Earlier this week, I shared some thoughts on creating a flexible system to deal with the unexpected situations that naturally occur in family business transitions. While planning is very important to ensure successful transitions, the best plans will inevitably need to be adjusted ‘on the fly’ when circumstances change. So, how can families create decision-making systems that can deal with the unexpected? There are two elements to a flexible system – one is structural and the other emotional.
From a structural standpoint, the most flexible system is one that creates a place for making decisions and rules or policies that govern decision-making. The place for making decisions may be a regular family meeting, a family council meeting or a board meeting. The key to defining the place is to assign responsibilities for decisions to the appropriate parties and ensure that everyone understands who has responsibility for what type of decision.
The rules or policies that govern decision-making include the process for reaching agreement, which may be majority rule, by consensus or some other mechanism. The key is that the process is understood and followed. Other rules include defining who has a vote, what we will do if we can’t reach agreement, how long a decision will be binding, how often we will revisit it, and the process for overturning a decision. Many families capture these rules in a decision-making policy.
With the place and rules for decision making defined, a family system still has one ingredient necessary to address unexpected situations. That ‘magic ingredient’ is trust. No matter how strong the structure and rules are, if family members do not trust each other, they are not likely to abide by the rules or the decisions made using those rules. Trust is not arrived at by following a simple formula. It requires working together, building an appreciation for individual differences, respecting the opinions of others and a willingness to compromise and to forgive. Both ingredients in a flexible system require family commitment. So, while we can’t predict what circumstances we may face in family transitions, we can predict which families will weather them best – those who have put the hard work into developing the systems and trust required to work effectively together.
As my kids start the year at a new school after moving our family to a new city this summer, I find myself reflecting on transitions. Family businesses are full of transitions – ownership transitions, leadership transitions and family transitions. One of the reasons family business is so complex is that these transitions, which have both structural and emotional consequences, often occur simultaneously. Just as we are dealing with an aging parent, who may require additional family support, we may also be dealing with entrusting stock to the next generation and determining how the next generation will be represented on the board of directors. So, here’s a quick word of advice in dealing with multiple transitions, from someone who has had to open an new office, move into a new home, get children ready for a new school, support a spouse in a new job and begin to build a business network in a new city, all at the same time …
I’ve found the best way to manage the complexity of multiple transitions is a combination of careful planning and flexibility. Many of the challenges inherent in family business transitions can be predicted ahead of time. And, often the timeline can be as well. So, thinking ahead to identify the likely transitions you face and creating a plan for dealing with them can minimize the disruption, just like my spreadsheet with all the names of the utilities I need to cancel and start helped to keep me on track. At the same time, we can’t possibly prepare for every potential outcome. So, when the wireless network in my home office took three days to install instead of one, I had to find a coffee shop to work in and a babysitter to watch the kids. Similarly, when a next generation member doesn’t measure up to your expectations or the current generation is unwilling to step off the board to make way for new blood, the family needs to adjust. In my case, the adjustment required me to take a deep breath and look for a solution. In the family context, the solution often involves multiple parties. The keys to creating a flexible system to deal with the unexpected are a governance structure that supports family decision-making and trust among family members to help the group compromise on the best solution.
Would love to hear from readers about ways they have used to create a flexible system….