Why family businesses build stronger boards

Kristi Daeda

Kristi Daeda

Boards in family enterprise can be as diverse as the families they serve. And just as the family changes, the board must change to respond to and stay ahead of new circumstances – both predicted and unforeseen.

In the early stages of the business, a board is often comprised of a founder, one or more other family members, and maybe a key non-family executive or two. Their conversations are often unstructured and decisions may or may not be communicated to other stakeholders, such as other owners or future owners or key management. This “board” may evolve to include paid advisors, like an outside attorney or accountant. Sometimes, close friends, business partners, or other trusted supporters are invited to participate.

As time moves on, a family business may reach an inflection point – a place where the board structure as it exists may not be suited to address the challenges or questions the business is facing. This is where we begin to engage with families in board development, the process of defining appropriate business governance structures for their unique situation.

What brings family businesses to build stronger boards?

  • Professionalization of the business. As the family strives to improve their business approach across the enterprise, it’s natural to look also at improving the board function. Shareholders, employees and the community may perceive the business more favorably that has developed criteria for board service and recruited well-respected leaders to serve.
  • Generational transition. Many founders seek to formalize a board to provide impartial guidance on succession planning, support the successor and provide a structure with which the next generation can effectively interact.
  • Issues with business growth or performance. If a business has plateaued or is struggling, leaders often look to independent directors for a fresh look at strategy.
  • Market opportunities. As with those that are struggling, businesses experiencing rapid growth or seeking to capture market opportunities can seek perspective from independent directors that have done similar things in their own careers.
  • Family conflict or disagreement. Tensions in the family may make board discussions unproductive or impossible. The board development process can be the conduit for better understanding of the role of governance and trust in the board. Plus, the board itself can be an impartial and safe venue for discussing challenging issues.
  • Changes in management. A capable board can provide oversight and accountability through the management transition.

A well-constituted board is an advantage at any stage. When the normal and predictable challenges like those above appear on the horizon, the advantages of a strong board become even more compelling. If you don’t yet have a board, or are unsure of whether your board is functioning as well as it should be, it may be time to begin questioning what that board would look like, and how it can support your family enterprise.

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The power of essentialism

Kelly LeCouvie

Kelly LeCouvie

I recently read the book Essentialism by Greg McKeown. It is an insightful read for those who feel chronically time-starved, stressed, hurried, and dissatisfied with how much remains undone. McKeown suggests that we adopt a “disciplined pursuit of less” in an effort to ultimately be more productive, and to contribute to our personal and professional world in the most meaningful way.

This does not mean doing less as much as making more discerning choices from options that matter most to us. He describes a process of learning to identify between the “vital few and the trivial many.” Working in a family means diverse source of stress, and this book provides some very helpful considerations that may help you make optimal choices in your management of life!

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The Board Chair role: More than navigating through the agenda

Kelly LeCouvie

Kelly LeCouvie

When people think of the Chair’s role during a board meeting, they often think of responsibilities such as introducing each topic on the agenda, asking managers to make pre-arranged presentations, soliciting comments from the directors, and managing the time used for each topic. Those responsibilities indeed typically belong the Chair of the board. However, if that is all the Chair is managing, he/she is potentially missing opportunities to create optimal value from directors’ participation. In addition to those responsibilities the Chair should consider the following questions when conducting his/her own self-evaluation.

  • Am I really listening, in an active, engaged way to what is being said?
  • Am I able to distinguish input that is truly strategic and critical from the many comments that are much less impactful to the business?
  • Can I synthesize the information and comments being shared at the board meeting and distill them into appropriate, resonant themes?
  • Do I effectively share back with the board (and management when appropriate) the meaning or impact various discussions and suggestions may have on the business moving forward?
  • Can I communicate this in a way that is actionable to the appropriate people?

If your answer to these questions is “yes”, then congratulations, you are likely a very effective board Chair! If your answer to some or all of the questions is “no”, then you have some opportunities to strengthen your own performance, and ultimately enhance the value of your board.

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Communication and family: What “should” we be doing?

Deb Houden

Deb Houden

In my last post, I talked about the importance of each generation defining what it needs in order to be an effective group for the family and the business. The operative forum was a family meeting. Family meetings can be tricky. I was facilitating a particularly tense family meeting recently when the patriarch asked me why these meeting were so hard when at the office, they just meet and go forward? He said, “We don’t seem to have as many problems with work relationships as with our family ones.” I asked him how often he talked with his employees. He said, “Every day. We have our meetings, or our visits, solve our problems as move on.”

As family members, we have a certain expectation that since we are family, we should be able to have these meetings, we should be able to talk to each other, we should be able to come to the table and work things out. A wise person once said the family should adopt the policy, “Quit shoulding on me.” The point is that the patriarch failed to accurately compare the amount and type of communication he had with his employees to how much and what type he was having with his family.

We assume as family members that communication should be easy, and when it isn’t, we can’t communicate with “them”. Families need to build capacity in their communication efforts as much as they do with their employees. Many times employers/employees have a filter on their communication before they proceed. How often do we do that with family members? How often do we filter what we say in a way that is constructive? How often do we listen to family members in quite the same way as we listen to employers/employees? How often do we search for a clear understanding of what the other family member said and what they meant?

Case in point, a large family was compiling some ground rules for future meetings. The very first rule the youngest brother said was “Don’t make it personal.” I immediately thought he meant let’s keep business issues business and family issues family. I didn’t think much more until a sister said, “Well, it’s all personal!” I thought, that’s not what he meant, but let it sit. We continued to go around the table, and finally got back to the youngest brother. I asked him to explain what he meant by “Don’t make it personal.” He said as family members, we all know the soft spot that each member has that we can poke at and it hurts. Don’t make your statements so they poke at the underbelly of each other just to hurt. Turns out I was completely wrong about what he meant. We all were but didn’t really understand until we came back around and asked.

Families would be well served to work on their communication with each other. They need to build their capacity! Keep it frequent, keep it constructive, keep on trying to understand, keep it gentle when needed and keep it from poking at the underbelly of the other. And then keep on — it’s never done! Keep building and getting better.

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Defining what’s right for your generation

Deb Houden

Deb Houden

“We’re doing it that way because that is what Dad wanted. And for as long as he is alive, that’s how we’re going to do it. It was Dad’s dream, he built it, he gave it to us, and that’s what’s important. We have to honor Dad.”

The statement silenced the rest of the siblings who were trying to have a discussion around the development of a shareholders agreement. The agreement was a “last man standing” contract where upon the death of the shareholder, their shares were retired and the remaining owners had a larger stake in the company. The sibling group of eight were in their 50s and 60s, and contemplating their own future. Some of the siblings worked in the company but most did not. One of the siblings had been diagnosed with a chronic illness that had the potential to shorten her life, and she wanted to understand the consequences of her ownership for her children. She understood the children were to receive the financial gain for the sale of the stock back to the company, but one of her children also worked for the company and hoped to become part owner one day.

While there were many facets to the discussion, I stopped the conversation and asked all of the siblings to step back a bit. Why would their dad want the agreement to read like that? What would be the purpose of formulating such an agreement? The fourth child answered, “Because he wanted the decision making to be consolidated so no one who was running the company would have to ask anyone else for permission to do something.”

I asked the remaining siblings if that was true. They all nodded in agreement. I proceeded to ask why their dad would have felt so strongly about consolidating decision making. Then another sibling told me the story of their dad, his father and his uncles. It was a story of destructive work habits and entitlement that strapped the company and angered the siblings’ father. He eventually bought everyone out and turned the company around. Their father had a very compelling reason to have the shareholders agreement written in the way that it was. However, it was now time for the siblings to come together to decide what was right for them as a group and their families going forward.

Each generation must navigate their own waters. Each generation must decide what is right for them, and what to pass forward. Each generation must face the tension of what is right for their nuclear family, and what is best for the whole and come together to negotiate a decision. And the successful negotiation can only happen through communication.

Often as consultants we are asked to speak or write on best practices. We are asked to give advice on what works best. The problem with those answers is that in order to be a best practice we must answer, “It depends.” The best answer is that each group must come together to review, to communicate, and to decide together a path that moves the family and the business forward in a constructive way. What is best for one family enterprise may not be the best for another.

I was reminded of this the past week when I listened to a webinar on the next generation and how they need to individuate and differentiate from the family. They need to become their own person and understand their own identity, their own strengths and weaknesses. When they can stand on their own, make their own decisions in a healthy way, these children become an adult who can bring a lot of positives to the family and the business, regardless if they work there or not. It is the same with each generation of a family business. They must understand where they came from, appreciate the hard work of the older generation, but decide what their own strengths and weaknesses are, what they need to do for each other as a whole in order to put their own stamp on the family and the business.

The next time you are in a family meeting, work in individual generations to decide:

  • What are our strengths as a group?
  • What is a potential area that could make us unravel?
  • What do we want our generation to be known for?
  • What happens if we do nothing?

Honor your past and hope for the future, but don’t forget to make (as a group) your own impact on the family business.

Posted in Communication & Conflict, Family Business Values, Family Meetings, Mission, Vision, Values & Culture, Next Generation Development, Sibling Teams, Succession & Continuity | Leave a comment

The meaning of labor

David Ransburg

David Ransburg

We celebrate Labor Day on the first Monday of September, and I’ve always thought that this holiday may be the most important one for family businesses. If that statement strikes you as strange, please bear with me.

Labor Day became a national holiday in 1894, and it is dedicated to the social and economic achievements of workers. While originally conceived of as a celebration of organized workers, most people now see it as a celebration of all laborers, organized or not.

Family enterprises, representing the vast majority of businesses in North America, certainly contribute a tremendous amount of labor to our economy. For that reason alone, it would be appropriate for family businesses everywhere to celebrate Labor Day. But, there’s more…

The word “labor” has another meaning beyond “toiling at work” in its relationship to childbirth. A quick review of “labor’s” etymology shows that the original meaning referred to “toil, exertion, task,” while the secondary meaning associated with childbirth followed a few hundred years later. Refer to “labor pains” today, though, and there is no question that most will initially think of childbirth… especially for expectant mothers!

There is, unfortunately, no nationally recognized “Family Business Day,” but that is no cause for despair. The efforts of family businesses do not go unnoticed: their holiday is Labor Day – after all, what better holiday is there for family businesses to celebrate than the one whose meaning is both work and family?

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Little League rules and learnings for family business

David Ransburg

David Ransburg

As the Little League World Series recently wrapped up, there’s much we can learn from these terrific players and coaches. Important ideas like sportsmanship, respect, effort, accepting defeat with grace, and fun immediately come to mind. Also, if you believe that Little League baseball is simply about winning, treat yourself to this video of the post-game speech by the coach of a Rhode Island team that had just been eliminated from the tournament:

Little League Speech

There’s also a specific lesson from Little League that is directly applicable to family businesses: The 24-Hour Rule.

I recently attended a local Little League game and learned about an interesting policy that this particular league calls “The 24 Hour Rule.” There’s no documentation of the rule for my local Little League, but the Middletown (NJ) Little League has a similar policy that they articulate beautifully on their website:

If an issue should arise that requires communication with the coaches, please wait 24 hours. During this time we ask you think about what you want to say and how you want to say it. The cooling off period prevents matters from getting out of hand when they shouldn’t. Never approach the coaching staff on the field or at practice.

I’ve worked with many different family businesses, and occasionally the issues that they address are significant and emotionally-charged. In these instances, tempers can easily become inflamed, leading the conversation to become destructive instead of constructive. In those cases, the best remedy I’ve found is a simple “timeout” – stop talking for a few minutes and let the group disperse with no interaction at all until everyone has “cooled off.” In my experience, participants regain their bearings within 30 minutes or so – rarely does it take as long as a full 24 hours.

Everyone is different, though, and every situation is different… so, that 30 minute guideline is just a rule of thumb. But, however long it takes you and your family to cool off, once you do return to the conversation, you all will do so with clearer heads. That timeout may seem like a setback or even a “loss” in the moment, but it will actually get you closer to progress long term. Just like that Little League team from Rhode Island, what seems like a loss will actually be a win.

What other tips would you recommend for dealing with “explosions” within a family business?

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A chairman defines the role

Drew Mendoza

Drew Mendoza

Did you ever hear the expression:  Tell them, remind them and remind them again?

For decades, FBCG has been preaching the value of corporate governance in general and the very special role played by the board’s chairman in particular. This short piece, originally published in The Family Business Advisor in print version in 1993, still captures the essentials of what it means to be the chairman of the board in a family enterprise. It’s worth a review.

A Chairman Defines His Role

We know a thoughtful family business leader who is retiring as CEO, but will continue as Chairman of the Board. (The firm has an active board with for outsiders and two family representatives.) In preparation, he attempted to define the chairman’s responsibilities. We wanted to share it with our readers.

  1. Assure that shareholders are kept adequately informed of affairs of the company, and develop and maintain shareholder relations program of the company. This includes giving thoughtful consideration to shareholder concerns and needs and reporting those concerns and needs at least once per year to the board.
  2. Accountable, with other directors, to shareholders for proper execution of duties and responsibilities of the Board in connection with shareholder rights and interests.
  3. Develop responsibilities to be assumed by the company’s Board of Directors.
  4. Through the President and CEO, (a) offer counsel when asked; (b) assure that Board decisions are understood and implemented; and (c) assure that management has an active and effective strategic planning process.
  5. Keep informed on state of the company’s affairs, and through the President and CEO, assure adequate flow of information to the Board.
  6. Develop Board as dynamic, constructive force in company and guide it in discharging its responsibilities. Propose methods to the Board to help it identify opportunities and means to improve Board functioning.
  7. Ensure Board members are knowledgeable in industry matters.
  8. Propose time and place of Board meetings; call meetings; preside at meetings of shareholders and meetings of family shareholders.
  9. Review reports and proposals of management with officers prior to presentation to the Board.
  10. Lead Board in preparing annual slate of directors and selecting candidates to fill vacancies.
  11. Responsible to secure reliable, certified audit to verify management’s conduct of the business.
  12. Make recommendations to committees of the Board. Present to the Board reports and recommendations made by committees of the Board. Serve on the compensation committee.
  13. Maintain top level contacts with members of the community to ensure that company is properly recognized, dealt with and appropriately represented in community affairs.
  14. Identify ethical dilemmas in the company and report on those annually to the Board.
  15. Consider leading special projects as proposed by CEO.

 Excerpted from The Family Business Advisor, Copyright © 1993.

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Sustainable family policies answer “Why?”

Drew Mendoza

Drew Mendoza

Increasingly, owning families rely on an array of policies intended to guide future decisions and actions. They may address who can serve on the family council or the board, set compensation for next generation members, determine whether in-laws can own stock or guide how profits will be deployed (re-invested or paid out to shareholders).

In our experience, an important quality a sustainable policy will have is that the reason or rationale for why the policy was written is explained in the form of a preamble or some sort of introduction. When preambles describe the philosophical basis of the policy, it conveys the intent of the policy. It’s akin to understanding the meaning or intent of a law as compared to the letter of the law. A policy that doesn’t convey the intent may be difficult to interpret or enforce as holes or ambiguous language is put to the test in later years.

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Addiction in the family business

Bernie Kliska

Bernie Kliska

Addiction is an unfortunate but common issue that many families have to deal with. Families in business together are not exempt from this issue.

When a family member has an addiction, be it drugs, sex, gambling, alcohol, etc., it is necessary to address the problem in order to have long term family harmony and stability. This is especially critical if the addict is the anticipated successor.

Unaddressed, addiction can wreak havoc on a succession plan. As a consultant and family therapist, I have seen the results and consequences of addiction on families. The addict places a huge burden on the family. Their erratic and irrational behavior takes an emotional toll on everyone.

Unfortunately, for a family in business together, a lack of family harmony not only affects the family, but negatively impacts the business’ success as well.

There are two common ways families deal with an addict in the family. The first is they pretend the problem doesn’t exist, or they end up enabling the addict as a way of coping.

However, in reality the problem does not magically disappear. If your family is facing this tough situation, here are some steps family members can take to effectively deal with an addict.

  1. Encourage (not threaten or force) the addict to seek professional treatment. The best case scenario is for the addict to enter treatment willingly and take responsibility of his or her own healing.
  2. Regardless of whether or not the addict decides to seek treatment, you should attend support groups. Support groups will teach you about setting boundaries, consequences, compassion when it comes to dealing with an addict, not taking on the responsibility for the addict staying in treatment, being supportive versus enabling and what to expect from the addict.
  3. Have all family member’s employees sign a Family Member Employment Policy that includes the requirement for them to be addiction free. You can stipulate in the policy that anyone found to be suffering from an addiction must seek treatment and show proof of successfully completing a treatment program as a condition of continued employment.

The third step is important for any business owner, whether or not you currently have a member of the family suffering from addiction, in recovery, or even if everyone appears to be doing well.

Implementing policies and safeguards to protect what you have worked so hard for is just common sense. No one knows what tomorrow may bring, but planning for all possible contingencies will provide for the best chance of future success for both your business and family.

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