We often treat the ones closest to us the worst. (Who knows why? We are most comfortable with them. We know they won’t leave us. They know how to push our buttons!)
Being in business is hard. Making decisions with family is hard. So, by the transitive property, being in business together as a family can be exponentially hard!
Valentine’s Day is about love. And, there are lots of kinds of love, not just romantic love but also love born out of respect, appreciation and shared history.
So, given these facts, isn’t Valentine’s Day the perfect day to reach out to someone in your family business and share a little love? The best kind of love is unconditional – given with no expectation of something in return. Surprise someone in your family with a little appreciation today!
History is full of examples of leading business families who have used their wealth to make the world a better place. Witness the contributions of the Rockefellers, who have had a family foundation since 1913. You will find this description on their website, “ In the years since John D. Rockefeller inaugurated the first global US foundation, scientists, scholars, economists, and grassroots leaders supported by the Foundation have spearheaded the search for solutions to some of the world’s most challenging problems. Through their efforts, plagues such as hookworm and malaria have been brought under control; food production for the hungry in many parts of the world has been increased; and minds, hearts, and spirits have been lifted by the work of Foundation-assisted filmmakers, artists, writers, dancers, and composers.” Similar examples can be found in reading about the Ford Foundation, where a recent headline states, “Ford Foundation grants $6 million to 7 organizations to reshape the global human rights movement”. Or, a more recent entrant, The Bill and Melinda Gates Foundation, where the Global Health Division, one of four focus areas, aims to harness advances in science and technology to save lives in developing countries. Regardless of where you stand on issues these families have chosen to tackle, it’s hard to deny that they have set their sights high and aspire to make a meaningful difference in the world.
While the scope of these endeavors may be out of reach for most of us, every family, regardless of its wealth, has an opportunity to make a difference. And, business owning families are in a prime position to do so, given their visibility in their communities and relationships with other well-connected people.
At your next family gathering, be it at the dinner table, conference table, or large family meeting, ask yourselves the question “What can we do together as a family to make a difference?” Think about the unique assets your family has that it can bring to bear to address an unsolved problem. Often, creative use of assets at your disposal, scrap materials, distribution networks, excess warehouse capacity, can have much greater impact than writing a check. Regardless of the financial resources at your disposal, your family can make a difference. And, in doing so, you will find yourselves in good company.
A few weeks ago, I had the opportunity to participate in a family business conference. I was struck by the number of sessions devoted to the topic of education – educating the next generation of owners, educating the next generation of leaders, educating responsible stewards of wealth. The audience was clearly attuned to the importance educating the next generation to ensure they are prepared to carry on the family business… Yet, they didn’t seem to think much about what they, the current generation, may need to be doing themselves to ensure they were doing the best possible job as owners and leaders.
One of the experts leading a session raised the point that the words training and development, often inter-changeably, are actually not the same. Training refers to a set of exercises or activities that are designed to lead to mastery of a topic. Many of the conference attendees were seeking advice on how to train their next generation members, so they would be well-prepared owners and leaders.
Development, on the other hand, is an ongoing pursuit, with no end point. While one may work on development of leadership skills, leadership will never be fully mastered. There are always opportunities to learn ways to become a better leader. So, while preparing the next generation is important to the perpetuation of a family enterprise, we shouldn’t forget the importance of the ongoing development of the current generation.
We know that the best way to perpetuate a desired behavior in a younger person is to model that behavior. The old adage “Do as I say, not as I do”, is NOT a recipe for success.
If you are a member of the current generation of family business leaders and owners are concerned about the next generation, consider what you can be doing to develop yourself. Ask yourself the question – “What could I work on that would help me be a better mentor and teacher for the next generation?” “How could I model the behavior that I hope to see in them?” By expanding the focus of your education programs beyond those that come after you to include yourself, you are setting the best example of what you hope for – owners who are constantly thinking about how to develop themselves.
One of the key differentiators of family businesses is a committed ownership group who are proud of the legacy their family business represent. Research shows that family businesses outperform non-family businesses, and this focus on the importance of legacy is one of the contributors to superior performance. However, an overemphasis on the past can also have a negative impact on family business performance.
Ability to change is also important. Every generation is different, and requires different structures and rules to succeed. Take just one element – ownership structure. In earlier generations, many family business owners created a structure where stock was consolidated in the hands of those who involved in the business. Many felt the alternative of entrusting ownership to family members who may not be as interested in the business could lead to non-employed owners getting in the way of family management’s ability to make decisions. Further, some thought it unfair that those not involved benefit from the hard work of those involved in the business by participating in the financial gain created by employed owners.
While this model of ownership may have served a family and company well in the past – as the business evolves and typically gets larger, there can be many benefits to cultivating a group of informed and committed owners who are not employed in the business. In the interest of brevity, lets just focus on the financial benefits.
By limiting the ownership group, family businesses may limit the pool of capital available for investment in the business. For instance, if a business founder has 3 children, only one of whom goes into the business, and he decides to give the business to that child, he will often make a financial gift to other children to treat them equitably. That money could have been used to fund business growth. Or, if he gifts shares to all three children at a young age but requires them to sell back their shares to the company if they decide not to pursue a career with the business, again the business capital is limited.
A great strength of family businesses is the patient capital they have by virtue of an ownership group that is interested in managing the business for the long term. This mindset leads family ownership groups to support management decisions that contribute to long-term business success even if they may not show immediate results. In fact, research shows that family businesses invest more in R&D and employee training than non-family businesses. The benefit of a larger ownership group is that they provide capital at a lower cost with a longer time horizon than other investors (including banks) – providing their businesses with a significant competitive advantage.
So, let’s circle back to legacy. A commitment to the principles that served the business well in the past is important. Equally important is a thoughtful analysis of what changes need to be made as the business evolves. Just as it would be impractical to use a typewriter to generate business correspondence today, it may be impractical to maintain the same ownership requirements from generation to generation (or the same employment requirements or other elements of the family legacy).
Honoring legacy is important, but if part of that legacy is a desire to maintain the business for generations to come, perhaps a new addition to the legacy needs to be an ability to change.
Stewardship is a term often used when describing the perspective of family business owners. As many owners of family businesses seek to pass their business on to future generations, the term stewardship is an accurate one. The dictionary definition of stewardship is “the careful and responsible management of something entrusted to one’s care.” This is quite different from the term ownership, defined as “the legal right of possession, full claim, authority or dominion.”
I see stewardship and ownership as two sides of the same coin – the former emphasizes responsibility, the latter emphasizes rights. In truth, ownership implies both rights and responsibilities. Too often, owners are concerned about their rights – to a dividend, to a say in how the company is managed – but pay less attention to their responsibilities. Yet, if they seek to pass on their business to future generations, owners should be equally or perhaps even more concerned with responsibilities. What are the responsibilities of owners? They include:
Ensuring the business is well-run, ideally by electing a qualified board of directors who oversee a capable management;
Planning for the orderly transition of ownership across generations;
Staying informed about the business and its operating environment;
Representing the business and family well to employees and the community
Investing time in education to ensure one is prepared to make big decisions around the business.
As the old adage goes – to whom much is given, much is expected. An emphasis on stewardship responsibilities will help to ensure that the aspiration to pass the business will be achieved.
Spring cleaning is a time to go through everything that has accumulated during the year (or years, depending upon how often you go through the ritual!) and determine what is still relevant to your life. This ritual can serve as an analogy for the important process of evaluating people that support your family business – board members, advisors, service providers – to ensure they are still the people you need to achieve your goals. Family business owners are often challenged by the prospect of replacing someone who has been invaluable to the business over the years but who may be ready personally to move on or who is no longer a good fit. Often these individuals stay on longer than the family or they would like because no one is willing to broach the subject. Recently I watched a client deal with the retirement of a long-time board member in a courageous and honorable way. The family members on the board informed this gentleman, a board member with well over a decade of service, that they felt it was time to refresh the board. They asked him how he would like to handle the announcement to the board – Would he like to retire or resign? Would he like to tell the board or would he like them to tell the board? Then they planned a dinner honoring his service. They worked with his wife to identify a gift that would be special – in this case tickets to a sporting event and an opportunity to meet the owner of the team. All of these steps showed respect for the director’s contribution and allowed the process to unfold in a way that made him comfortable. The result – the board members and family involved felt good about the decision.
We’ve devoted the week to spring cleaning. For many people, the process of spring cleaning is not much fun, but they do enjoy the outcome – a more organized, clean and clutter free environment. Family businesses aren’t the best at fresh starts, and indeed getting rid of history, legacy and culture can take away what can be one of a family business’ greatest strengths. However, we all know of elements in our family businesses that we would be better off leaving behind, inter-personal animosity from prior generations, outmoded business practices, or unhealthy family dynamics. Families have a difficult time letting these things go, because they represent an important part of the family history or perhaps the family isn’t even aware of the pattern they are perpetuating. Whether these unproductive elements of the family are acknowledged or not, they would benefit from spring cleaning. Consider one of two exercises for your next family gathering –
Ask each family member to write down one thing about the way the family works that they would like to keep and one thing they would like to let go. (Note that saying “let go” rather than “get rid of” takes the sting out of the process).
Ask the family to think about starting with a clean slate. If you didn’t have your traditions, history, legacy, what is one thing each person would do differently than what you do today?
Either of these exercises will lead you to a productive discussion of what things your family might want to leave behind so that it can operate in a more organized, clean and clutter free environment.
Due to our long winter this year, my mind has just turned to spring cleaning. The concept of spring cleaning – organizing, starting with a clean slate, focusing on priorities and getting rid of what’s not so important – has a number of applications for family business. So, let’s dedicate the week to Spring cleaning!
I spent a lot of my time with family business clients developing policies and processes to create order and accountability, increase family harmony and ensure the family and business operate effectively. Often, hours of work goes into creating these rules, sometimes involving difficult family conversations and multiple revisions until the family is comfortable with the result. Once all that work is done – what happens? The policy is saved on someone’s computer under some name, and then….. I often get calls from clients two or three years later asking me if I have the final version of a policy. They can’t locate the document they spent so much time and care creating.
So, my first spring cleaning suggestion – create a protocol for how you name, store and revise your important family documents. Each document should have a header or footer with an embedded date so that you can track versions. A common naming protocol should be used – for instance, if a document is final, you might use final in the name. If it is a draft, you might include the word draft and the date in the name. And, you should use the same name for the same type of document. So, if you keep minutes of family council meetings, they should have the same file name each time with the appropriate date included, for example, FBCG board minutes 41013.
The naming protocol should be agreed upon by everyone involved in creating or revising family documents so that the standard form is followed. Then, a central repository for documents should be created. And, that repository shouldn’t be your family business consultant! Or the head of the family council, for that matter. Ideally, a location that is protected and will last over time should be selected. The company intranet or a family website is ideal. The goal is to have a place where an archive can live for a long period of time.
For those readers who already have policies and other important family documents developed, take advantage of that spring cleaning spirit and review your current files. Purge old versions or drafts that aren’t needed. Consider renaming the ones you have in a standard format. And, agree to a home for them. When next spring rolls around, you will be glad you did!
In our work as family business consultants, we are often approached by a member of a family business who recognizes a need in their family to accomplish some work together. It could be a specific need, such as the need to develop a family employment policy, or a broader need, like the need to begin planning for a generational transition. Regardless of the scope, it is often the case that all members of the family have not recognized the need for this work. The family member who sees the need is then put in a position of figuring out how to convince other family members of its importance.
When confronted with this challenge, I try to help the family member by sharing two approaches. The puppies and babies approach is the soft-sell. Have you ever stopped to think about how many companies use puppies and babies to sell their products – anything from toilet paper to tires? What does this have to do with family business work? Well, the puppy and baby equivalent in family business is the family legacy. Appealing to the family’s desire to leave something behind, to ensure there is a solid future for the next generation or to honor the legacy of the founders is an approach that may convince other family members of the value of working together to ensure these objectives are achieved. By creating rules, policies or decision making structures, you are making an investment in your future as a family.
The Doomsday approach is more intuitive. If you don’t do this work together, unhappy family members may want to sell their shares, family infighting may get in the way of making good business decisions, qualified family members may choose to work elsewhere or unqualified members may lead the business. In a worst case scenario, you could end up on the cover of the local paper in a legal battle.
The approach you take to selling your family on doing the important work it needs to do to ensure long-term success will depend upon your family dynamics and culture. Some families react to carrots, some to sticks. Only you know what will work best for your family.
If you and your family hope to create a lasting family legacy by passing your enterprise down through the generations, a family vision statement will help guide you in the achieving this goal.
What is a family vision statement? Most people are familiar with a business vision statement. It lays out management’s aspirations for what the business will become – what customers it will serve, products and services it will offer, markets it will operate it in, and at a higher level, what value it hopes to create. A family vision statement is similar, but its focus is the family, not the business enterprise.
The family vision statement answers these questions:
What do we hope to achieve as a family together?
What is the purpose of our wealth and what will we use it to accomplish?
Are there particular needs or expectations we have of the business?
What values do we expect to see reflected in the business culture?
Is our philosophy to put the needs of the business before the family, the family before the business, or balance the two?
What role do we, as family members, intend to play in the management and ownership of our enterprise?
Do we hope to stay together as a business owning family for generations to come?
What will our family’s legacy be – to our employees, our community, future generations of family members
The answers to these questions will shape both your family and your enterprise in the years to come. Many long-lasting family businesses come to see that the greatest advantage of being a business owning family is not the financial benefit but the opportunity to leave a lasting legacy. Without thought and guidance, your family will under-utilize this wonderful opportunity.