Family Business Audiocast | Episode 31 | Kristi Daeda | The Family Business Consulting Group

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About Our Guest:

Kristi Daeda is the president of The Family Business Consulting Group. She is a trusted advisor to the world's most influential business families and entrepreneurs, specializing in family enterprises, family offices, and succession planning and governance. She is dedicated to helping families navigate the complexities of governance and policy, ultimately strengthening their enterprises for future success. Kristi excels in crafting sophisticated strategies for leadership transitions and fostering next-gen development, ensuring that families preserve their legacies and thrive across generations.

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[Transcript]

R. Adam Smith: [Intro] Welcome to the Family Business Audiocast on LinkedIn. I am R. Adam Smith, creator of this audiocast series. As an entrepreneur, investor, founder, investment banker, and board leader the last 25 years, I am fortunate for my many experiences within the family firm industry. 

A warm thank you to our live audience on LinkedIn today – and for those listening in the future.

A brief comment on why I created this broadcast: private companies are a passion of mine, having grown up in a family of entrepreneurs, and having engaged for two decades in deals, strategic transformations, investments, and boards, with an array of fascinating family enterprises, family firms, and family offices. I founded this series to offer a useful platform for listeners to hear from veterans, academics, and leaders in the vast family firm ecosystem. Whether you are a family business owner, building, running, or advising a family office, or just expanding your family office activities, I hope these conversations are useful and enlightening. And now, it is time to turn our attention [01:00] to our accomplished guest on today’s episode.

I'm very pleased today to host Kristi Daeda who is the CEO of The Family Business Consulting Group in Chicago. Kristi, great to have you today.

Kristi Daeda: It's great to be here. Thank you.

R. Adam Smith: We finally made it happen. It's great. So, I'm going to say a couple of words on Kristi and then we'll jump in for about a half-hour of conversation.

Krist is a distinguished leader in family business consulting globally. She is a trusted advisor to some of the world's most prominent and influential business families and business entrepreneurs in the family business space and the family office space.

She is president of The Family Business Consulting Group out of Chicago. The national firm covers clients globally. She's in Chicago, and they just celebrated their 30th year. So, she brings unparalleled expertise in areas in [02:00] family enterprise, family offices, and succession planning, including governance as well.

Kristi excels at developing sophisticated strategies for leadership transitions and also fostering next-gen development, ensuring that enterprises not only preserve their legacy, but they also continue to thrive across generations.

In addition to preserving the legacy, the firm also is an expert in the governance, as we mentioned—we'll talk a bit about that today—and also really working closely with the families to thrive across generations.

Kristi is one of the most sought-after experts in the field of family business. I'm so happy to have you here today. Talk a bit about your mission and your company and legacy.

You've worked extensively in family governance and policies. Let's talk about some of the most overlooked elements of governance [03:00] that can make or break a family's ability to maintain the harmony across the generations. That’s certainly a hot topic today as we have a massive transformation going from G1 and G2. It’s apparently one of the largest transfers of wealth in modern history, they say, so let's talk about it.

Kristi Daeda: Absolutely. I love governance as a place to start for today's topic because it's very much a part of the family business conversation right now. What we find in talking to families is, they have an understanding that family governance can be important, but oftentimes they have differing definitions of what it might mean. For some families, it's a family office, they could be thinking about estate planning, they could be thinking about their board of directors.

And so, oftentimes what they're thinking about is a policy or a structure that will help to set the groundwork for future success. I think what is often missed or can be missed is that really, governance at its core is about creating family alignment and new ways of making [04:00] decisions together for the future, creating roles and voice for the family in the system. And some families find themselves in a position where they have embraced the policy, or a structure, and they may have skipped over some of the really important steps of creating a family participation in that development process and in building agreements that will help them to make those structures sustainable for the long term.

As we think about how families do that successfully, oftentimes it can be a significant process with conversations about things that we may not agree on to begin with. But ultimately, what happens is that sometimes families will avoid those conversations in part because they feel discomfort around [05:00] a potential uncomfortable conversation or conflict that could arise by actually talking about the issues that the family may face in the future, and they may not see the risk of not building support for the things that they're putting into place.

Because ultimately, as we talk about family governance, not all of the things that families do together are enforceable, right? Oftentimes, it's the agreements that the family has that gives the family governance system the policies its power, and it's the people's commitment to continuing to apply it that becomes most important as they go forward. So, one of the ideas that some colleagues of mine, Tom Emigh and Jennifer Strom, developed was the idea of durable family harmony. So, real harmony in families, in part, comes from the ability to disagree, to work through issues, to build relationship resilience [06:00] that allows them to address those things together. And so, for families who focus on structure and miss those important conversations and alignment-building, it can be a challenge, and they may not see the results that they're hoping for.

R. Adam Smith: Yes, “durable” is a good word. We talked about resilience in different ways and the balance between the soft and hard skills of taking that courage to talk about difficult issues between the generations at the board, revising the charter, revising and tweaking and evolving and modernizing what the family enterprise is doing in terms of managing the enterprise and infusing governance into it.

We talked about those challenges a bit with Lina Chehab; she runs part of the FBN [The Family Business Network FBN Levant]. In her conversation with Elizabeth Bagger from Avanti, we talked a bit about that in that session. And we talked also about it with Emily Bouchard, formerly leading the [07:00] family enterprise efforts at Hawthorne. So, we have covered this before. I think each time it's a bit different.

You used the word “durable.” Maybe if you can continue further on that word in terms of the durability of the family and the enterprise versus the mission and the legacy. So, maybe a bit on the distinction between the continuity of the company and the wealth versus the legacy itself in terms of the family lifestyle and the pride of staying involved in the company.

Kristi Daeda: That's a great observation. I think as I think about durability in the business and in the family, what can be important is to recognize—and you struck on it a little bit—the idea of, there's a commitment that's required to continue to re-envision, to reaffirm, to tweak, to evolve. And oftentimes, plans [08:00] and agreements will sit on the shelf for a few years, and then they'll be revisited. But oftentimes, there's benefit from this sort of living, breathing set of agreements and policies and procedures for putting a cadence in place, for ensuring that the communications, the conversations, are continuing.

Because we know that in a business and in a family, there are going to be speed bumps that we're going to hit, right? There's going to be an economic downturn, a need for a strategic shift, a family disagreement. These things come. So, building durable relationships, durable enterprises, durable family harmony, I think those are all related to our ability to make sure that it continues to be a priority, and it continues to be a part of our day-to-day conversation, not something that we're just sort of revisiting episodically.

R. Adam Smith: Okay, so when discussing succession, you noticed one of the greatest challenges is the readiness of the next [09:00] generation. And that readiness can be affected by the transparency within the large family enterprises and family offices themselves and the courage to have that transparency. And that readiness is critical if the next-gen actually wants to be successful and involved in taking over the business.

We see some real successful stories at Cargill, Ford, LVMH, Chanel, Walmart, large businesses, but then there's a much larger segment of mid-sized businesses which don't have necessarily the sophistication internally as well.

Can you talk a bit about the next generation and the expectations of the leadership transition as well?

Kristi Daeda: So, I'd say one of the things that is happening more and more is families thinking differently about what role the next generation might play in the enterprise and in other ways. Certainly traditionally, there's a vision [10:00] of a line of successors who step into the helm of CEO of the company and similar kind of leadership roles. And not all businesses, as you note, have the talent or the interest. Sometimes the timing is off for someone to step into that next step.

So, families are thinking in a lot of creative ways about what those rules for next generation family members might be. There's a lot more focus on what it means to be a good owner and how owners participate as, you know, caring for the legacy, as ambassadors to their communities, and as stewards of the firm's resources, and oversight to make sure that the legacy and the purpose is being lived out.

So, there's a lot of different paths now for next generation family members, which creates a lot of opportunities for families to think about things in different ways. I think as we think about [11:00] readiness and assessing readiness, one of the things that I might suggest is that readiness is established one step at a time. So, there's not typically, perhaps, a day where it's ready and everybody's confident and we can pass the baton, as it were.

But the families that do this really well are thinking about, okay, what do we need in five years, in 10 years, and how do we move people towards readiness? And part of readiness is continuing to give them opportunities to take on more responsibility. Certainly, in a leadership succession context, there's rotational programs for younger folks and developing career passing, providing coaching, things like that, for folks who might be ascending to C-level roles.

As relates to ownership, oftentimes there are other opportunities for family members to get involved, to lead task forces, to lead committees, to take on a portion [12:00] of the family's philanthropy, things like that. So, it's a constant thinking about how to help people achieve the next step with real ability to demonstrate results and leadership in those opportunities.

So, not necessarily giving them a project where they cannot fail but giving them projects where they're really going to have to figure it out and take accountability for what goes well and what doesn't go well. And as you see people deliver results over time, you build confidence in the family of the next generation's ability to step into whatever those roles may be.

R. Adam Smith: That's great. I agree with you. We've talked about this next-gen on the Family Business Audiocast with different guests, again, with different points of view. So, for example, with Jason Ma, who is an expert in next-gen, he is very focused on the ongoing education and involvement, like you said, on committees and really mentoring the next-gen. Of course, some of that next-gen could be [13:00] non-family as well. That's a whole other topic.

And then with Angelo Robles, really focused on the single-family office. We talked last month in a debate about the future where there is a conversation about infusing human capital, again non-family members, and also expanding the single-family office with acquisitions to create scale. So, scale creates more reach, more cash flow, more ability to take risk

And then earlier, we talked about more leadership with some other guests like Christina Wing and Martin Roll, and really back to the governance of building board of directors. So, it's kind of all over the place.

The one topic that is tricky and sticky is this non-family leader role. It can be the CEO of a family office; it can be the independent director on the board. How's that going in the industry in terms of infusing higher-level human capital that comes from outside? [14:00] How does that actually work? Where do they find the upper level of non-family members? And then, how successful is integration in governance and leadership?

Kristi Daeda: It's a great callout because, going back to the idea of human capital, any successful family firm is only going to be successful with a blend of family energies, leadership, and vision, as well as non-family talents, leadership, vision. Blending those is really critical.

I think the families that are doing this best have a real appreciation for their non-family talent, right? There's a risk that there's a lack of transparency, a lack of information, or a lack of opportunity for non-family folks. And so, having an explicit appreciation and vision for how the non-family talent contributes to the future and potentially [15:00] even leads the future, more and more families are thinking about non-family CEOs and things like that.

The more that that's articulable, I guess, is really a powerful way to help attract people who will be attracted by the family's values, mission, by the business opportunity in front of them. Family businesses can be really attractive places to work in terms of paying attention to the long term and the direction that they want to take things.

And so, for the right person, that's a great opportunity. It's, however, not necessarily the opportunity that comes first. And so, I think the critical thing is to have a clear ability to articulate what those folks bring to the table. And, if you're using executive recruiters and things like that, work with partners who really see the uniqueness of the enterprise and why it's a great opportunity for the right person so that they can articulate that value proposition. A lot of folks [16:00] may envision their careers with some of the, you know, biggest name public company organizations, and may miss some of the really wonderful opportunities that there are with family-level firms.

You also mentioned integration. I think the thinking about the management structure and how to create a management structure that allows for everyone to play the right role and for everyone to have the right kind of oversight and direction is really important. So, as we think about family employees, oftentimes, we're suggesting that they not report to other family members so that they have the opportunity to really prove themselves on their merit.

Similarly, you know, you want to think about, how do we create conditions from a reporting structure where someone feels like they've got access to the information and support that they need and where they can see what their career path might be?

So, as much as there's purposeful planning for family employees, purposeful planning for [17:00] non-family employees and their career trajectories will help with retention and help make them good strategic contributors to the firm for the long time.

R. Adam Smith: That's great. As you know, I've been working with family offices as clients and LPs and GPs and as friends and boards for 25 years. Recently, I've gotten quite involved in a single-family office and that single-family office has family and non-family members. It’s also a woman-led family office involved in both women-related investments and general tech and real estate-related investments.

But we have some other families working with us, and I've seen this becoming quite a significant issue of the ability to recruit efficiently and to understand how to structure the compensation for non-regular compensation and then how that relates also to the authority granted to the non-family members [18:00] in management. And that all sets the stage for building a much larger family office or family enterprise organization.

Your firm is quite astute at these subtle issues in leadership and human capital and team formation. So, what are some of the more interesting ways you're advising the incentive compensation for larger family office executives? And then, how does that help infuse incentives and longer-term perspective when, you know, frankly, a lot of the family office activities can be either transactional-based, they can be lifestyle-based, or management-based, you know, as a fiduciary? So, it's an interesting time in the industry as family businesses grow into a family office, and then a family office grows into an investment management firm as well.

So, lots going on there. I would love to hear your thoughts on that.

Kristi Daeda: Well, I think you've hit on an important theme here, which is that it's an evolving conversation. [19:00] I think one of the things we've seen is people who are exceptionally talented as family office executives often have, you know, unique skill sets and perspectives and financial acumen and all of those things, but they also tend to be pretty relational in terms of valuing the relationships with the family members involved.

So sometimes, the challenge, particularly if you're creating a new family office, is having that ongoing conversation around what's appropriate to the market. Sometimes the person who's in that role is helping to inform around what is common in the market and what is happening. I'd be interested, though, in hearing a little bit more about the approaches that you've seen taken in terms of compensation, particularly in that startup family office setting.

R. Adam Smith: [20:00] Sure. Well, we have in our family office, and also recommended this to some other family offices, we have taken a multi-faceted approach. So, first of all, reading top-level human capital reports and information out there. It can be Camden [Property Trust], it can be Korn Ferry, Linda Mack [Recruiting], Mack & Co [Mack International]. Once you secure the best in the business and read their guides and their recommendations, that's information that's not easily readable in the market, so you have to ask for it or know them. So, those types of organizations are super important.

Secondly, I think as we see from Camden and discussions from Ron [Ronald] Diamond and others talking about human capital, the gap is shrinking between traditional financial services and larger family offices, at least on the base salary. But the upside is tricky because there is a blend of KPIs, [21:00] also deals, and also SPVs and GPs. And then there's any management firm potentially involved. So, it is quite complicated. I think having also a very good law firm and a lawyer that understands that a business side is important, so the corporate lawyer is important. But in addition to that, the executive and human capital lawyer is also important to involve in those conversations.

And those conversations also can get quite complicated or quite emotional—they're certainly imperfect. So, that's where the blend of the information and the recruiting firm, such as Korn Ferry or ZRG [Partners] or Linda Mack, and then also the lawyers. At the minimum, those are helpful.

Kristi Daeda: There's quite a bit of variability in family office structure, responsibilities, you know, all those things. And compensation largely always feels to me like part art, part science, right? We've got some data and then we have to interpret it in ways that are relevant to the situation at hand. [22:00] Noting the emotionality around the issue, objectivity is really valuable and important. So, outside reports, outside experts, whatever the governance structure might be in terms of, do you have a family office board oversight to help go through an objective process of evaluating that? All of those things can help, I think, reduce that emotional piece of things and add trust to the process for whatever the conclusion might be.

R. Adam Smith: Just on the board front, I've been on 10 board of directors, I have formed a digital governance company, I have advised on eight different advisory boards, I'm forming three advisory boards now, but yet, even for me, I still don't understand the impetus and the actual range of utility for a board of directors for a family office.

Maybe could you just comment on, [23:00] what is the purpose of a board of directors of a family office or is it really more for the family business?

Kristi Daeda: Well, I think family office governance is, in some ways, its own topic, right? And so, depending on the family structure, the office structure, there can be real reasons to have particularly a structure for family oversight of the family office in some way or family sort of speaking into the family office performance in various ways.

For families who have transitioned or who have fully exited an operating company, and the family office is really their primary enterprise, governance can also provide a channel for ongoing involvement from family members. And families sometimes struggle with a lack of connectedness or value as it relates to the family office, particularly for younger family members who may not have been involved in its creation or who are [24:00] raising their kids and things like that. They may see it as something that's apart from them. So, a governance structure that allows them to be a part of decision-making and crafting it for the future can help support sustainability.

That's one reason why I know that families might consider something like that.

R. Adam Smith: Okay, even if it's a non-voting role, just being at the table, right?

Kristi Daeda: I think there's a variety of structures, but yes, it could be a structure for an occasional review of performance, and that informs decision-making, right? It doesn't have to be a fiduciary kind of structure.

R. Adam Smith: Okay. We've got about five minutes left. If anybody wants to come up on stage and ask a question or two, I'll have room for one.

Shifting over to leadership transitions, could you talk a little bit about really letting go in leadership transitions? We're talking about the board and the CEO, but really if you could also comment on how a founder of a large [25:00] family business can struggle with preparing for a sale, engaging M&A, really being prepared to release the business and selling the company.

And then also, we had Tom [Thomas] Deans on our show recently, and he has quite a specific view of succession of the family business that the next generation should really have an opportunity or the privilege of actually buying the family business with their wealth, as opposed to going externally. So, I appreciate your views on it.

Kristi Daeda: Thank you. Letting go is a really important and critical piece of the conversation. One of my colleagues, Stephanie Brun de Pontet, wrote a book called Transitioning from the Top which explores, in pretty good depth, the experience of someone who's been a founder in particular but a family business leader who is contemplating their exit from the company, and certainly I think it applies, as it relates to sale.

One of the things we hear about with families [26:00] where there's been a founder generation is their children will sort of speak of it as this was the third child, the business was the third child. There's a lot of emotional attachment there, there's a lot of identity attachment there, and then there's some real practical challenges to someone letting go. Sometimes they get pulled back into things because there are challenges, and they have the knowledge to handle it.

Sometimes they own a lot of the key relationships, and those relationships keep coming back to them. So, as we think about letting go generally, often what we're telling people to consider is to really envision what your life is going to look like after the transition. And generally, when families are thinking about sale, this is something that may not get enough attention, right? We sort of get wrapped up in the sale process, and all of our attention is going towards the transaction.

And then, you know, you sign the papers and everybody's like, well, now what? Like, who are we now as a family now that we no longer own this business together? And that's when, obviously, you know, things like [27:00] family offices and philanthropy become a much more central piece of the family conversation.

But that envisioning of what it looks like, like who are we? who am I? after this transaction takes place is really important. And oftentimes people underestimate the sort of space left in their life and how that's going to feel without something that they're moving towards.

So that's a really important piece of the puzzle. And thinking about, why are we doing this in the first place? Sort of grounding things back into, what is it that I want? So, if we're talking about a transition to our kids, why is that important to me? And themes of legacy and watching them be successful and watching them build their own careers in the enterprise and things like that. Focusing on those vision things can help.

A coach can be really helpful in thinking about, how are you showing up and how do you plan a staged exit? One piece of advice that has been offered from time to time is for [28:00] leaders to think about slowly taking more and more time off while others are stepping into more leadership roles in the business. So, take a week off a month and see how that feels and begin to fill that time with other things.

So, it really takes a founder to be really purposeful about what they're trying to achieve to get through both all of the activity of the process, but the sort of emotional transition as well. And so, providing that person support can be really useful.

R. Adam Smith: Wonderful. That's great.

We're going to wrap up shortly. Kristi, maybe in the meantime, in terms of war stories, give us one of your favorite stories of really moving the needle and helping solve some problems with a large family business the last couple of years. Give us a story, with no names, that's been an inspiring, exciting experience for you.

Kristi Daeda: Oh, well, goodness, I mean, so many, but one that jumps to mind is a family that [29:00] one of our team worked with. The gentleman who was leading the organization really suffered a health event, and that led to some unexpected succession and transition activity for the family. And when something like that happens, it can be really scary, it can be chaotic. And we happened to have the opportunity to be with them while they were kind of walking through this process.

He ended up making a full recovery and is in great spirits and is playing a role as sort of an ambassador to the family at this point. But there was a point in time where there was no clear successor and ultimately what emerged is a family member who never expected to be in the business stepped into a lot of responsibility. And that person grew to love the leadership role and really performed well and it's not somebody who would have been selected through a sort of traditional succession process. But just kind of being in the fire created an opportunity for them to contribute [30:00] that has turned into a really beautiful leadership story.

So, I think in those kinds of situations, it's about calm and kind of taking things one step at a time. And that can be really the best advice when you're going through that kind of tumultuous situation.

R. Adam Smith: Thank you. Well, today we talked about your company and its function after 30 years. Congratulations again.

Kristi Daeda: Thank you.

R. Adam Smith: And also, about the durability of conversation and bringing transparency dialogue around succession planning. Of course, M&A, selling the company, having that dialogue within the family. And, of course, it's tricky when you bring in a non-family member. But, you know, if you look at Chanel, we've seen a fantastic outcome with the external CEO at Chanel. It's just a really impressive outcome. It's not always that easy, but if Chanel can do it, then, you know, [31:00] there's some hope, right?

Kristi Daeda: There are so many of those stories. Absolutely.

R. Adam Smith: Okay. And you also talked about having a cadence in that conversation so it's not too overwhelming. You know, there's a lot of ego, a lot of wealth, a lot of different generational perspectives. So, it's always exciting.

You can find Kristi online and her website, The Family Business Consulting Group, FBCG, and also on LinkedIn.

Lina, come up on stage and share with us a question over there in Europe please.

Lina Chehab: Hello everyone. Well, I have two comments. The first comment is concerning the non-family CEO. Now, we see many cases where it is extremely successful but other cases where it's a complete failure. I know someone who was headhunted to join a family business, but they did not set expectations from the beginning. It wasn't clear [32:00] who he is to communicate with. The family was not aligned. So, it was a total disaster.

So, it's very important that both sides understand each other—the family business and the non-family CEO—to understand from the beginning what is it they want. Who does he communicate with? To have clarity, this is very important.

And the second comment is about selling the family business. There's the example of the French company, Taittinger. They sold the family business, but that's the family name, Taittinger. So, the next generation was so disappointed, they went back to buy the company at a higher price from the sale. So, they went back to buy their own family name.

So, just to give it another example, there was another family business that sold their family business, and they were telling me, who are we now? [33:00] We do not relate to anything to a business. We used to be X business, and everybody knows us, but now we're just a family office. So, they were thinking of buying or setting up a new operating business again, that they can relate to and that all the different generations can relate to.

So that's it for me, just for my comments.

R. Adam Smith: Wonderful, thank you. Kristi?

Kristi Daeda: Lina, I 100 % agree in terms of, you know, going back to the non-family executive piece of that. It is about bridging a point of view and really understanding what the family is looking for. And that question of who they report to and who they communicate with, that is a significant risk and pitfall and a benefit of, you know, good corporate governance, right?

Oftentimes, as we're going through leadership transition, we're looking at the board structure to say, okay, is this the board structure that's going to support the next generation? [34:00] And how do we make sure that that works to ensure that the CEO is getting what they need from the family? Because it can be challenging when you've got a lot of big personalities who have been traditionally more involved in operations.

R. Adam Smith: Thank you.

That's a wrap today. I'd like to thank our Family Business Audiocast attendees today, and of course you, our esteemed guest, Kristi Daeda.

Kristi Daeda: Thank you. It's been fun.

R. Adam Smith: Wonderful. I'm glad we made it happen. This is R. Adam Smith signing off. Stay tuned for the next episode of the Family Business Audiocast on LinkedIn.

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