Leading any business is tough. Leading a family business can be considerably more difficult. Family business leaders have to deal with relationships and emotions that simply are not present in an ordinary business setup. And this is in addition to the normal stresses of running a company. Under these circumstances, establishing or continuing a legacy for generations to come can seem like an impossible dream.
While previous articles in this column have focused on succession planning, the reality is that a family business is always in transition. As the business faces its natural growing pains, family members are being born, going to university, entering and leaving the business, and inevitably wrestling with two questions:
What do we need to hold onto and nurture about our family agribusiness that makes us special and gives us a strategic advantage?
What do we need to change in order to adapt to the challenges we currently face and those on the horizon in an ever-evolving family and business?
Many seek to find a rule that can be applied in all circumstances. This is most clearly seen when people speak about a “business-first family” vs a “family-first family”. This approach implies to many that you either have to prioritise the business ahead of the family, or put the family ahead of the business. While having a black-and-white rule might provide you with a sense of certainty, the reality of a family agribusiness is far more complex than that.
How do you build family unity and cohesion when both the family and the business wrestle with a fast-paced and changing environment? Financial success alone is not sufficient for a family agribusiness to transition from one generation to the next.
A SENSE OF CONNECTION
In addition to financial success, for family members to successfully navigate the ongoing transitions of both family and business, they must have cohesion. Moreover, this should be built on an emotional sense of connection to each other as family members, as well as a sense of pride and identity that comes from how they deploy their financial, human and social capital in the world.
What does this sense of unity and cohesion look like? It doesn’t mean that everyone agrees all the time. It doesn’t mean unity built through financial, emotional or other types of cohesion. It doesn’t mean there is a total absence of conflict.
What it does mean is that you care enough about each other as family members to listen to one other, compromise, and think about the good of the whole family, not simply your own self-interest. It means that you care about what you’re doing together through your business, and that you recognise there are times when the needs of the business come first.
In essence, when there is a sense of unity and cohesion that’s strong enough, the family knows when and how it must attend to the needs of the family, and when and how it must attend to the needs of the business. The family works to stay connected to each other and communicate with each other when they are in conflict. Research from the field of marital and family therapy shows that couples and families who turn toward each other, rather than away from each other, when they encounter conflict have greater longevity and happiness in their relationships.
While many can relate to this ideal of family unity, the growth and evolution of the family unit make achieving this goal increasingly difficult. As a family business moves from the founder to the second generation and then to the third, the number of family members obviously grows. New family members are joining through marriage, and others are leaving through divorce or death.
STAYING TOGETHER
Family agribusiness owners need to navigate the fast pace of change in today’s business environment. The company must keep its products and services relevant, and ensure that operations function so well that the leadership can focus on beating the competition and maintaining strategic advantages.
Building family unity in the face of all these pressures is a major challenge that affects the ability to maintain the family agribusiness across generations. Here are some suggestions for building family unity:
Define success. There is an old saying that if you don’t know where you’re going, any road will get you there. If you don’t have ways of talking about what success looks like to both the family and the business, it’s much more likely that these pressures will pull you apart and you’ll be working towards your individual definitions of success rather than a common definition. Through strategic planning, there are several models to help you arrive at a definition of success for the business. One way is to look 10 years into the future and ask yourself: what will our family look like if we’re successful as a family? What will our relationships look like? What will the working life of family members look like? What will our relationship to the business look like? How will we resolve our difference and stay aligned?
Build a governance system that works for your family. The term “succession planning” implies that it is an event, that you have to answer a finite number of questions when creating a plan, and once you’ve answered them, you’re set for successful transition. But succession is an ongoing progression of big and small transitions, and the family must grow and adapt to meet these challenges. In fact, you may not be able to anticipate all the questions you’ll have to answer in order to navigate these transitions, but if you have good governance processes in place, you’re on the right track.
A GOVERNANCE SYSTEM
The management structure of the family agribusiness is crucial to success. Here are the key elements:
A board that holds the management team accountable for drafting and sticking to an effective strategic plan.
A family governance mechanism, such as family meetings or a family council, that manages communication and decision-making as a family.
A process whereby the family and business governance systems work together with management to ensure they are aligned in their values and vision.
Articulating clear expectations for family members. Many conflicts that arise in family agribusinesses come from differing expectations. To build unity, you need to anticipate the areas where there may be differing expectations and seek to develop policies so that everyone supports them. These include rules for employment, dividend policies, successor selection, and much more.
A family constitution should set forth all these policies and the context in which they were developed. A constitution should create clarity in three realms:
Mission, vision and values. When these are articulated and supported by the family, the sense of pride in the business increases measurably.
Policies and procedures. What are the rules of the game for the various issues that the family faces? (For example, when someone wants to work for the business, what qualifications must he or she have?)
Legal agreements. The family should have legal agreements that guide the governance of the company and outline methods of dispute resolution.
The steps outlined above can seem daunting, so a common strategy for dealing with the complexity of a growing family is to “prune the family shareholder tree”. But what is often overlooked in this case is managing the impact of such a decision on family relationships. If you choose this strategy, communicate the process clearly, so that changes in the shareholders don’t result in the loss of branches from the family tree. The cost of buying out family branches, for example, can divert capital that is needed to grow the business.
A family business can prove highly satisfying (vocationally, emotionally and financially) to its members. But to meet the challenges of the business and build family unity, it’s unrealistic to expect unanimity at all times. Rather seek to establish common values, goals and objectives, and turns toward each other when conflicts arise. In this way, you’ll create a family unit that knows how to balance the needs of the family and its members with the needs of the business and its stakeholders.
Published in the April 2022 Edition of Farmer's Weekly
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.