Strategic planning for a family business is a two-dimensional process: looking at the business future, but also understanding that such a future lies within the context of family ownership and control. The two types of planning can proceed either consecutively or concurrently. The family looks after its business, as does the board. Each group has a different slant and set of concerns. The family often hears its own issues more loudly than those of the business, but a planning process has to ask how the family can achieve what it wants with the actual business it has.
The board of directors’ primary task is to look at the business independently from the family’s needs. This group has a different purpose, and usually a different composition, than the family council. The board typically includes the key business owner and may include family members who play key roles. But unlike the family council, it might also include key non-family executives and independent non-family directors or advisors.
The family council tells the family and the business how it wants people involved in the business, and what values, rules, and policies it wants to follow. But while the family is looking after itself and is not focused on business concerns, the board must help the family see what is possible, and how it can have what it wants. The family wants the business to be an engine for the family’s livelihood, and the board will often have to challenge the family, and even set some limits on pay, distribution, or family involvement. They also provide the checks and balances so that family members do not go outside what is healthy or legal.
The board of directors focuses on four areas of strategic planning:
· Business renewal
· Capital needs - business and owners
· Key employees - leadership team succession
· Succession governance
BUSINESS RENEWAL
Business development is often graphed as an S-curve, starting slowly, then sloping upward for a period of fast growth. Over time, which can be of any duration from years to decades, the curve levels off and even drops as the business matures. Business renewal involves reigniting the engine of growth to begin a new S-curve that grows out of the tail of the old one. Yet too many businesses flounder, decline, or fail, rather than innovate and develop.
The family business is particularly challenged around renewal. Over time, the very qualities that brought it success - loyalty, service, consistency, and persistence - can become liabilities, favouring the status quo over change.
Factors Contributing to Business Stagnation
Over time, the virtues of the family business can become problems, making it difficult for the business to develop and evolve.
Value loyalty over results
Difficult to let anyone go
Don’t confront the founder or each other/harmony reignsFocus on internal politics/power struggles rather than customers
Oriented to past triumphs rather than future
No long-range plan for development
Little innovation in systems or products
Focus on existing markets and customers
Employees lack ability to handle new demands
Following the family’s values can make it difficult for the business to plan for change. The shadow of the founder, whose visionary energy becomes the will of the business, makes it difficult for successors whether family or non-family - to let go of old ideas and people.
Yet business success rests in having a plan to renew and innovate, and a staff that is dedicated to that. The business also needs the resources to make that happen. The board has to challenge the business for a development plan, and to allow the best of the leadership to move ahead.
CAPITAL NEEDS - BUSINESS AND OWNERS.
The business faces competing demands for resources. The founder and family want their rewards, while the business needs capital for expansion and development. The business planning process must take into account these two sets of needs, and either manage cash, borrow to invest, or arrange to buy out impatient or unrealistic owners. The future of a family business often rests with a capital campaign that allows the business to gather an infusion of cash to develop, by re-capitalizing family members. The younger generation often arranges to buy out their elders or their siblings. They may take on investors or offer shares to nonfamily employees. The family may shift its focus and begin to see itself not as tied to one legacy business, but as having a portfolio of investments.
KEY EMPLOYEES - LEADERSHIP TEAM SUCCESSION.
The family often spends too much time dealing with conflict inside the family about who will lead the business, rather than nurturing and developing non-family talent. It is a delicate balancing act to work for a family business, and many highly capable leaders shun them because they fear there is no place for them at the top and that their capability will be ignored by a highly political family environment. Too often, they are correct.
The strategic future of the business involves determining the next generation leadership team - not just the top person, but also several capable people who are young enough and dedicated enough to lead the company to the next level of development, and not merely be clones of the founder.
The care and nurturing of nonfamily executives is not just about paying them well. It is about making sure that as the generation shifts, there are places not only for family members to have an impact, but power and authority for non-family leaders. Many of the strongest family businesses represent partnerships between family and non-family leaders, each with their own strengths.
SUCCESSION GOVERNANCE
Succession of generations is not an event. It often takes place over many years, with a long period of cross-generational partnership. As life spans and careers lengthen, so do the number of years that two generations, even three, work together. The board is often responsible for setting the terms of the shift between generations and monitoring each stage of the process. The presence of independent elders on the board who are respected and listened to by the patriarch or founders helps manage the difficult process of letting go and allowing the next generation to take over. These elders also are available in the case of an emergency that removes a key member of the older generation.
The task of succession governance is not simply selecting the next leader. The business is not a prize or a trophy. Rather, it is developing the talent, focus, and resources for the business to continue to be successful. Often, the talent is dispersed in the family, or between several managers, and some form of shared leadership emerges.
An active board of directors is the single most important element to enable family-owned businesses to reach beyond mere subsistence for enduring excellence.
“If you are trying to grow and stay that half-step ahead of the competition,
you better have all the assistance you can get. I don’t know why anyone wouldn’t
want to give himself all the weapons he can to win the advantage.”
John. Ward – Creating Effective Boards for Private Enterprises
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.