Don't Wait To Revamp Family Business, MGAs Told

By Mark E. Ruquet

NU Online News Service, May 20, 4:00 p.m. EDT,Phoenix, Ariz.?Small insurance businesses should not wait for acrisis to decide whether to create a board unit or make otherdecisions expanding their management and leadership, a meeting ofmanaging general agents was advised here. [@@]

The suggestions came from Jennifer M. Pendergast, a professorand consultant for The Family Business Consulting Group Inc., ofMarietta, Ga., during a session on "Family Business Governance" atthe annual meeting here of the American Association of ManagingGeneral Agents.

Ms. Pendergast said there can come a point in time for a familybusiness where decisions have to be made affecting more than justthe single head of the family business. Making the right choicesthat satisfy the family's interests can be a daunting task for oneindividual, especially where there are siblings, children and aspouse who have a vested interest in making sure that the rightdecision is made, she noted.

At that juncture, Ms. Pendergast said it is time for the familyto consider the issue of governance and possibly bring in someoutside advisors to help with the decision-making.

The governance issue usually crops up during times when dramaticchanges are taking place in the business, said Ms. Pendergast.

Usually, Ms. Pendergast advised, these times are times oftransition in ownership from one generation to the next, or thebusiness has hit some sort of entrepreneurial wall where theprincipal owners feel they need help with their direction, orsimply things have come to a point where the owners feel there is aneed for outside help.

At this point, it is time for the head of the business to moveaway from being the single decision-maker and create a system thatinvolves family members who have an interest in the company andsome of the decision-making in the company's future.

"You can choose to do nothing, but you need some way to makedecisions, and a lot of times, especially when there are fewerpeople involved in making decisions, they put off [forming a systemof governance] when they should act," Ms. Pendergast observed.

The first action any owner should take is to call a familymeeting specifically to discuss business issues. Waiting untilthere are holidays or special occasions can just sidetrack thosediscussions. Also, the talks should leave out personal issues notrelated to the business, she said.

"Call the family meeting," she said, noting that this should bea regular affair, not something done when there is a crisis. "Itcould be formal or informal, but it needs to happen."

Sometimes, no matter how good the intentions of the meeting,there are no easy ways of resolving issues or coming to aconsensus. At this point she advised that the family shouldconsider creating a board of governance. Its responsibility wouldbe to review business issues and, depending on itsresponsibilities, order or advise on what needs to be done.

A board of directors would, as in the public business world,order changes, while a board of advisors would advise on issues. Ineither case, she recommended that such a board should consist of atleast two outsiders who are not related to the family eitherthrough friendship or business. They should also be people all thefamily feels they can trust.

In choosing the prospective board members, she recommended theymeet with all the family members individually to get an agreementon comfort. But, she admitted, there may be people within thefamily who are simply not ready for such a move.

"If they do not want to hear what others want to say, then youare not going to have an effective board," she noted. "The familyhas to get to the point where they say, ?There are people out therewho have ideas that we could use.'"

For the younger generation, the decision must be made by theolder family members when to bring them in for an education aboutthe business, how finances work, and how it is to be run in thefuture. This is something that should be done to commit them to thebusiness and to keep them involved in its future.

"A crisis is not the time to get this done," said Ms.Pendergast. "It should be done when you have the luxury to thinkahead about the business, looking five years off into thefuture."

The AAMGA is based in King of Prussia Pa.