Share |

Enduring lessons

My task in this article is to share some of the key lessons I have learned from my experience as educator, researcher and consultant working with family businesses around the world. I will distil the implications of these lessons for other business families and family businesses. What follows is subjective and by no means exhaustive but may serve to motivate those who lead families and their businesses.

Maximum complexity
I am convinced that there is no more complex form of business organisation than the family firm. Any family-controlled company faces the same challenges as its non-family competitors but in addition must manage intra-family dynamics as well as the family/business interface if the firm (and the family) is to continue to thrive. This is no mean task when 'family values'(such as nurturing, unqualified love, security, stability) are often in direct opposition to 'business values'(such as winning, maximising profit, continuous change, competence). One British, third generation, family CEO reflected these inherent additional tensions.

"I am spending more than 50% of my time trying to smooth the waters with members of my family who are not working in the business. This is time that I am not applying to leading the company just when it is facing the greatest competitive challenge in five decades. "

Business families must incorporate into their thinking and behaviour the realisation that family businesses by their very nature are extremely complex organisms requiring special attention to family dynamics. In particular, the owners should ensure that those appointed or elected to board or top management positions have not only the requisite business skills but also the capacity to work effectively within a system where the owning family is the major stakeholder. This criterion may disqualify certain family members from aspiring to board or management positions. Non-family board members who have not served on family business boards before may not appreciate that their role is a more complex one since a significant amount of time is required managing relations within the family shareholder/family stakeholder groups.

Rules of the game
It is my conviction that one of the ways to reduce the inherent complexity of family business is to create family 'protocols'. These put on paper how the family views itself as both a family and a family in business. What are the key values for family members? What family governance institutions are needed (eg, family assembly, family council, shareholders committee) and what are their roles and composition? What values does the owning family expect to be honoured by the board of directors and top management? What are the roles of the family, the board (including its subcommittees) and top management in the business? While implicit rules of the game exist in all family companies in Stage 1 (owner-managed), it seems that the larger the business, the larger the family, and the more the firm moves in the direction of Stage 2 (sibling partnership) or Stage 3 (cousins confederation), the greater the need to formalise in writing what the rules of the game are for all concerned.

Many families that have completed the task of drafting family protocols, have found the process as important as the final written output. One explanation is that the very act of trying to come up with rules of the game provides a legitimate vehicle for the airing of issues that may have been festering for one or more generations. The second generation family CEO of a medium-sized Turkish company summarised his reaction to the 30 months he and other family members had worked on developing their first constitution.

"I don't think that any of us knew how difficult a task it was going to be and there was considerable scepticism and nervousness at the beginning. Yet, as time went by and with the help of an external facilitator, we became increasingly at ease with each other to the point that concerns were openly expressed, often for the first time. Some of the debates became rather heated but in the end, all of us tried to come up with language that would be good for the family and for the company both now and in the future. It was a tough job but, on balance, very worthwhile for all of us. "

Any owning family wishing to develop family protocols should be aware that it is not an easy task, and will probably take longer than expected. It is best to put as much on paper as early as possible to reduce potential disagreements in the future. For example, if the family has clear criteria that must be met for a person to sit on the board of directors, those who do not meet them would not be tempted to apply for a directorship.

Families should not assume that if things are going well for the family and business there is no need to draft family protocols. Quite the opposite, the propitious moment is exactly when things are going well. When the family is in conflict and/or the business is doing poorly it will be much more difficult to establish effective rules of the game. Input should be sought by the drafting committee from as broad an array of stakeholders as practicable so as to maximise informed consensus around the final text. Considerable effort should be devoted to ensuring that there is clarity with regard to the distribution of roles between the family, the board of directors and top management. Lastly, family protocols should incorporate a procedure for their revision to reflect changes in the family or the business.

Family personnel policy
One of the most important family protocols is the one concerning the employment of family members in the family enterprise. One French non-family CEO on an executive family business programme underlined his concurrence when he stated, "Having an explicit family personnel policy is not only important for the family but to all the nonfamily executives. Believe me, whatever is stated therein will have a vital impact on whether you will be able to attract and retain the best non-family talent!"

I often make the suggestion that families developing protocols should start with this one. The family's rules will have a considerable influence on, not only the quality of the non-family employees, but also the level of competence of executive family members. A family that believes that all members have the right to employment will have a very different skill mix than one that believes that employment of family members is a privilege earned through competence. There are, however, some families who would disagree. One middleaged founder of a Swiss company told me recently, "I created this enterprise not only to become wealthy but to have my children, and hopefully my grandchildren, working side-by-side with me. No matter what their relative level of competence, I can always find a job for them here!"

The search for a family personnel policy requires finding answers to several questions. Who is considered "family"and what are the rules of inclusion and exclusion (for example, are in-laws considered family?) Are there pre-requisites for entry based on education, age, outside experience, personality traits, share ownership, gender or other criterion? Once employed by the firm, what are the conditions of employment and separation of family members and who polices them? Consideration of salary, fringe benefits, working hours, training, job rotation, promotion, performance evaluation, exit rules and a host of other factors must all be considered. Who will be monitoring career progression of family members and if they have a grievance who can they turn to? The key philosophical issue here is the degree to which employed family members are treated differently than the non-family employees (to a minimal degree, in my opinion). One key caveat: do not assume that the family personnel policy can be kept confidential. Both family and non-family will be tracking what happens to employed family members and draw their own conclusions with regard to whether the family firm is a good place to work.

Learning from others
The evaluations by participants of the Annual World Conferences of the Family Business Network consistently show that the most useful lessons have come from the sessions where owning families share their experiences with the audience. Similarly, in the family business educational programs in which I have participated the typical comment heard is: "As much as I enjoyed the faculty, the real learning for me came from listening to my colleagues share their successes and failures". Members of a third (incoming) generation French firm drafting their first family constitution queried: "Are our challenges different from other family companies and what kind of language have they come up with to handle the issues in question?"This demonstrates how the single most important source of insight for a family business is the experiences, both positive and negative, of other family firms.

Owning families should actively seek out opportunities to learn from other family companies. Families can do this by using the family's personal network, attending congresses or educational seminars, inviting consultants and researchers to share what they have learned from the families and the companies they have worked with. Too many family companies, however, are hesitant to share their own experiences with others thereby denying their fellows the possibility of learning from them.

The system as client
The last of my enduring lessons comes from my experience as a family firm advisor. Often, the only other 'outsider' the family has been exposed to is a lawyer who typically has been hired to represent one party against another. In these instances, it is clear who is the client: a single individual or a class of individuals sharing one or more common characteristics. In one recent case, the 75-year-old family Chairwoman and CEO of a Greek company was quite clear on the service she expected: "I am having great difficulty with my oldest son who is currently the President and who wants to put me out to pasture and replace me. Your job would be to help me block this very premature grab for power. "The utility of a family business advisor would be close to zero if they are seen as an advocate for a single individual or a given generation. An advisor's skills are best used if the owning family accepts that the only real client is the family and/or the family business as a whole.

Before contacting any family business advisor, it is vitally important that there is clarity with regard to his or her terms of reference. The greater the acceptance that the real client is the business as a whole, the greater the probability that the involvement of the outsider will be perceived by everyone as of enduring usefulness. 

Click here >>