Wealth Management

Voted #6 on Top 100 Family Business influencer on Wealth, Legacy, Finance and Investments: Jacoline Loewen My Amazon Authors' page Twitter:@ jacolineloewen Linkedin: Jacoline Loewen Profile

June 18, 2010

Why I Use Other People's Money says Michael Lee-Chin

“Do you know a wealthy person? Hold their image in your mind and I will show how there are a few golden principles to how they grew their wealth,” said Michael Lee-Chin, one of Canada’s billionaires at Airsprint Jet’s client reception. Michael shared that there are rules to getting rich and that he would bet that this person of wealth you were imagining, used these rules. He challenged that the answer would be "yes" to his five questions. So here are Michael’s five questions which are the golden rules to growing wealth:
  1. Did this person of wealth own their business and a few other businesses they knew very well?
  2. Did they know these businesses were in a good long-term industry?
  3. Did they own these businesses for a significant time?
  4. Did they manage the tax implications?
  5. Did they use other people’s money to grow their businesses?
Question number five is the most critical – how to use other people’s money to grow your own wealth.  It is also the most challenging for business owners.
To think about using other people’s money and then to grow the business is talking higher risk than many owners can handle. Rather than investigate further, they throw up road blocks. First is an initial gag reflex to sharing control and decision making power, which comes with using other people’s money. 
There is fear of inviting in financial experts who are weasels and who may steal the business. 
Then there is satisfaction with how the business runs today; the owner may not feel a pressing need.  Most owners meet their level of revenues that they can manage, and they stop there. Why risk any of their personal money to grow? Rather take it out and buy property, stocks and other --frankly--lower return investments.
Michael Lee-Chin would remind you that the time for opportunity is when everyone is afraid – like right now. He also talks about how some level of success invites complacency. Michael says that the the winners learn how to other people’s money – private equity--and understand their road blocks. these are often fears. Understand these fears. 
Decide if you really want to create wealth. If you own a business and you want to become wealthier, learn how to use other people’s money – private equity money. 
Lee-Chin learnt this in 1979 when he came across a copy of John Train’s 1980 book The Money Masters—and was exposed for the first time to the buy-and-hold value philosophy of investing guru Warren Buffett, the chairman and CEO of Berkshire Hathaway Inc. “All of a sudden I was twigged on to an investing strategy that made sense to me,” says Michael. He borrowed money to purchase $500,000 of Mackenzie Financial stock. After four years, this stock appreciated seven-fold, and Michael used the profits to own his own business, a small Ontario-based investment firm called AIC Limited. At that time, Advantage Investment Counsel had assets under management of just $800,000. Within 20 years, AIC grew from less than $1 million and – at its business peak – posted more than $15 billion in assets under management. In September 2009, it was purchased by Manulife. At all stages of the business growth, Michael used other people's money and is now on Canada's Billionaire's list. As Michael ended his talk, his helicopter out on Airsprint's runway began to crank up, and then he was gone but he left behind a great deal of energy in that room of business owners.

Jacoline Loewen, expert in private equity and author of Money Magnet: How to Attract Other People's Money to Your Business.

June 17, 2010

And why bother with values?

Values are just behaviors – specific, nitty-gritty, and so descriptive they leave little to the imagination. People must be able to use them as marching orders because they are the how of the mission, the means to the end -- winning.
In contrast to the creation of a mission, everyone in a company should have something to say about values. Yes, that can be a messy undertaking. That’s OK. In a small enterprise, everyone can be involved in debating them in all kinds of meetings. In a larger organization, it’s a lot tougher. But you can use company-wide meetings, training sessions, and the like, for as much personal discussion as possible, and the intranet for broader input.
Getting more participation really makes a difference, giving you more insights and more ideas, and at the end of the process, most importantly, much more extensive buy-in.
The actual process of creating values, incidentally, has to be iterative. The executive team may come up with a first version, but it should be just that, a first version. Such a document should go out to be poked and probed by people all over an organization, over and over again. And the executive team has to go out of their way to be sure they’ve created an atmosphere where people feel it is their obligation to contribute.
Now if you’re in a company where speaking up gets you whacked, this method of developing values just isn’t going to work. I understand that, and as long as you stay, you’re going to have to live with that generic plaque in the front hall.
But if you’re at a company that does welcome debate – and many do -- shame on you if you don’t contribute to the process. If you want values and behaviors that you understand and can live yourself, you have to make the case for them.

Read more at Jack and Suzy Welch.

June 16, 2010

One question when doing your Mission - How are you going to win in this game?

Business owners needing to push their people more in a shared direction look to the Mission statement. Yet, when I am working with companies, I meet many owners who believe the Mission is a description only, not an aspirational dream. They also stick to the safe words and descriptions - "we find world class solutions for our customers." So what? That is what everyone is doing. If your Mission is the same as any business in your industry, tear it up and start again with your senior team. Make sure you put in a financial goal too.
I have followed Jack Welch's principles of strategy for twenty years and I think his definition of the Mission is the best I have seen. By the way, good Private equity firms  know how to use the Mission statement. Make sure you ask about their expertise in using them.
Jack Welch believes that: 

An effective mission statement basically answers one question: How do we intend to win in this business? 

It does not answer: What did we used to be good at in the good old days? Nor does it answer: How can we describe our business so that no particular unit or division or senior executive gets pissed off? Instead, the question “How do we intend to win in this business?” is defining. It requires companies to make choices about people, investments, and other resources, and prevents them from falling into the common mission trap of asserting they will be all things to all people at all times. The question forces companies to delineate their strengths and weaknesses and assess where they can profitably play in the competitive landscape. 
Yes, profitably – that’s the key. Even Ben & Jerry’s, the crunchy-granola, hippy, save-the-world ice cream company based in Vermont, has “profitable growth and increased value for stakeholders” as one of the elements of its three-part mission statement because its executives know that without financial success, all the social goals in the world don’t have a chance.Now, that’s not saying a mission shouldn’t be bold or aspirational. Ben & Jerry’s, for instance, wants to sell “all-natural and euphoric concoctions” and “improve the quality of life locally, nationally and internationally.” That kind of language is great in that it absolutely has the power to excite people and motivate them to stretch.
At the end of the day, effective mission statements balance the possible and the impossible. They give people a clear sense of the direction to profitability and the inspiration to feel they are part of something big and important.
Read more of Jack Welch's views and Suzie Welch.

June 15, 2010

Succession when your son is 50 plus is too tough

Succession, which has never been easy for families, is getting tougher. Today, greater longevity means many patriarchs stay in power much longer, forcing a whole generation of family members into other pursuits. 
“Kids” these days don’t want to wait until they’re 50 plus to take charge. By that time, they have usually found their own passion or are weakened by waiting in the wings, so to speak.
This is an enormous threat to the ability of the company to survive and thrive when the next generation do finally pick up the reins. Cracks in the family happiness are often showing too. There is nothing sadder than seeing a family where Dad has not given a clear line of succession and worked hard to pass over the real decision making and leadership before son or daughter reaches middle age.
At the same time, too many patriarchs adhere to the age-old practice of passing the reins to progeny, regardless of talent. That tradition brought acceptable odds of success in less competitive eras. One way to allow the next generation to remain in the business is to bring in 30% private equity partners who understand how to accommodate family business dynamics but make sure there is an excellent COO to run the show. I have seen some talented managers work well within the family business environment, respecting the family business ownership structure as well as drawing on the private equity skills.

Jacoliine Loewen, family business expert recommends:

June 14, 2010

Family businesses emphasize wealth preservation, not growth

Family businesses are a major part of the Canadian economy and being in one myself, I can see the strength of the more resilient culture. Employees may feel more of a sense of belonging and human connection more than working for a professionally run corporation. These are reasons that family businesses, in these troubled times, have been better performers. These are also the reasons private equity treasures family businesses above all other types of business ownership.
I have been working with family business owners over the past decade and I have come to see a big threat looming in their future which, if left ignored, will impact on the future of the Canadian economy.
My  major concern is that I notice the main goal for family businesses is to preserve wealth, over accumulation. In other words, the family business is less likely to invest in new projects for the sake of growth.
“Why would I risk our own money to grow? If it is not successful, I am out of pocket,” is the typical comment. Quite understandable, but in this new environment, that sort of thinking will be the ruin of the family business.
I am not the only one has picked up this pressing crisis. Jack and Suzy Welch also write about this increasing crack in the foundation of the family business which will threaten their survival.  Jack Welch says,
“That protect-the-assets approach often worked in simpler times, but it could prove devastating in a global environment where risk-taking and growth are essential to survival.”
There is direct action for family business owners to counter this global economy threat to the family business and I usually ask these question: Would you like to have the world's best business minds apply their ideas to the business? Would you like to grow into new geographic regions but without using your own cash? Would you like to reduce your growth risk by having experts who have already worked in those regions?
Private equity brings these valuable skills to the Board room table, and far more. To have Board advisors who are global and who bring a third of the money to the business, it is a winning path to growth of wealth. 
I strongly encourage family business to bring in private equity partners who sit at Board level, but do not get involved in the day-to-day operations. This extra investment will allow the family to take money out to invest in other companies which diversifies their own wealth while also addressing their reluctance to invest in the risk of growth. 

Jacoline Loewen, expert in family business and private equity, author of Money Magnet, now used as a text book for Ivey Business Schools' MBA program.

June 12, 2010

How to get your hotshot people boosting revenues

Private equity wants to know how to get a business bringing in revenues.
The first place I look is to see if the business leader wants control. The Mission statement can give the rough map of the path forward, but it also relinquishes control to the managers, something that often grates with baby boomer leaders who are used to commanding all. It is confusing, infuriating, and to some leaders weak, to reduce control, and just like the interpretation of motherhood, leaders may not want to accept alternative interpretations of what the Mission means.
I have observed, though, that most women leaders are able to accept that they cannot control their people. Women leaders are exciting when they roll out strategy with their teams because they tend to nurture an openness, leading to that first spark: Permission to have intellectual and emotional curiosity about how to enhance the business. Canada’s school system can struggle to develop this curiosity – my grandfather said members of one union teaching all of our children could perhaps be a little one-sided in their views – and I fear for our future work force if universities think that preventing raging debate in public means that the ideas also stop. That is one of the ways leaders have the illusion they are in control, as we witnessed recently with University of Ottawa’s debacle over Ann Coulter, an American Conservative pundit. The result is I am now curious about her books.
As leaders of businesses or universities, I think once we own up that we cannot control every action, and that luck and timing play a large role, we can improve our odds of success.
Here’s the catch: We desperately need to believe that we are in control of events. Only high self-esteem and a sense of responsibility for results boosts us from bed on cold mornings. With a detailed, language-rich Mission Statement, a leader can improve this sense of control for her team so that they feel personal accountability. They can get that spidey-tingle that there is work to be done, let’s do it.
If a leader’s attitude is that the Mission is to help guide those people brimming with enthusiasm to get out into the real world and take a few punches, fantastic. Without those experiences, management stagnates. Your hotshot people want to take on more in their interpretation of essential work, to try their ideas and leadership style to make it happen or not. Managers can get moving on their own initiative, fit into the company’s deep marketing “groove,” while developing the gumption to be able to change drastically when that groove proves to be a rut.
We are all very aware that today’s star product is quickly tomorrow’s Tiger Woods.
Having colleagues who are running counter to your views and not under your exact control is the only thing that ensures organizational adaptation and survival. Most long-term companies look quite different over decades and there is usually a leader who encouraged their people to take risks while following that North star and dumping the boat every now and then.

June 10, 2010

LOST turned out to be a helluva long job interview

For LOST fans, here is a interesting perspective on job interviews. It's by Robyn Greenspan, Editor-in-Chief, ExecuNet and you can reach him to comment at Robyn.Greenspan@execunet.com:
So, in the end, LOST turned out to be a helluva long job interview. For those who didn't spend the last six years alternately fascinated and frustrated by the series, I'll translate it into corporate language:
Like many good leaders, Jacob, knowing his tenure was coming to a close, had a succession plan. Well in advance of retirement, he started filling his talent pipeline and selected his top potential replacements. Due to the "unavailability" of some of his recruits at the last stages of the interview, very few candidates made it to the final slate.
The position came with tremendous responsibility and Jacob elected the candidates undergo an arduous series of situational interviews to assess their skills and qualifications. Plane crashes, death, destruction, explosions, polar bears, time travel, electromagnetism, good Locke/bad Locke, and a smoke monster — all to determine who was most qualified for the role of island caretaker.
An interview is an opportunity for candidates to evaluate if the role is a good fit for them too, and of those remaining — Jack, Hurley and Sawyer — two seem less certain they want the position. So Jack selects himself as Jacob's replacement, and when he inquires about the length of his employment contract, Jacob tells Jack he must do the job as long as he can.
Instead of a handshake, Jack drinks from Jacob's cup, and immediately begins onboarding into his new role by accompanying the evil John Locke on a business trip into a cave. But Jack is among the 12 percent that ExecuNet-surveyed recruiters report don't complete their first year in a new job and during a hostile takeover, he learns this role was only for a turnaround specialist on an interim assignment.
Before his exit interview, Jack expediently manages the institutional knowledge transfer to Hurley, who, with his servant leadership qualities, turns out is better suited for the longer term role.


Written by Robyn Greenspan
Editor-in-Chief
ExecuNet
Robyn.Greenspan@execunet.com
twitter.com/RobynGreenspan
295 Westport Avenue
Norwalk, CT 06851

June 9, 2010

Where is the economy - fiscal issues, union salaries, union pensions

Here is a recommended reading list from Mish's Global Economic Blog. Read more. Mish is a self taught economic commentator and his blog has made more sense to me than most over the past three year ride. 
Any business owner needs to understand the true state of the American economy, not the one that politicians are trying to sell to the media and public. It will affect all of us over the next ten years.
The US economy is going to be weak for a decade thanks in part to refusal of politicians to address fiscal issues, union salaries, and union pensions now. Mish's book choice explains why in practical and readable terms.

June 8, 2010

Private Equity in Sell Mode

Well, business owners cannot moan that they were not warned that their opportunity to sell their business at a good price is rapidly declining. If you own a business in Canada, and particularly if your revenues are below $20M, you are going to have a far harder time selling your company. There is still time to get in Private Equity Partners who will buy 30% and let you stay on to grow the business with them and sell your remainder share five years down the road.

"For the first time in 16 years, private equity funds are selling more companies than they are buying," reports Andrew Willis, Globe and Mail. Here's what else Willis had to say: 

News on Monday that Cerberus Capital is selling a health care company in its portfolio, Talecris Biotherapeutics, to Spain’s Grifols marked something of a turning point for the private equity sector. According to data from Thomson Reuters, the $4-billion (U.S.) sale meant that for the first time since 1994, global mergers & acquisitions involving a private equity seller outweigh takeovers involving private equity buyers.Funds have sold $67.1-billion of companies, year-to-date, and done $64.2-billion worth of takeovers. Overall, the volume of deals involving private equity funds is soaring, largely due to a recovering in credit markets over the past year - loans fuel leveraged buyouts. Year-to-date 2010, Thomson Reuters found activity involving financial sponsors as sellers was up 132 per cent, while sell-side activity is up 174 per cent. M&A activity involving a private equity fund accounted for 13 per cent of the total value of worldwide M&A so far this year, up from 6 per cent of deals during the same period in 2009, according to Thomson Reuters. 

What does this mean for business owners? It is similar to the housing market, investors are selling off properties and this pulls down the price of housing in the neighborhood. Same for businesses. The last eight glory years of getting great multiples are over.
However, I was in Boston this past week and American Private Equity firms are very keen to buy into Canadian firms and willing to invest in equity partnerships of 35% upwards. They would be exciting partners for Canadian owners and are very similar in culture - polite. 
If you are a Canadian business owner with a company with revenues over $20,000 revenues, now is your chance.

Jacoline Loewen, expert in private equity, author of Money Magnet: Attract Investors to Your Business.

June 2, 2010

The Role of Institutional Development in the Prevalence and Value of Family Firms

It was a surprise to me the number of family firms in Canada, but this not unusual.
Family firms dominate economic activity in most countries, and are significantly different from other companies in their behavior, structural characteristics, and performance. But what explains the significant variation in the prevalence and value of family firms around the world? 
The two leading explanations are 
  1. legal investor protection and 
  2. institutional development.

Cross-country studies are unable to rule out the alternative explanation that cultural norms are what account for these differences. In contrast, China provides an excellent laboratory for addressing this question because it offers great variation in institutional efficiency across regions, yet the country as a whole shares cultural and social norms together with a common legal and regulatory framework. In this paper, HBS professor Belén Villalonga and coauthors study ownership data from a sample of nearly 1,500 publicly listed firms on the Chinese stock market. They conclude that institutional development plays a critical role in the prevalence and value of family firms, and that the differences observed across regions are not attributable to cultural factors. Key concepts include:
  • Family firms do not inhibit growth and development, as is sometimes argued. This seems clear due to the relatively higher prevalence of family firms even in regions with high institutional efficiency.
  • The effects of family, ownership, control, and management in China are remarkable similar to those found by professor Villalonga in her earlier research based on U.S. data. Namely, family ownership is positively related to value, family control in excess of ownership is negatively related to value, and family management, when exercised by the firm's founders as is primarily the case in China, is positively related to value. However, in China these effects are largely driven by the low institutional efficiency regions. In the high efficiency regions, none of these effects are significant.
  • These findings are particularly relevant for China as it continues its transition from a central planning system to a market economy.
  • On average, family firms are significantly smaller, younger, and less capital-intensive than non-family firms. Yet they exhibit significantly lower systematic risk, and they are not significantly different from non-family firms in their growth and leverage.
Read in Full at Harvard Business Review;

Published:June 23, 2010
Paper Released:May 2010
Authors:Raphael Amit, Yuan Ding, Belén Villalonga, and Hua Zhang

Every Family's Business: 12 Common Sense Questions to Protect Your Wealth