The family connection

Kristin Cappuyns  is research associate of the Family Business Chair at IESE, Business School , Barcelona, Spain. She is an IFERA Board Member.

Family unity is one of the keys to continuity in a family business. As the family grows, specific policies must be implemented to ensure that family members who do not actually work in the company remain committed to the corporate project, reports Kristin Cappuyns

Statistics show that the closing of a family business can be attributed to some form of family conflict in more than 60% of cases. This  underlines the importance and complexity of the family's influence on the company's operation. A close examination of family businesses that have reached their 100th anniversary reveals that, in addition to being outstanding businesses, they devote a lot of time and money to one thing: maintaining family unity and a commitment to the continuity of the business. The significance of the strength of this unity and commitment was studied in an international project, which revealed the importance of inspiring trust in those who have the most influence in the company's day-to-day business, along with a devotion to the company itself among all family members.

The three aspects of family commitment
Members of a family who are not actually active in the business tend to show different levels of commitment. Unity and commitment are directly related to the amount of effort that family members are willing to devote to their family business, along with the loyalty that they decide to display and the enthusiasm they have for the future of the family business.
 
In a study of the general trends observed within a group of Spanish family businesses, there is a notable difference between the high percentage of people who do trust the family business, are proud of it and love it (77%), and a low percentage of people who are not only capable of making an effort for the business, but also want to do so (28%). This difference can be explained by the individual characteristics of the companies studied, as the sample included a group of large family businesses compared with the whole range of family enterprises, both in terms of their size (the average turnover of the sample was €30 million in 2003), their governance systems and their relationships with shareholders – companies for which it is not difficult to show enthusiasm.

We found a high percentage of family members describe themselves as 'lazy' (29%) in terms of loyalty. Is loyalty only seen in those who actually work for the company? Is loyalty observed among those who have chosen to pursue other professions? Is there more loyalty among older members of the family?

A large proportion of people classified themselves as 'passive' in terms of effort, but a lower percentage (10%) described themselves as 'passive' in terms of loyalty and enthusiasm. It would seem that it is one thing to be enthusiastic about the business but quite another to have the capacity and willingness to make an effort. Seeing as how neither a high level of enthusiasm nor a high level of loyalty are sufficient to raise the level of effort, the question is how one can obtain a sufficient commitment from family members for the family business to prosper. The response lies within the business itself.

Rewards encourage effort, loyalty and enthusiasm
The fact that loyalty and enthusiasm are relatively high should not lead family members who are actually working in the company to become self-satisfied. If these people are not motivated and rewarded at regular intervals there is a chance that these values will be lost. Clearly, commitment is not something that can be taken for granted, and we can hardly expect it to come from pure self-sacrifice. While good financial results are the primary and irreplaceable foundation of unity, they cannot produce unity by themselves. That is a fact that the administrators and chief executives of listed non-family companies understand very well, as they know how much more they have to do to win their shareholders' backing.

There are many different rewards other than those that are purely financial. It takes imagination and time to devise specific rewards for those family members who are not working in the company and from whom we would like more commitment:

- Financial. This begins with the implementation of policies in relation to dividends and increasing the value of the business, and can include ways of providing micro-liquidity to cover the owners' major financial requirements or achieving macro-liquidity structures making it possible to buy and sell significant shareholdings.
- Status or image. Offer opportunities for family members who do not work in the company to be connected with the business, either through the media or in the company's own internal publications. Acknowledge their contribution both to the company and to family unity, and offer them positions of responsibility on bodies such as the family board or committees running foundations supported by the family business.
- Education. Offer seminars that help them increase their knowledge of the business, inviting them to attend national and international conferences organised by family business associations and preparing them for the duties involved if they are elected to the company's board of directors.  
- Preparation for a future professional career. Give younger family members the opportunity to gain practical experience, both in the family business and other companies.
- Guaranteed fairness. There should be no favourable treatment for particular individuals. Everyone should be treated equally and within the confines of the law.

Applying this system of rewards should encourage the development of family members' talents, but is no guarantee to  changing people's attitudes.
 
The long-term survival of a family business depends on clearheaded and active shareholders. Clearheaded in the sense that they have the prudence to understand the situations the company may face; and active in the sense that they can act rationally in their roles for the long-term growth and benefit of the business.

If there is any danger that unity will disintegrate, it may be preferable to concentrate ownership in the hands of those who are willing to put in the most effort and loyalty. This can be done by buying the shares of the  passive family members, or by splitting the firm's assets and spinning off certain business activities.

The are other ways to reward and encourage members of the family to become more involved in the family business. We suggest a combination of measures, based on the different characterisitics of family members not working in the business, whether they be 'active' or 'passive'.
 
Create a common project
The creation of a project that can be considered to be both individual and common to the family, thus motivating the dedication of both effort and loyalty.

The process of formulating and communicating this project, which centres around achieving a shared commitment to the future of both business and family, is influential when it comes to preserving and increasing the positive attitude of those who are 'active' and reversing the negative attitude of those who are 'passive'.

Create a family protocol
Closely related to the previous point is the formulation and implementation of a family protocol which, in specifying the type of family business that one wants to create, defines the combination of principles and rules to be followed by family members, the ways in which ownership is to be transferred and the procedures governing the exercise of power. This protocol can help resolve disputes and impede the negative actions of those who are actively dissident.

Organise training sessions
It is frequently the case that many family members have little knowledge of the business and its management. These training sessions can cover aspects that are specific and, to a certain extent, technical, such as learning to understand balance sheets and accounts statements, learning about company law, being aware of the company bylaws, and understanding the responsibilities and powers of the different governing bodies.

Organise family forums
It is also important to organise family forums that offer an opportunity for 'active' members to motivate those who are 'lazy'. They also help to encourage awareness and impede potential action by dissident members. When the number of family members is very high or there is a wide geographically spread, it may be useful to publish and distribute newsletters. This facilitates rapid and easy dialogue among family members.

Elect a 'chief emotional officer' of the family
A significant amount of time must be devoted to all of these measures, and it may be worth delegating some activities to an emotional head of the family, someone who engenders the affection and respect of all family members and is willing and able to devote him or herself to increasing commitment.
 
In a family business, the passage of time leads to an increase in the number of family members connected with the company. If one wants to succeed in creating a multi-generational family business it is necessary to commit time to the project and take the necessary measures. Individual family members must hold an affection for the company and trust in the people who govern and run it. Lots of examples of multigenerational families have shown that it is possible to keep the family excited about the family business, over decades, and apart from sharing many of the ideas mentioned above they add very valuable advice: "make it fun!"