Market Gets Some Love
February 14, 2020
Bulls made it a second consecutive winning week as investors continued to shake-off concerns over the coronavirus. The positive sentiment on the Street was helped in part by Federal Reserve Chairman Jerome Powell’s semiannual Senate testimony. In his remarks to lawmakers he reassured investors the central bank will continue to closely monitor the coronavirus for potential spillover effects to the U.S. economy and take needed measures to maintain economic growth. Further fueling bulls’ optimism was the Q4 2019 earnings reporting season which showed companies continuing to beat expectations. In economic news, retail sales showed continued gains after the post-holiday shopping season, while inflation remained in check. For the week, the S&P 500 added 1.58% to a new record high of 3380.16.
Shoppers Look for Sweetheart Deals
Unseasonably mild weather in January helped drive retail sales higher as consumers hit the car lot and building material stores. Retail sales for the month rose 0.30%, up from December’s 0.20% gain. January’s figures were helped by a 0.20% increase in autos, reversing December’s 1.70% decline and building material stores, which saw sales rise 2.10%. That’s their highest level since August and even higher than December’s 1.30% gain. Core retail sales which exclude autos, gasoline, building materials and food services were unchanged last month. Core retail sales remained flat in part due to clothing stores recording a -3.10% drop in January. The month is typically slow for consumer spending as it follows the busy holiday shopping season. Fortunately, consumers look primed to pick up their spending just in time for Valentine’s Day. According to the National Retail Federation, Valentine’s Day spending is expected to rise 32% from a year earlier. That’s significantly higher than the average annual increase of about 6%. A strong jobs markets and modest wage growth seems to be encouraging more shoppers to spend on their Valentine this year.
Inflation Remains in Check
Consumer prices remained relatively flat in January, rising 0.10%. That’s down slightly from December’s 0.20% increase. A drop in energy and used car prices helped to offset a rise in utilities and food prices in January. Core consumer prices, which exclude volatile food and energy prices, rose 0.20% in January, generally in line with December’s 0.10% increase. Year-over-year, core consumer prices were up 2.30% for the fourth consecutive month. That growth rate remains well in line with the Fed’s 2.00% inflation target. All indications are that inflation remains modest and that it should continue to remain so throughout the year.
Stocks continued to rebound this week. Fed Chairman Powell joined the chorus of central banks reassuring investors they would step in as needed to maintain global economic growth in light of potential spillover effects from the coronavirus. Bulls also found reassurance in the Q4 2019 earnings season. With more than 77% of S&P 500 companies having reporting results, about 72% of them have beat expectations according to FactSet. Earnings are now expected to grow around 1%, which may not appear to be much but is an encouraging turnaround as analysts had originally penciled in a -1.70% decline. In short, the reassurances from global central banks and continued earnings momentum have been more than enough to keep investors’ romance with the market alive.
The Week Ahead
Breaking Up is Hard to do
A month ago, one famous royal couple announced plans to step back from the family business. While the lives of the Duke and Duchess of Sussex and their decision to step back from royal duties are arguably much more complex than most family businesses, their separation shows how difficult it can be both emotionally and financially.
Working in a family business can be a wonderful opportunity. Over the many years our advisors have consulted with family businesses, we have heard so many positive outcomes. One adult daughter shared that for her, the best part is the relationship you have with your family members. She added that she has spent more time with her aging father than she ever could have dreamed of, and it has become such a strong and enriching relationship — professionally and personally — because they share a passion.
One of the most common sources of distress for family entities is having an older founder who is not willing to hand over the reins. Indeed, it can be hard for a business owner to let go of something they have spent their entire lives building. However, not having a solid succession plan that is transparent to the whole family can create conflict for the next generation and threaten that very enterprise. It’s also very common for the second generation to have core values that do not align with the founder’s. We have observed situations where the second generation enters the business with a sense of entitlement and rather than employ the same principles that helped the business grow and become successful — reinvesting profits into future growth — they may choose to drain the profits out of the company. Furthermore, it can be stressful to work in a family business where the decisions you make can have such a profound impact on the family’s wealth.
Our advisors caution matriarchs and patriarchs of family entities to encourage education from a young age that will prepare the next generation to become successful managers and leaders. This includes observing their children’s ability and interest in the family business and their desire to acquire the skills needed to be successful. Despite the best of intentions, there may be times when it becomes apparent that the next generation isn’t thriving in their role, feels trapped, doesn’t share the founder’s passion or vision, or doesn’t want to navigate the politics of a family business. The management experts at Harvard Business Review magazine recently addressed important considerations for individuals who may be contemplating leaving the family business. Below is their six-step approach to help mid-career professionals evaluate a career change outside the family enterprise excerpted from the article by Judy Lin Walsh and Aline Porto, titled, “Is it Time to Leave the Family Business?” that appeared in the Harvard Business Review online on January 24, 2020.
1. Compare your vision to your family’s vision: A critical factor in deciding whether a company is right for you is whether you believe in its long-term vision. In a family business, the shareholders formulate this vision jointly. It can be tough to get a myriad of perspectives in perfect alignment, but it’s essential to get the broad strokes right because the board and management will develop the company’s strategy based on it.
Evaluate whether you share the same vision for the business as the other shareholders. If you’re aligned, you can hold up tough decisions against your shared vision to see if they’re directionally sound. If you’re not, staying at the family business will always be an uphill battle and you may be better off elsewhere.
2. Clarify your aspirations: It’s not essential that you want to end up running the company someday. We’ve seen many satisfied family members employed in positions in the family business that align with their skills and interests – so don’t set a false binary choice (“I am the future leader of this business or nothing”) for yourself as the only path to happiness. One of the most fulfilled family employees we know chose to leave her high-powered job in international sales to become the archivist at her family’s consumer goods business. She discovered her real passion was capturing the family’s history, including their successes and failures, and passing the lessons learned on to the next generation.
Be as clear about your aspirations as possible: What do you seek to accomplish in the family business? How and when will you develop the skills necessary for the role you aspire to? How does that fit with the senior generation’s aspirations for their own career paths? Where can you put your skills to their highest and best use?
3. Identify your deal-breakers: It’s natural to have differences of opinion in business. In family businesses, these opinions are heightened by emotions and family dynamics. To have a successful, long-term career in a family business, you will need to learn how to share control with the rest of your family members engaged in the business. Get the decisions most important to you right, and let the others ride.
Examine what’s triggering your instincts to leave and then separate the reasons into what you can influence/change vs. what you have to live with (or not). For example, if you have a different opinion on how the business should be run, consider whether it’s truly a deal-breaker. More often than not, individual operational decisions come into focus over time and lose their immediate fight-or-flight response, but a major strategic shift or a constant pattern of having your opinion overruled is worth fighting for diplomatically.
4. Find and leverage mentors to guide you: An essential resource when you’re in a family business is an experienced mentor who can provide a neutral perspective and help guide your career without the biases of a family member or the challenges that an in-house HR department would face in evaluating the next family leader. A good mentor can be an independent board director, a senior executive who is capable of being neutral, or even someone that is not directly connected to the family business but knows enough to be of help.
Ask your mentor for an honest assessment of where you are developmentally and what you’ll need to do to achieve your goals. Talk to your mentor regularly (at least twice a year plus a more substantial check-in every three years) and ask for their help to keep you on track with your goals. A good mentor may also help you redefine what success looks like so that you’re not solely focused on becoming the next company CEO.
5. Ask for merit-based evaluations and a development plan: Don’t be afraid to ask for constructive feedback if you truly want to perform to the best of your abilities. Many family businesses fall into the trap of thinking that family members don’t need to have the same HR processes as non-family members. The truth is, it’s even more important for family employees to receive honest feedback if the company is to be successful, because someone who’s been coddled to the top could make a decision that jeopardizes the future of the company. Avoid being that person by asking for honest, 360° feedback from those around you. Work with your mentor to assess how to learn from the feedback you receive and incorporate it into your leadership style.
6. Finally, make the decision that’s right for you — but be careful how you communicate it: If, after careful consideration, you choose to leave your day-to-day role in the business to pursue another venture, contemplate how to leave with dignity and retain familial relationships. Make sure you have a clear exit story to communicate internally and externally (such as pursuing an MBA to gain skills to become a more effective contributor to the organization later) so you’re not perceived as leaving in a huff. Have a plan for what you want to do next and socialize it with your family members before it ends up in the company newsletter. After all, you may no longer be an employee, but you are likely to still be a shareholder (or future shareholder) in the business. Reflect on how your departure may affect your role holistically. Can you still be an effective owner and work with the other family owners to govern the company, when you’ve moved outside of daily operations?