Where is your family’s focus? In the early stages of a family business, the family must focus its efforts on the success of the business. Second generation members often share that the business was the child in their family, absorbing all the time and attention of their parents. While it can breed resentment, this unwavering dedication may be required for the business to survive. And, for most families, the success of the business is imperative because it pays for their basic needs.
As the business becomes established and thrives, the success of the business will actually depend upon shifting focus away from the business. By no means do I suggest that the business should be ignored. Rather, the needs, expectations and aspirations of the family must be considered simultaneously with those of the business. Clarifying these needs, expectations and aspirations will actually contribute to the survival of the business.
How so? Once the business proves to be viable (e.g., it can attract customers, it can compete effectively, it makes money), family owners have the opportunity, or perhaps more strongly stated the responsibility, to set a long-term vision. This vision defines what they are in business to achieve, what parameters or constraints they will place on the business and what values they want it to represent, among other things. Articulation of a commonly held vision by the ownership group ensures that the family owners are aligned with the business. Without the owners’ commitment, the business is unlikely to succeed.
Think about where you are in your family business evolution and where you are focusing your attention? If you’ve gotten beyond the stage where the business requires 100% of your focus, maybe it’s time to start focusing on the family. Continue reading this week for more thoughts on creating a family vision.
One of the biggest challenges in family businesses is there are so many stakeholders who care about the business – family members, owners, managers, and potentially a host of others (board members, trustees…). All of these stakeholders have a desire, and sometimes a right, to know what is going on in the business. Managing the needs and expectations among all of these people can be fairly complicated. How can this be accomplished without stepping on too many hidden ‘mines?’
To ensure open lines of communication, it is important to communicate equally to all members of a particular stakeholder group. If you rely on informal means of communication (e.g., catching up at a family event, or calling your cousin when you think he needs to know something), you run the risk of leaving someone out. One way to ensure you have appropriate and open lines of communication is to develop a communication grid. This grid provides an inventory of all forms of communication between various stakeholders.
Start by listing all the stakeholder groups in your business. Then think about what information each of these stakeholder groups should be receiving. You can also think about what information they should be providing. For instance, the board chair may send a letter to all the shareholders at the end of each quarter. But, how do shareholders provide input to the board? If independent directors are involved, perhaps shareholders could have dinner with the board a couple times a year. Another example to consider is how the family ensures they understand the needs and desires of the next generation. Perhaps they are not interested in employment in the family business in the same way that the current generation was. How can the communication across generations best occur? If the younger generation members are included as a separate stakeholder group in the communication grid, the opportunity to think about how to communicate with them and receive information from them will be captured as well.
The grid should include forms of communication (e.g., family website, family newsletter, financial statements, etc.), when they should be received and who is responsible for generating them. Once you have completed the grid, circulate it to all stakeholders for their input. If there are places where communication is not sufficient, they should be surfaced. Once there is agreement on what communication should occur, the grid creates accountability for ensuring that communication occurs. The grid can also be used as a long-term planning tool to evaluate how communication may need to change over time as stakeholder groups grow and evolve. Taking the first step of documenting current communication patterns can lead to a host of opportunities for improving lines of communication and building transparency and trust.
If you’re a frequent reader of this blog or other family business advice, you know the value of holding family meetings. They provide a forum for discussing family issues, educating family members about the business, fostering trust, and sharing the family legacy and values with future generations. Does this kind of approach really make sense if you are just starting to build your family business legacy?
Take the case of a 2nd generation family business, run by four siblings in their 40s. Their father has already handed over the reins, their oldest 3rd generation in middle school, and their spouses not really involved. While many families would start meeting at this point including children, spouses and the founding generation, the four siblings, 3 brothers and a sister, want to build their sibling partnership before they open up meetings to the full family. They meet frequently as an executive team, so have a ready forum to discuss family and ownership issues.
The challenge with this meeting format is longer term issues rarely get the attention they deserve in the rush of day to day operational issues. The importance of longer-term thinking was recently surfaced for this family when someone raised the question of how the family might capitalize on the 2012 estate tax law. To tackle this question and surface others, the siblings decided to engage a facilitator and hold their first ownership meeting. At that session, they jointly articulated their long-term vision for the company and identified topics that needed further discussion. They realized they needed to start developing a next generation of business leaders because their children wouldn’t be ready to take over when they retired. They also agreed that their current dividend policy, loosely defined, worked well for them but wouldn’t work well for the next generation. Finally, they determined that they needed a shareholder agreement among their generation to ensure that their vision of maintaining family ownership was fulfilled.
With these important topics on the table, they agreed to meet every 4 months as owners to ensure they have a place to address these important long-term issues. As this example shows, family meetings come in a number of shapes and sizes. The important thing is to ensure you’ve created a place for owners and family members to discuss important topics that affect the long-term future of the family enterprise.
In an earlier post, we discussed the challenge family business leaders face in creating a culture of accountability, one where employees understand what is expected of them and are evaluated on their performance and where performance issues are addressed. A 3rd generation member of a very successful family business shared a story with me that cements the value of an accountability based culture. She admitted that their company had run for almost 100 years without an accountability based culture. They valued loyalty and rewarded employees based on longevity rather than performance. While they knew members of the management team were not performing up to the needs of the organization and their performance was impacting the company’s success, they chose not to deal with the situation. Finally, with the downturn in the economy, she and her cousins in the management team acknowledged that the issue had to be addressed. They could not harm the long-term viability of the organization to protect a few individuals.
Their first action was to deal with a long-tenured manufacturing supervisor. The family member involved in the HR function approached the supervisor and let him know where his performance was not meeting expectations and set clear guidelines for performance improvements that needed to occur for him to keep his job. She fully expected that he would opt to take early retirement and had a package ready that the owners deemed more than fair.
To her surprise, instead of deciding to leave, the supervisor rose to the challenge. He not only met their expectations but actually exceeded them. His attitude and ability to change was a motivator to the ownership group and across the organization. The 3rd generation owner reports that 2 years later, the entire organization has become energized by the change to an accountability culture. Some management team members have chosen to leave, but those who have remained are performing well. And, the turnover has created spaces for new employees who are a better fit with the changed culture.
Her advice to other family businesses that need to confront a change in culture – go ahead and take the plunge. If it’s the right answer for the organization, you will find that the pain will be worth the gain. As owners and leaders of a family business, employees are looking to you for direction. If you send the message that under-performance is expected, they will deliver. But, if you send the message that this is an organization that strives as a team to achieve success, they will be excited to follow you down that path.
The decision making structure of a family business can be very complicated. Decisions are often made at the family level, the board level and the business level. Most decision- making groups spend their time focusing on the decisions that needs to be made, but don’t spend much time thinking about the process of decision making. Yet focusing on how you do the work can be an important element of a successful result. Think about a group that you are part of in your family business – perhaps organizing a family meeting, as part of the family business board, or as part of a management team. Has your group ever stopped to discuss the norms or rules for how the group works together? In most cases these norms or rules are assumed but not written down. And, in many cases, groups may not agree on norms or may not be happy with the norms currently being followed.
Some norms to consider include – how will we capture the decisions from our meetings, who is responsible for setting the meeting agenda, how do other team members provide input to the agenda, how will we communicate with each other between meetings (e.g., via email cc’d to all members?), how and with whom will we share information outside of the team, who may be invited to attend group meetings outside of the immediate group, what is the process for adding members to the group, or asking members to leave, etc. Taking a break from decision making to work on the process of making decisions can be very beneficial from the group – with improvements in speed and quality of decision making as a result.
As we all know, early adulthood can be one of the most challenging times in life. Learning who you are as a person, finding a career, perhaps finding a life partner…all very exciting but challenging steps in life. This period can be particularly trying for members of family businesses. While there are lots of family businesses out there, it is not likely that family business employees, owners (or future owners) in their 20s will have a strong peer network who are also members of family businesses. So, they often don’t have someone to share the special challenges and opportunities they are facing. The decision to enter one’s own family business is very different than the decision to go to work for a Fortune 500 firm, or the decision to build one’s own enterprise. Family business members in their 20s may be hesitant to share their family background with others their age for fear of sounding entitled or ungrateful for the opportunities they have. If family members decide to work for someone else, they may be uncomfortable telling co-workers they spent their weekend at a family meeting. What if co-workers assume they are “short-timers” at their current jobs because they may work for the family in the future? Or, they assume they don’t need their current job because they receive some form of compensation from the family business?
Finding ways to support family members in their 20s is a key to helping them make a successful transition to into their roles as family business employees or owners. Some ideas include identifying family business programs they can attend to meet peers, creating opportunities for family members within the business to share with each other at family meetings or social events, or even identifying a mentor in the family or business who can help family members work through these issues.
If you have developed a good program or approach for the young adults in your family’s business – we’d love to hear about them!
Recently, I have noticed a trend towards more benchmarking across family businesses. A number of clients have requested that we introduce them to families with similar issues. While they value consultant expertise, they really enjoy meeting one on one with other families to learn what has worked and not worked for them in building the infrastructure to perpetuate their business across generations. This type of interaction is why university-based family business groups have been so successful. They create a place where families can get to know each other and share their successes and failures.
Yet, the real opportunity may lie in reaching out to another family on a specific issue you are trying to address. On the topic of family business boards, for example, there are a number of areas a family might want to learn more about: how to educate next generation board members, how to develop a board that oversees multiple family owned entities, how to select family members to serve on the board, how to communicate findings and actions from board meetings to the family, to name just a few.
You may already know a family with similar structure to yours who could serve as a good benchmarking partner. Or, you can use a consultant or advisor to your business to help identify a benchmark candidate. Three keys to success – clearly define what you want to study, pick the appropriate benchmark partner and look at both successes and failures.
Make sure you know what you want to learn and have written a set of questions before you embark on finding a study partner. This will help you to define the types of partners you want and will ensure that everyone involved in the process has agreed on the output. Then select a partner or partners that are similar to you on relevant dimensions. If you want to study next generation board education, finding a family that has the same level of board formality, similar generational structure and similar board structure will be helpful. What business they are in may not be so important. With a clearly defined topic to consider and a willing partner similar to you, the last key is to remember that you can learn as much from success as failure. Ask your study partner what they did that worked as well as what didn’t work. If they had to do it over again, what would they do differently? Armed with this information, you will make better decisions for your family and business.
As the nation’s children head back to school, many of us “grown ups” are reminded of our school days. Some enjoyed their academic experience. Others couldn’t wait to get out into the real world. Regardless of your school experience, hopefully as you’ve grown older you’ve realized that learning is a never-ending pursuit, whether it be of the academic variety or the on-the-job variety. For many businesses, back to school time coincides with budgeting time. As you are developing your financial objectives for the year ahead, why not develop learning objectives as well? They may be at the individual, company or even family level. And, the objectives may be fulfilled in a variety of ways – attend a seminar, read a book, reach out to a colleague with expertise in a given area, hire a consultant. Creating the same discipline around managing your intellectual resources as you have around your financial resources should help to ensure that you, your business and your family will continue to grow.
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….