Family Business Audiocast | Episode 11 | Guillermo Salazar | Cambridge Family Enterprise Group
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About Our Guest:
Guillermo Salazar is the Senior Advisor and associate partner at the Cambridge Family Group, as well as the founder of his own consulting firm. He has extensive experience in family business dynamics, serving both as a member of the Family Firm Institute and professor at the Institute of Nexia in Spain. Over the past two decades, Guillermo has assisted numerous business families in Latin America, Europe, and the United States with legacy transformation, conflict resolution, and decision-making processes. His expertise in developing family protocols and professionalizing business operations has proven invaluable to the families he supports. Additionally, he actively shares his knowledge through teaching, offering guidance to owners of family businesses worldwide.
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[Transcript]
R. Adam Smith
Family business is a passion of mine; having grown up in a family of entrepreneurs and having engaged for two decades in a vast range of dialogues, yielding investments and boards with fascinating family enterprises around the globe. I founded the Family Business Audiocast to offer a useful platform for listeners to hear from industry veterans, academics, and leaders in family-owned enterprises, family firms, and family offices. Whether you're a family office or alternative worth, an individual owning companies, building a multifamily office, or focusing on governance, culture, or corporate change, I hope these conversations will be enlightening.
Welcome to the family business audio cast on LinkedIn. I want to thank the registrants for joining us live today on our 11th episode on LinkedIn. And, of course, our guest Guillermo Salazar, a global family office veteran. Guillermo, welcome to our live episode today. Great to have you.
Guillermo Salazar
Thank you very much.
R. Adam Smith
Okay, let's kick it off today with Guillermo, a brief introduction about our guest here. Guillermo is the Senior Advisor and associate partner of the Cambridge family group. He's the founder of his company, excluding family and business consulting, and also a family member of the family firm Institute, and a professor at the Institute of Nexia in Spain. As a family business expert, Guillermo has accomplished many things in his career and supported hundreds of business families in different processes around the transformation of their legacy. Over two decades, he has guided family businesses in Latin America, Europe, and the United States in the process of designing family protocols, professionalizing processes, and effective decision-making resolution and conflict resolution. He has added value to proven organizational models and methodologies for his families. He is also an active teacher and family business around the world, addressing lessons to owners of wealthy professionals that guide them. Alright, Guillermo, let's kick it off here. Tell us a bit about yourself and your firm. And then we'll go into some of the items you want to discuss.
Guillermo Salazar
Thank you very much. Yes, it's a pleasure to be talking to you on this dialogue, on our experience working with families. One of the things I would like to add to your previous introduction is that we do believe in listening in a family as a group of individuals, the key for any conflict solution is listening to each other. So saying that I think that we can immerse in the rest of the conversation.
R. Adam Smith
So, the first item we have is talking about methodologies and models you found most effective in families over the years, aligning their vision and values. Tell us a bit about those models you've employed.
Guillermo Salazar
We try to focus first on values, and then vision as a model or some methodology. We believe that their value resides in the narrative of the family. Usually, what we try to do is to reconstruct the history of the building of the wealth of the family and who are the main characters, the main people that have been in that plot that the family shares as a narrative, that is the essential part of their identity as a member of the family business or members of family wealth. So once you start to understand and you find most of the key elements of the history, you will start to find that the values that were essential in the decision-making process of every important event of the family are present, not only in those events but all through the whole narrative, through the whole history that they share. And that's the essence of their own identity. So working with the family starts with working with the narrative, identifying those values. Once you have the essential principles of this history, what we start to do is to continue that story, going through the future of the family wealth or family business. So we try to keep on the track of the timeline, making it continuous in 10, 15, 20 years in the future, and see if we can apply those same values in the future, how will they look? How will they be reshaping the vision that we have, and then we will find that those values also build the future.
R. Adam Smith
Let's talk about some of the common challenges that families face when integrating new generations. A majority of the families are G1, and then a portion are G2 and G3. You rarely see them get to G4; you've covered hundreds of clients. And I know you've written about 150 articles, not to mention 250 lectures, so you're quite prolific, maybe just pick two or three of these common challenges that families face in terms of succession planning.
Guillermo Salazar
I think that the main challenge is that those new generations come with a lot of questions. And sometimes the generation that is governing or is in charge or leading the family business doesn't have the answer. And those questions are related. Basically, what's my role here? What are you expecting from me? Where are we going? What are we trying to achieve? What's the main purpose of this family business? When we think about it, we can understand that most of the family challenges start with defining what's the purpose of the family wealth? Why are they doing that? These new generations come always with that question. And sometimes trying to answer the question without a plan is a problem because usually, those questions need a specific answer, a right answer. And we need to first start working on the plan because when those next generations are coming to take care of the wealth, they will need a plan; they will need to know exactly what they are going to do there. And that's very common. That's something I always see in every challenge in every succession planning. So starting with defining the roles of the next generation will help us a lot in making them come aboard to the family business. I will say that that's the first one.
And the second one is related to the difference in values of the leading generation with the next generation in terms of what's the concept of freedom that we already have in a family business. I remember that one of the most common cases that we have is that the next generation really has a sense of freedom of a kind of liberty that their parents didn't have in their moment. So they can decide if they want to get into the business or not, if they want to go out of the country, go around the world, do every other thing. Every other activity is an option; the family business is an option for them. And for most of their parents, the family business was the only option. So the confrontation of the freedom as a value is also a problem in family business in terms of succession because the tendency today is that the next generation is trying not to get involved in the family business as their parents did. So I think that this is the other thing that we should take care of if we are planning to integrate the next generation into the family plan. It's very common, and it's happening all around the world.
R. Adam Smith
Right. Well, on that front, can you talk about the element of pride and passion and the more emotional side of committing to the family office or the family business versus the compensation side, which is a tricky element today in terms of the scarcity of human capital that fits a sophisticated family office, but also the differences in compensation schemes for that talent? So, on the one hand, you have the passion, on the other end, you have that, right?
Guillermo Salazar
Those are very complementary. And in most cases, we have low passion for a connection with the family wealth or the family business. It's more related to not having clear what's your role or the value that you add to that wealth. So in order to get passionate, in order to get in love with the family business or the family legacy, you need to know the story, you need to know the narrative that I have to go to the first part of this conversation. Once you know the narrative, once you know why do you belong to this different story, which is different from other families, and that's part of your identity, that gives you a sense of belongingness. So that's the base of the passion; once you understand that you are part of it, then we will start to deal with the money part. But if you don't have that kind of connection with the legacy, probably you will have a different way to see the money that you earn on benefits of that wealth. And, of course, if you don't have that connection, whatever offer that you receive to buy that well, you will be very glad to sell it. But if you have that connection, selling that well, selling that part of your share, selling that part of your legacy of your identity is something that you don't think about because this is an essential part of your identity. So that's the huge difference between people that are related emotionally with the family office or wealth because they know the history because they know that this is part of their own essence and the difference with people that don't have that emotional connection. And that's why we can discuss any kind of matter related to compensation or money or benefit. But if you don't have that emotion in the middle, it will be just a matter of trading and dealing and embodying. And that's all.
R. Adam Smith
Yeah, there's the tension between the emotional side of a legacy. I wrote about this recently in the family business.org magazine. And the legacy element is quite important, quite powerful. But it can be diluted over the years and decades and generations. Now, you certainly work a great deal with Latin American clients over the years being Latin yourself. But you also grew up there. And you started a family firm Institute group in Ibero. America, as well as written many books, I've also worked with Latin families over the years and of course, I find Latin America to be a little bit different than the US in the sense that it can be quite traditional and can be a bit more conservative. And there are more expectations in terms of the family business, and also family businesses are much, much larger in many emerging markets than in the US, which is more capital markets driven. So maybe tell us a bit about your experiences in Latin families versus US families. And how do you address the different cultures between them?
Guillermo Salazar
I will say that there is a huge difference. And this is not related to the cultural terms of the comparison; the main difference in terms of comparing family businesses in the US and in Latin America is the size of the market. In Latin countries, the size of the business, the size of the wealth that you can create, it's not that huge like in the US, in terms of comparison, a small business in the US could be a big business in Latin America, in terms of revenues, in terms of sales, in terms of size, and number of employees, those are two big differences. So the consequence of that is that in the US, and also in Europe, or other important markets, like Asia and Japan market, you have a stock market that is very strong, very powerful. You can do big deals in the exchanging shares in the Polish market. And in Latin America, there is a stock exchange market, but it's a small one in comparison. So the families that own businesses don't have the same advantage that a US business has. If we cannot go through a succession process, we can sell the business. In Latin America, it's very hard to get someone to pay you what the business really deserves in terms of value. So the option, the best option that you have in Latin America, it's to keep on going with the business in the family. Because otherwise, you will lose a lot of money. Nobody's going to pay you what the business value is unless there is a business out of the country, a multinational maybe that will be interested in paying you for that business. But internally, it's very hard that you have the money power to pay for a business in your country. So that's a huge difference that I see between the two scenarios, the value of the market.
R. Adam Smith
That's super interesting. We have some family office managers and CEOs and founders and advisors and experts and multifamily offices on the call today. I think it's quite interesting what you said, comparing the emerging markets with the advanced markets because when family businesses get bigger, they can hire a banker like me, or they can go to large investment banking firms, let's say that cover them in a professional way, like private banking at Goldman Sachs, or Morgan Stanley or UBS, for example. And what you're saying is interesting in that, if the family is not able to get paid a fair price or a market price, either through M&A or through an IPO, then the cash flow that they're able to receive from their company, which might be quite attractive in their local markets, is not a good tradeoff for a potential sale or even a merger of local markets.
Guillermo Salazar
That's exactly what's going on. So the only option that you have is to keep on going with the business in the family. And that's a huge difference because that makes us as Latins use other tools to keep the business in a functional way, to deal with relationships, to deal with the legacy, to deal with all the conflicts that you will find in a family business in those countries. You will see that people have a different perspective on the values of the family because they need to, and that's an interesting difference when you compare. We have the same situation with an American company that if you're planning to make a succession, and the next generation cannot or doesn't want to deal with that, you do, you just sell the company and you will have the fair price for your business. That’s the difference.
R. Adam Smith
That's important. I think people are not taking that into account. Even the Brazilian market, which is the top 10 economy in the world, has a public market that is 2% of the US Public Market, whereas the GDP is much, much greater than that, which is fascinating. Okay, let's move on to some other elements of decision-making. So how do you approach decision-making processes in family businesses to ensure they are effective, but also that they serve longer-term goals? Walk us through some of the guidance and protocols for an effective family-owned firm, whether it's a family officer or not. And then also thinking about longevity for these protocols? How much of that is the protocols themselves to provide education and structures and financial reporting and operations versus the actual governance?
Guillermo Salazar
Okay, well, I need to start with the definition of a protocol, the way that we understand it from my methodology side of dealing with or helping a family business consulting process. We refer to the protocol as the process itself. And the document is the consequence of that process. Why do I say that? Because this is very important to understand that the only way to make that document sustainable in time is that this is the consequence of a dialogue process in the family, that every voice that needs to be here is here, that they're exploring the Future of the Family go through making the right questions and trying to define the common goals that the family wants to achieve. So those are the questions that we ask the family when we work with them. And if the family is honest, answering those questions, if the process has been going in its proper way, we will have a document that will help us to remember what the agreements were. And we can use it to refresh that those decisions were made after an important dialogue, important conversation among the family members. So the protocol doesn't have a long life; a document, per se, is a document, as I said, it's a way to remember what we decide, but it doesn't have all the answers. Where the secret of the sustainability in a family business resides is in the family council. So when you create the family governance structure and you have that protocol that regulates that governance, you will need to have the proper forum, the proper place where the different members will discuss the things that don't appear in the protocol. Because we cannot protocol the future; we cannot protocol any of the things that we are not expecting to occur, but we can have the proper place to talk about those things. So the most important part of all of this design of governance, again, is the council, the family council, where the family knows that they have some rules. But if there is something new, they can change the rule; we will need some upgrades of the protocol every two, three years because we have to review. Everything is changing so quickly that most of the time, when we have a document like that, the commitment is to review it at least every three years. And that's the way that we've been dealing with that. And that's the way that we can create a more sustainable way of understanding the way that the family makes decisions in the long term.
R. Adam Smith
So on the website, you have a quote that says family business triumph is possible. And we're talking about governance here and family council. So let me just comment more broadly; everyone in business, particularly in entrepreneurship, and in family-held businesses, certainly if it's a public or private company, is going to have a board of directors or a board of advisors. So when you say family council and we look at some of this information about family council in governance journals, such as experts from the spring from Family Business Consulting Group, Rockefeller & Company, Angela parabolas, Ron diamond, Martin wall, Christina wang, all the guests and friends we have in the industry talk about governance and best practices in different ways. So, just for today, briefly, if you could maybe distinguish between the council structure versus the board structure. I think we can all take analogies back to our own companies as well.
Guillermo Salazar
Yes, what to do if the creation of a family council with the pen, and the differentiation of the board of directors will depend on the complexity of the family business. I don't suggest creating a family council if you don't have the complexity required for that because you are going to make it harder to go over the structure. So if you have enough complexity, and you can justify that you have another form of decision making, we can create the family council. So the main difference is that the family council members are basically the owners of the business or of the company, and the next generation, the future generation of owners. So it's all related to the ownership; in the board, you will have probably some of the owners, but you also will have people that are not related to the ownership, that add value to the strategy of the business, the way that they contribute to the world is because they have enough knowledge that will help the owners to get a better deal with their business. But in the family council, you will have the owners and the next generation of owners talking about the succession process. So those are two different scenarios that they are thinking about. The business has a short-term and midterm vision, the council has a long-term vision, the business, the board has a strategic command from the owners, and the family council, you will have the owner thinking about the succession process, not only of the ownership but also of the leadership of the company.
R. Adam Smith
Let me jump in just a couple more minutes here. And some of the listeners will find this fascinating. So a family council has a long-term perspective, versus a family board of directors or the governance which has a short-term or tactical perspective. I think it's an interesting point to distinguish. And perhaps when we wrap up here in a couple of minutes, you can talk a bit about your books and your teaching and where you teach so that our listeners can learn a bit more about you. But I'd like you to comment on the possibility that if you take the best practices of longer-term thinking of a family council, let's say like a Berkshire Hathaway model or true long-term family business planning, do you think that a family council structure could be helpful for multifamily offices as these multifamily offices get bigger, and also given that multifamily offices have a responsibility not just to the single-family offices underlying but also the wealth management functions of that larger organization?
Guillermo Salazar
I think that the best practices, in general, they can be applied to all of those possibilities that you have described. It's all about how a group of individuals that are related as a family are the owners of wealth. And they are thinking that the best way to preserve that wealth, making it grow and create a legacy is to transfer to the next generation the ownership. So that applies to a lot of scenarios related to creating wealth and managing that wealth in a family office or multifamily office. So the strategy is always the same. First of all, I will say that you need the owners and future owners to improve their communication skills. There's always a space; there is always room to be a better communicator. And that's important because if you have a partner, or you will be a partner, you need to have the best skills to make the partner understand you and you to understand your partner. The second step is you need to define a purpose. As a family business, you need to understand why you are doing what you're doing. You need to justify the way that you want to keep on going together because it's very hard to keep them going together in any business, any project, any plan with human beings. It's always a challenge. So why are you doing this? Why not doing it by yourself? Why don't you sell your car and go away? You have to justify yourself and the rest of the family members why you are doing this? And in order to find that answer, my suggestion is to go through the history, understand the narrative, identify yourself in that narrative, and then keep on going into the future and see what's the vision that you share as a family. What's that dream that you are dreaming together? Once you have that you can justify what you're doing. And once you have that, then the last step is to set the rules, and you set the rules creating governance structures and creating protocols in a document, whatever you want to call it. That will help you to go through that path. If to reach that goal that you define the purpose. So those are the steps. I think that will apply to any kind of family that wants to preserve a legacy.
R. Adam Smith
Wonderful. Wonderful, Guillermo. Thank you. What a wonderful discussion we've had today. It's really been a pleasure. Great to have you on.
Guillermo Salazar
Thank you very much for the invitation and for the opportunity to share with your audience.
R. Adam Smith
Yes, absolutely. We'll have you back in the future sessions. You can find Guillermo on LinkedIn. Also on his website, GuillermoSalazar.com, he has a wonderful book as well. He's teaching at various venues so you can catch him potentially online or sign up for his executive education courses. He's only spoken at 250 or so presentations. So perhaps this will be one of the more enjoyable, less painful ones that he's had in that 250. But really, we've come across some interesting topics today. And I hope it's been helpful and interesting for everyone to think about. I'd like to thank all the attendees today and our guest, of course, founder of Exaudi family business consulting. This is R. Adam Smith signing off. Stay tuned for the next episode of the Family Business Audiocast on LinkedIn.
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