ADDRESSING THE FUNDAMENTAL DILEMMA OF FAMILY BUSINESS
Updated: Sep 8, 2021
The fundamental dilemma of family business is what the family needs in order to be strong and healthy often conflicts with what the business needs to grow and thrive.
The family needs funds to be secure; the business may need some or all of the same funds to expand. Family members must have emotional and other personal needs satisfied; meeting those needs within the business may be harmful to its success. Families and businesses are themselves a study in contrasts:
The rules and norms of a family are different from and sometimes even the opposite of the rules and norms of a business. The business-owning family finds that the two systems collide time and again over such issues as who gets hired and promoted, compensation of family members, valuation of the business, reinvestment in the business, and who makes the decisions. Successful business families recognize the contradictions between family and business as a given and employ the four principles to reduce or advert the friction that these contradictions can create.
POLICIES BEFORE THE NEED
Wise business-owning families recognize that predictable issues are going to come up that will create some conflict or friction. They adopt a proactive approach of establishing the policies before the issue arises and are actually needed. Long before the second generation is ready to come into the business, for example, the first generation develops and documents an employment policy that sets forth the requirements for family members who want to join and move up in the business. Long before there’s a girlfriend or boyfriend in the younger generation’s sight, the senior generation develops a policy requiring prenuptial agreements to keep the business’ assets within the family. And long before the second generation enters the business, the first generation puts on paper a policy that guides decision-making on compensation and performance appraisal issues.
The advantage of establishing policies before they are needed is that issues are given attention before they become personal and emotional. They can therefore be addressed more comfortably and more rationally. A second major benefit of having policies in place before they are needed is that the business family is actually managing expectations, preparing family members for how things will work. When policies are developed and communicated effectively throughout the family, there are no surprises. For example, seventeen-year-old Cameron knows that the employment policy requires him to complete a master’s degree and get three years of successful outside work experience under his belt before he can join the family firm. He also knows there has to be a position open that can make use of his talents. Because there’s a comprehensive shareholder agreement, Tarryn understands how many of her shares she can redeem when she can redeem them, and under what circumstance. Because there’s a retirement policy in place, Mitchell knows he must vacate the role of CEO when he turns 65.
When a business-owning family develops policies before the need, it can be much more objective than it would be if it had to make decisions in the heat of the crisis. And many of the conflicts the family dreaded might not arise at all because it has managed family members’ expectations.
SENSE OF PURPOSE
Enduring family businesses work very hard at defining a Sense of Purpose. They ask and discuss such questions as: Why are we doing this? Why are we working so hard? Why are we spending the time to develop policies? Why are we exerting so much energy to prepare for the future? Families need to understand why it is that they are willing to struggle through the debates on policies, why they are willing to sacrifice so much to make the business successful, and what it is that forges their commitment to its long-term continuity. They need, in other words, to feel an overarching purpose that makes continuing the family business worth the strife.
One of the finest examples is that of the Ochs-Sulzberger family of The New York Times Company. For four generations, family members have come together to renew their commitment to the belief that, with their ownership of one of the world’s greatest newspapers, they have been charged with trust and an opportunity to serve humanity. As one fourth-generation family member put it, The New York Times was “a tradition that is far greater than any single individual.”
The Sense of Purpose will be different for each family. For one, it might be the opportunity to pass on values to future generations, to employees, and to the community. For another, it might be the opportunity to serve humanity through the products it creates.
The loss of sense of purpose can however result at the end of family ownership or in a major shift in the way a business-owning family perceives its role.
A compelling and inspiring purpose enables a business family to face the inherent contradictions of being in business together and gives them the energy and will to get through the inevitable tough times. It enables family members to feel they are involved in something much larger and more significant than their individual selves.
A business family can never anticipate every policy it will need. The day will come when it will be surprised by an issue that is unexpected. The capacity of a family to deal with that issue effectively will be a function of its skill as a group to communicate, solve problems, reach consensus, develop win-win solutions, and collaborate. Process means all the thinking, meeting, and discussing that family members do together to resolve issues. The process is what the members of a family are engaging in every time they sit around the table, debating the issues that concerned them and making decisions.
When a family engages in policymaking, it is bringing family members together and saying, “Let's talk about how we’re going to make a decision or resolve a dilemma.” The more times a family does that, the more it develops its skills of listening, communicating, collaborating, and solving problems together.
It's not so much what policy a family has but that it has a policy, which means the family members have experienced the process of developing the policy and share expectations. But the fact that they have a policy, they have worked on it together as a family, they have come to a consensus on it, and they have articulated it is more important than the content of the policy itself.
One of the aspects that we can never underestimate is how much good parenting affects the future of the family business. After all, what is a family business about if it is not about the next generation? Yet, curiously, there are adults in the family business who work so hard at the business that they badly neglect parenting. This is particularly true of second-generation, sibling-owned businesses, where brothers and sisters have such big shoes to fill and work so hard to fulfil their own and their parents’ expectations that they compromise time at home and time as parents.
Parents in the most successful family firms keep their attention on parenting. Many families learn parenting in family meeting educational sessions. They know that all the skills that are developed by engaging in the process – the capacity to communicate, the capacity to think outside of their own interests, the capacity to make decisions, the capacity to seek consensus, and the capacity to want fairness and justice for others – are the skills that you learn best growing up in your own family. Based on the notion that the family business is the ultimate business challenge when you build or run the business, you must also raise your children, who are intimately involved in the future success of the enterprise.
Family Legacies www.family-legacies.com is a multidisciplinary family business consulting company. Our consultants are leaders in their respective fields including; Family Business Consulting, Strategic Planning, Financial Planning, Wealth & Risk Management, Corporate Finance, Business Transitions & Exit Planning - Buy, Improve, Grow & Sell Businesses, Commercial & Family Law, Executive Coaching, Leadership Development & Facilitation, providing our clients with a professional and integrated multi-disciplinary service.