Arne Boudewyn: And because they had clear strategies and they have those way up front. They could also plan as a business for how the business would bear

 

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Arne Boudewyn: Those exit strategy right by using credit for example to to do a cash out or some other, you know, big but i that is such a important one.

 

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Arne Boudewyn: It's validated in our experience every day. It's validated in the research that Dennis Jaffe, and others have done.

 

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Arne Boudewyn: That I would say that's one of the biggest opportunities families app because it's an unspoken question for so many family is

 

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Arne Boudewyn: Holders we find they'll they will not talk about that around the boardroom table or the zoom

 

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Arne Boudewyn: Room, but they will talk about it privately and say, I'm afraid to ask because it makes it look like I'm greedy. But what sometimes means is they're just not educated, they want, they have a right to know. But they don't know how to get their question answered.

 

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Michael Palumbos: Great.

 

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Pat Armstrong: Yeah, I think, I think. Another concern is, is how constructively to provide input. So if you have questions or concerns.

 

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Pat Armstrong: Or if for example you do hear something in the community that could be valuable to the business. How do you challenge that

 

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Pat Armstrong: How do you channel that without appearing to be micromanaging or meddling. So I think, you know, I think there is there a constructive channel for providing input. Perfect.

 

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Michael Palumbos: So jumping into best practices, you know, how do we start to unravel these things. What are the, you know, what are

 

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Michael Palumbos: Three or four of the different you know best practices that people can be thinking about. I think you've already hit on one of them. And that's been the biggest one, right, is just being open to communicating right in so much Pat, do you want to jump in. From there,

 

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Sure.

 

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Pat Armstrong: So we've talked a lot about what to communicate. And one of the things that that i i really like as a strategy is the idea of a green together on a dashboard of information that will be shared. So

 

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Pat Armstrong: You know, and again, it, it varies with the business. But essentially, if you the first best practice is to make the

 

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Pat Armstrong: Commitment to communicate and the way in which you operationalize that is to have some discussions around. What are the key variables.

 

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Pat Armstrong: And that can be put into, you know, I mean dashboard is my word, but

 

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Pat Armstrong: You know that can be put into a routine reporting structure. That again is understandable to everyone who's involved. So, so really working through

 

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Pat Armstrong: drafts of that and making sure that, you know, is this the information. Is there anything else you know what would be more helpful so that you are then routinely communicating that

 

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Pat Armstrong: If you think about the role of communication. It's first and foremost to build trust and then create all of you know with that foundation of trust to create alignment. So how do you create trust and alignment, you do that with

 

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Pat Armstrong: A shared information that you receive consistently and that

 

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Pat Armstrong: Is is understandable and meaningful in some way. So I think that's the you know the the communication is the best practice something like a dashboard is the tool.

 

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Okay.

 

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Arne Boudewyn: Yeah, I like, I like that part. And I think having, you know, when you have those family meetings, thinking about the non family.

 

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Arne Boudewyn: Managers in the business to and having them do. Some of the presenting right up to, well, it takes away some of that family dynamic right away.

 

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Arne Boudewyn: But it's a great opportunity for to sort of neutralize the Q AMP, a portion of it right and be able to. It's also good reminder to non managing

 

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Arne Boudewyn: You know, shareholders, that there are other employees who are non family members who are actually shouldering key leadership responsibilities of business and

 

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Arne Boudewyn: It's an opportunity to see why they have those roles right in terms of their experience and backgrounds, their expertise. I think one of the others is

 

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Arne Boudewyn: You know, I loved Michael when you talked about that young family members and who does this, this looks so nice.

 

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Arne Boudewyn: Because that is one of the best practices. Pat might sort of think about to it's how do you bring family members closer to sort of the key work sites. So your business to to see the people who work in the business.

 

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Of

 

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Arne Boudewyn: What the distribution channel might look like. And every step, what the end user looks like.

 

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Arne Boudewyn: If it's a real estate business what the different properties look like. And so I've seen some families really make progress in exciting everyone around this important legacy right that's being managed

 

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Arne Boudewyn: By really creating more of a multimedia approach to sharing information with families and I say multimedia because it's really important to pass.

 

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Arne Boudewyn: Comment about educational styles and how we take in communication to not just focus on reports and numbers.

 

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Arne Boudewyn: For family members. Right. We live in a visual world we drew thinking about next generations, they've grown up with social media, they've grown up with their lives online now distance learning

 

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Arne Boudewyn: Which has been reinforced this last year. So really think about how they learn best. And so I think that multimedia lots of focus on visuals around every part of the business. And don't forget to put in pictures of people

 

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I think

 

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Arne Boudewyn: That's a really, really important. The other is to to give people that opportunity to think about things like internships.

 

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Arne Boudewyn: I a lot of families have not really explored the concept of internships for family members in their business. And I think it's understandable why it takes a lot of work to put an internship program together.

 

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Arne Boudewyn: And but the but there's such an opportunity if you want it. First of all, if you want to engage and inspire your shareholders.

 

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Arne Boudewyn: What better way than to give them an opportunity to common sort of get a taste of what the day in the life right I've been working this

 

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Arne Boudewyn: The other is if you do as many family businesses, say we do want to find that next generation of talent and leadership and there may be one or two people that really, they have a passion and interest. They want to do the work.

 

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Arne Boudewyn: Let them have that opportunity to see what it actually looks like can be eye opening for people to see what that looks like and

 

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Arne Boudewyn: I think the other thing I would just say about internships is people always ask me, should they be paid or non paid and I'm just going to say right

 

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Arne Boudewyn: I if you want it interest, family members, especially young people, let's say high school call to come and work in your business during their only time off, you better pay them.

 

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Arne Boudewyn: And I've seen a lot of families.

 

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Arne Boudewyn: Sort of have very different polarized opinions around whether or not it should be a rite of passage and people should be honored to be asked work in the internship.

 

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Arne Boudewyn: Versus just the reality that you're competing with the demands of other people, other people's times. And so a realistic, sort of, you know, sponsorship of those internships is important.

 

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Pat Armstrong: That's great. I would add one more thing on the education piece which is that

 

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Pat Armstrong: You know, a number of families choose to when they have their periodic gatherings choose to do that at a work site location.

 

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Pat Armstrong: So when you can actually visit and use the conference room of a facility that you own and as part of the business. Then you get that direct hands on experience as well. That's not always possible. But that's a lovely way to build that engagement. Yeah.

 

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Michael Palumbos: You know, go back to the, the story of the young girl. This summer, and I'll share a couple other things that I think will be helpful in this conversation because again.

 

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Michael Palumbos: These weren't these it would get even stickier if they were shareholders.

 

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Michael Palumbos: These were non shareholders, all they were just family members and it's always really important to them as well when they were setting up this meeting was the very first one that was ever done.

 

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Michael Palumbos: The non working family members that weren't part of any of these meetings were like, what is this all about

 

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Michael Palumbos: When, when the family business coach that I work with, you know, was walking up to them at the park that we were we were doing this, which was a work site that they owned and yada yada yada.

 

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Michael Palumbos: It felt like death was walking across the field. People were like, who is this guy. I am not happy about this. Are we going to be singing Kumbaya. What is he planning.

 

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Michael Palumbos: And so that setup is is important. You know, it's really important to make sure that that letter goes out in the emails go out to prep everybody in the communication is there.

 

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Michael Palumbos: To to, you know, to make these things happen when it was all said and done at the end of the day.

 

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Michael Palumbos: Everyone to a tee said, I'm so glad we did this grandma and grandpa started this business, and I didn't even understand all the things that were going on and

 

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Michael Palumbos: You know they talked about the family, the family employment policy and, and there was even some discussion about that, where there's some confusion.

 

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Michael Palumbos: And it's were like, no, this is to be inclusive, not to be explosively want you to do that.

 

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Michael Palumbos: And then the last little piece that I'll share with you know engage that like if this was a construction demolition company.

 

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Michael Palumbos: So they engaged all the children by having the uncles come up and stand up and pretend that they were either a bridge or a building.

 

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Michael Palumbos: And then the kid had to determine how they were going to take down that bridge or that building. And it was you know I'm Superman and I've got his superpower. And I'm just gonna knock it right away.

 

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Michael Palumbos: It was hilarious and people were laughing and having fun and it's those are the kinds of it just, I love what you're talking about, because it is when you watch that transition for the first time.

 

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Michael Palumbos: Whether they're not, you know, for other family members because they are proud of that name, and it's attached so

 

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Michael Palumbos: I'm getting

 

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Arne Boudewyn: Your

 

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Your

 

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Pat Armstrong: Your example touches on a couple of other best practices. So one of them is establishing ground rules.

 

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Pat Armstrong: So we talked about communication right but but in that example, the family members who didn't know what to expect.

 

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Pat Armstrong: Were freaked out about, you know, and, you know, it's, you know, what is this going to be family therapy. What is it going to come by. Out what's going to happen.

 

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Pat Armstrong: So, at the outset, as you start getting families together going through a process of building together. What are the ground rules is incredibly important aren't a unit, you may want to add to that.

 

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Arne Boudewyn: No, I think that's true that extends that extends to the point I was just going to make to patent, Michael, which is, you know, from the standpoint of

 

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Arne Boudewyn: Family members who are shareholders to and from the standpoint of those who work in the business. There's also realistic important

 

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Arne Boudewyn: legal questions that non managing shareholders have related to their tax returns right related to trust in I've sometimes seen friction

 

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Arne Boudewyn: Between the the sort of the business and the non managing shareholder because there needs to be some regular questioning, right. Sometimes their accountants need to call the business.

 

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Arne Boudewyn: everyone. Not everyone may do their taxes at the same time. And if you're within the business, as I've seen with talked about with many families family business owners.

 

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Arne Boudewyn: They will see that as dragging down on sort of their whether it's their, their accounting team their financial team their CFO.

 

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Arne Boudewyn: That suddenly they're having to shift and they'll say, You know, I'm stuck. We get calls all the time from family members around

 

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Arne Boudewyn: Tax related issues. I'm at the same time, of course, those shareholders have to go to the business to get those questions answered. Right. And so you, it's really important to acknowledge that

 

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Arne Boudewyn: Come to that with in the spirit of this is not going to be at first, an impersonal adversarial relationship. But also, let's have ground rules around when those calls happen.

 

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Arne Boudewyn: When we're when you have the right just to to come in and take time away from our from our sort of CFO or accounting office for your own personal taxes and needs.

 

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Arne Boudewyn: But also what our responsiveness will be like to you as as family members who are non managing shareholders who have important questions that can only be answered about by the business.

 

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Michael Palumbos: Love.

 

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Pat Armstrong: Michael, you also mentioned an employment policy and that was one of the other best practices that we wanted to call out

 

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Pat Armstrong: Is the incredibly important role that that plays really starting with what's our philosophy about your right to work in the business.

 

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Pat Armstrong: You know, many families will share that they feel a best practice is to have neither an expectation or entitlement right that it that you know the kind of voluntary Enos to

 

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Pat Armstrong: Engage with the business that there's an opportunity out there, but how it needs to be earned. Another part of any good employment policy is, what is the philosophy around how you prepare

 

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Pat Armstrong: There may or may not be extensive internship opportunities.

 

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Pat Armstrong: Are their educational criteria, you know, many families will say, you have to have a degree in this or that that's not appropriate for all businesses. So really thinking through

 

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Pat Armstrong: What's the appropriate preparation and how do we, how do you get that. How do we support that as a family.

 

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Pat Armstrong: And then the other. There are many components of an a, you know, an employment policy, but another one that we wanted to call out was the issue of how you evaluate family members, going back to

 

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Pat Armstrong: Aren't as description of the dual relationships that happened in families are in businesses, you know, when you have

 

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Pat Armstrong: Family members who are employees. How will they be evaluated and making that clear, you know, in your policy, saying, You'll be held to the same standards and talking about how you'll articulate that or

 

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Pat Armstrong: The compensation practices will be the same, the vacation practices will be the same, you know, clear expectations around no special privileges associated with being a family member. And, you know, not making assumptions about those being really calling them out. Gotcha. So

 

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Michael Palumbos: Any other examples or stories that talk about ways that you have utilized to engage family shareholders that don't have, you know, ownership, anything that you'd like to

 

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Michael Palumbos: Share

 

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Arne Boudewyn: Yeah, with one with one large family for generation family that I've been in dialogue with for a few years now.

 

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Arne Boudewyn: One of the things they recognize is that they they were full up on mostly non family member managerial roles in their family business and

 

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Arne Boudewyn: They've made a decision after a couple of generational transition. So the business that they were going to move more towards hiring outside external non family member.

 

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Arne Boudewyn: Executives for a company that was growing into, you know, a multi national corporation.

 

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Arne Boudewyn: And but they also recognize that. Well, then, what can we do to really focus in on sort of what the larger sort of family enterprise, the business being part of that family and

 

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Arne Boudewyn: But also our wealth and our legacy and our next generation sort of

 

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Arne Boudewyn: Preparedness and empowerment being part of that. And so they did a really good job. I thought of trying to identify

 

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Arne Boudewyn: Other leadership roles that family members could take up in this larger enterprise, for example, I'm creating an opportunity for a set of non family member.

 

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Arne Boudewyn: Non managing family shareholders to to develop and become the leaders of a family foundation in that in this family.

 

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Arne Boudewyn: They set up some other leaders to be the head of what they developed as a sort of a companion to the business, which was a family assembly. Some people call it a Family Council.

 

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Arne Boudewyn: And the important lesson there was just because you are sort of the leaders within the governance structure for the business. That doesn't mean that you should or can

 

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Arne Boudewyn: Or or even want to be leaders of they have sort of family assemblies, or their family foundation

 

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Arne Boudewyn: So really thinking and families is his family was very creative. But think within your own family, even if it's something smaller, right, the annual charitable giving strategy for a family.

 

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Arne Boudewyn: Or the head of family education around financial literacy. That's a job that I think most families would really benefit from someone kind of ticked off leadership around

 

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Arne Boudewyn: I think there's a dearth of financial literacy in this country.

 

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Arne Boudewyn: And and so really thinking broadly and creatively. What are some other leadership opportunities in this family and let's share the wealth, a little bit, pun intended, so that others really see and have an opportunity to showcase the value that they can provide

 

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Michael Palumbos: You bring something up that I just wanted if both of you share your opinions on this.

 

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Michael Palumbos: We're so I have dealt with a lot of families in that the revenues of the business or 10 2030 million even 6050 you know $100 million of revenue.

 

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Michael Palumbos: But a lot of times you know where that goes, is there's really still focused on doing

 

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Michael Palumbos: And yet in. So it's, you know, where is that tipping point where it's like, you know, we really need to start focusing on these things and not just running the business. We have to be worried about running the family.

 

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Michael Palumbos: And I know it's not always $1 amount, but you know, I would think that there's times when you really, it becomes important you where, where would you weigh in on that.

 

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Pat Armstrong: Well, I think the tipping point becomes somewhat generational

 

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Pat Armstrong: So if you think about the the founders generation.

 

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Pat Armstrong: Is really all about building the business and in some ways, protecting the family members from the anxiety of the ups and downs that you have in the early days of a business. And then, you know, when you move to the next generation, the sort of sibling generation.

 

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Pat Armstrong: Depending on how many siblings, depending on their involvement. You know, it may start to happen there, but certainly by the third generation.

 

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Pat Armstrong: Air everyone starts to see that these communication issues and, you know, figuring out how we're going to operate together become more important and someone, someone in the family steps forward and says, you know, maybe we should think about this.

 

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Pat Armstrong: And and and if we if we want to stay connected as a family, if we want to be more structured. How do we do that so you know when when you think

 

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Pat Armstrong: So when we talk about family governance, you know, a lot of people use the term family governance and really at its essence it's about how are we going to make decisions.

 

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Pat Armstrong: And when you get to the point where it's not possible to just make decisions over over coffee or, you know, you know, among a few individuals when there is more complexity.

 

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Pat Armstrong: That's the time to start thinking about structures.

 

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Pat Armstrong: And it's a little bit different for every family, but I'm just as one example, you know, a family that was starting to be in that that third generation and had a single board.

 

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Pat Armstrong: So the operating board, if you will, had family representation, but they were recognizing that they really needed more independent expertise on the board.

 

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Pat Armstrong: And so their evolution was to move into a structure where they could move to more of a family business.

 

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Pat Armstrong: Board of Directors right with more independence and then create a family council that had some representation on the business board.

 

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Pat Armstrong: But could be that bridge between the families and family assembly as it's often referred to the bridge between all of those family shareholders and the business board. And so I think most people would say that tends to happen around the third generation.

 

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Michael Palumbos: Right in you know i would i would throw out to you that it

 

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Michael Palumbos: It may happen between first and second generation when there's a great deal of success and and and and there's, you know, several, you know, in the next generation or and

 

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Michael Palumbos: The other piece that I would throw in is

 

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Michael Palumbos: If there was a divorce. You know, because that complicates you know I have. You know how you're treating people so it's it's not always a money thing I said here, a

 

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Michael Palumbos: Reptile driver. It's that it's just when there's going to be complication, be proactive. Instead of reactive to it would be what you're recommending

 

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Pat Armstrong: Yeah. Yes. And I would say it's seldom a money threshold, it's really more tho those dynamics and you know you raise an important point about the so called married in in in families and

 

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Pat Armstrong: You know, various views about that and what their role will be and you know you'll see many family businesses that have very successful.

 

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Pat Armstrong: Sons and laws daughters in laws, who participate in the business, but the, you know, each family culture is different about how closely they want to they want to hold that. So being explicit so that

 

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Pat Armstrong: You, you, it doesn't feel personal if they're

 

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Pat Armstrong: You know, is a is a married in, you know, family member, and you, you know, it's not about that person. It's about you know your philosophy overall in terms of how closely that you want to hold it.

 

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Pat Armstrong: You know, in some ways, if you think about policy, we talked about an employment policy, but there are a number of policies that you can you can develop and those are really a way to anticipate thorny issues that could happen before they do.

 

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Pat Armstrong: Sometimes in the heat of the moment when you're trying to solve a problem. It feels so personal. And so painful.

 

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Pat Armstrong: So putting the work into anticipating where things could go wrong or be problematic in advance is a way to practice how to resolve issues in a principled way rather than kind of personal or or positioned

 

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Michael Palumbos: Sure. Everybody's familiar with the buy, sell agreement.

 

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Pat Armstrong: And

 

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Michael Palumbos: Green ups. Those are the reasons why we do them. We think about them in business. We think about them personally.

 

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Michael Palumbos: Or not. Can you talk when you when you look at family governance and you look at those pieces, you know, what are some of those areas. So you

 

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Michael Palumbos: You talked about a family board of directors, a pact and then there's the so hit on some of those things. And what are some of the documents or what are some of the things that people would put time into we talked about the employment policy being one of them.

 

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Arne Boudewyn: Yeah, I think one of the great connecting points for family members, whether they work in the business or not, can be developing things like a family constitution.

 

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Arne Boudewyn: And for people who are not familiar with a family constitution. It's really putting together kind of a statement of purpose or mission for the family about the family.

 

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Arne Boudewyn: And there's some great examples, I would encourage people to go online and Google family constitution.

 

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Arne Boudewyn: Or family mission statement family vision statement. But essentially what what is in contained in one of those statements is

 

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Arne Boudewyn: A some messages around the purpose of our unification is family where the business fits into it.

 

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Arne Boudewyn: Sometimes less about the business, sometimes more around the success of the family is achieved what it means, what its intended goal is for the next generation in the family.

 

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Arne Boudewyn: It's also a great way. So imagine, five, six sentences, sometimes even three sentences. Right. It's a statement. It's not a book. It's not a

 

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Arne Boudewyn: Chapter, but it's sort of say, it can also say here's what we believe in as a family. Here's what's important to us as a family.

 

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Arne Boudewyn: And I've seen my goal, and I'm sure you impact have to that some families when they have their family meeting. So once they have that constitution or purpose statement.

 

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Arne Boudewyn: They'll put it at the top of every one of their meeting agendas. Sometimes it'll be more values based. Here's the values that are important to us as a family, and you can walk

 

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Arne Boudewyn: Into the offices of some of the family businesses around the country is I've had the pleasure of doing. And sometimes you walk right into the door or walk up the stairs and there's the statement right

 

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Arne Boudewyn: And I think it can be such a great place

 

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Arne Boudewyn: It sounds simple, but you have to have a lot of discussions to put something like that together. I think that is just a foundational sort of exercise that can bear fruit for a long time.

 

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Arne Boudewyn: I'm one of the others. I think as for families to really dive in. We've talked about communication a lot to understanding

 

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Arne Boudewyn: communication styles communication differences and really use that education as a way to stay more connected

 

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Arne Boudewyn: As a family and to overcome or even manage ahead of conflict which is inherent in every family right

 

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Arne Boudewyn: Family dynamics is not a term that was invented for family businesses are for those who are wealthy everyone

 

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Arne Boudewyn: Feeling his family. But the more you can lean into that and there's some great tools that families can use assessment tools, many of which are kind of fun.

 

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Arne Boudewyn: Like the desk communication styles inventory gallops strength finders tool which actually has a

 

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Arne Boudewyn: version that's appropriate for teens called Strengths Quest, which is all about finding out your key signature strengths and then how to leverage those as part of the families collective strength, those kind of

 

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Arne Boudewyn: family unity building experiences to some they sound too touchy feely

 

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Arne Boudewyn: But we have found again and again you spend some time upstream on really focusing in on those as part of your foundation

 

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Arne Boudewyn: And it makes it so much easier for families downstream to understand each other and work well together whether they work in the business or outside of the business or they're crossing that bridge to meet each other in the middle.

 

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Pat Armstrong: One of the

 

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Pat Armstrong: In regard to conflict. I saw a family include in their constitution a conflict resolution policy that included

 

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Pat Armstrong: The expectation that they would all get trained in a methodology that they would agree to apply to the issues if they came up, but to be very explicit about that policy. You'll also see education policies.

 

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Pat Armstrong: You know there might be a policy around prenuptial agreements you you reference that Michael. But, you know, as you know, in family business. That's an incredibly important risk management strategy.

 

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Pat Armstrong: So,

 

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Michael Palumbos: Know, those, those are great examples of, you know, it's, it's neat we've, I've never heard of the education policy. I've never heard of, you know, somebody going through and doing a conflict resolution policy.

 

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Michael Palumbos: Those are just great ideas around how to, you know, and think about that. The non the non you know business owning or you're

 

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Michael Palumbos: Not managing family members can really be engaged in those pieces and those tools. And that's I think it's just you know what what becomes

 

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Michael Palumbos: Hard for most is that you have to take the time and be really intentional about this.

 

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Michael Palumbos: And and the way you know the the pushback that I've, you know, gotten at times is that life gets in the way. And it's just there's so much going on. How can I add this to what I'm doing already.

 

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Michael Palumbos: And I think the answer you know becomes, how can you not, it's so valuable if you end up in that wrong situation if you end up without these things.

 

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Michael Palumbos: There's a lot to lose. And at the heart of it, like you said, Our, our now when we started was we want to be sitting at the Thanksgiving dinner table together.

 

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Pat Armstrong: Well, and I also think you you can each family goes at their own pace. So in my experience to develop a governance structure to, you know, a constitution that can take 18 to 24 months. So the commitment is to work at it.

 

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Pat Armstrong: There's not a quick fix that. The journey is probably more important than the outcome and really committing to time that is practicable to work on that journey. I think is really, it helps make it more digestible for families.

 

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Pat Armstrong: And then you also

 

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Arne Boudewyn: Oh, sorry.

 

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I was

 

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Pat Armstrong: muted. Yeah.

 

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Arne Boudewyn: Sorry about that, we're both very excited about.

 

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Arne Boudewyn: I was just gonna add let's never forget. And I think this can really help families sort of focus together on the work

 

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Arne Boudewyn: Let's not forget that we're trying to set up sometimes structures or just examples for that upcoming generation.

 

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Arne Boudewyn: Around how they can manage it. Let's do the work. Now, so that they have something that can be passed on to them that says, Here are all the things we figured out good and bad about how to make this work.

 

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Right.

 

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Michael Palumbos: I think I could go for another two hours talking about this stuff. I have so many questions, we'll have to have the both of you back sometime and and do this again.

 

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Michael Palumbos: We're at the top of the hour if people wanted to reach out to you. Is that okay, can they find you, where do they find you LinkedIn websites you want to give. Tell us a little

 

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Arne Boudewyn: That

 

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Pat Armstrong: Aren't so I'm on LinkedIn and also I have a my my email is Pat PhD at Dr. Dr. Patricia armstrong.com there are no dots in the Dr. Patricia Armstrong and then I also have a website by that name as well.

 

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Arne Boudewyn: Great for me. LinkedIn is the best way to find me or you can go to the Avid downing.com website and find me there, which is a BB

 

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Arne Boudewyn: Ot T O W and I N g.com

 

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Michael Palumbos: You guys were wonderful. Thank you so much for joining us today.

 

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Michael Palumbos: I really appreciate you know the the knowledge and wisdom that you have brought to bear today and I really appreciate it. So,

 

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Pat Armstrong: Well, thank you, Michael.

 

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Pat Armstrong: We appreciate the opportunity.

 

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Michael Palumbos: You got it. Thank you, everyone. And this has been another episode of the family business show. I'm Michael Columbus with family wealth and legacy

 

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Michael Palumbos: If I can help you or my team can help you in any way never hesitate to reach out to us, you can find us on LinkedIn as well. Thank you, everybody. Have a great week.

 

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Arne Boudewyn: Thank you.

 

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Pat Armstrong: Thank you. Bye.

If you’re a family business or a family business consultant and want to be on the show, share your story and help other family businesses, send us an email to producer@thefamilybizshow.com or fill out a contact form here!

*not affiliated with Lincoln Financial Advisors Corp.

Michael Palumbos is a registered representative of Lincoln Financial Advisors Corp. Securities and investment advisory services offered through Lincoln Financial Advisors Corp., a broker/dealer (member SIPC) and registered investment advisor. Insurance offered through Lincoln affiliates and other fine companies. Family Wealth & Legacy, LLC is not an affiliate of Lincoln Financial Advisors Corp. Lincoln Financial Advisors Corp. and its representatives do not provide legal or tax advice. You may want to consult a legal or tax advisor regarding any legal or tax information as it relates to your personal circumstances.

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