One of the most enlightening discussions I was privileged to facilitate with a client was one involving the family’s Mission as it related to the business. The question posed was “why do we own this business?” The question was rephrased as “to what end?” The discussion that followed was most enlightening.
An investor owner focused on the business as a financial wealth creator for the family. Another owner believed the Mission of the company was to be a vehicle for family bonding around a business venture that would require the family communicate, collaborate and compromise. Some in the younger generation focused their attention on the capacity of the business to contribute to the community and to permit shareholders to become more involved in the philanthropic opportunities offered by a growing and profitable family business venture.
In spite of the diverse Missions discussed by this family of shareholders, they were able to communicate, collaborate and compromise to establish a unified Mission and Vision statement that provided their professional board with guidelines that would enable the board to direct management effectively in the years to come. The foundation for this very rewarding process was laid by parents and grandparents who practiced and communicated a set of values that allowed the family to bring generations together toward a common goal.
While speaking about contentious politics is fraught with risks, it seems that family businesses can learn a thing or two from the experience of the past month’s debt ceiling debate, so I am daring to enter into that fray in the name of education on good process.
Demonizing your opponents creates “Us” versus “Them” at the expense of “We.” Sound bites degrading members on the opposite side of the aisle increase tensions and take focus off of true problem solving. Even after a problem is solved or decision made, the other side is seen as a little less human and worthy of less consideration. While this is old hat in politics, it is incredibly destructive in the realm of family enterprise. When we degrade others behind their backs and dehumanize them because they disagree with our positions, we directly contribute to mounting distrust in each other and make our systems of decision making more fragile and toxic, increasing the likelihood that our next decision may be ineffective, or worse.
Seeking commonalities on values and vision comes before financial decisions. Left mostly undiscussed in the debates (or at least in most media outlets) were the core questions of who we seek to be as a people and what it is that we value in common? Family ownership groups that take on financial decisions before agreeing what direction the family seeks to drive the enterprise, or the values to be lived out in the enterprises they own, often find conflict in rich supply, if there are divergent ideas about direction and values. Forcing decisions before coming to agreement on these foundational elements creates surface conflict that ignores the more deeply rooted beliefs that are really driving the dialogue, even if unspoken. Spending time getting aligned on vision and values creates a context to make later tough economic decisions. Ignoring them leads to polarization and reduces decision making quality.
Agree on the rules before entering into contentious discussions. There were moments in the debt ceiling debate where arguments emerged about who had the authority to do what, and by when. While much of this was political positioning, these uncertainties created distrust among many who questioned that the system could function on behalf of the citizenry. And, other than those who prefer chaos, a general pall was felt by many. Family business owners need to know how they will make decisions before being faced by tough, meaty challenges. Who gets a voice? How will dissent be communicated and dealt with? Can a few stop a decision, or does majority rule….or a super majority? Answers to these questions provide a path forward, even in very challenging times. Chaos chokes the decision making process and can result in stagnation or paralysis.
Elections matter. While the political debates were at times chaotic and incoherent, they absolutely highlighted how important it is that the people seek individuals who can represent them well. Our family business equivalent occurs when we elect boards to oversee the enterprise (and protect shareholder value), and when we elect family members to serve as heads of our family councils, committees and task forces. We need people who understand their charge, accept responsibility for outcomes, and whose judgment will bring gains for the enterprise or family body. Our decisions about who will represent us should reflect our confidence in their ability increase our capacities while respecting our values, vision and culture.
Professor Morgan Witzel of Exeter Business School wrote a fascinating critique of “scientific management” in the FT (July 18, 2011, p 11). In it he argued that “the passion for metrics” meant too little attention to difficult to measure, yet invaluable, elements of success:
It seems to me these areas are just where family businesses excel and establish long-term competitive advantages – another example of “unconventional” family business strategy.
In Tuesday’s entry, I talked about the value of sticking to what you know. But, if you follow that tack forever, how do you ever grow? The answer is by building your institutional skills and experience. Companies can build their base a number of ways – by encouraging family members to get great educations, by bringing in talent from the outside, by investing in training and development for employees…. All the companies in our study of successful, old family businesses leveraged these strategies – plus one more. They were willing to do something a lot of family businesses are not – partner. Many family businesses place a high premium on control. They are not willing to work together with other companies to achieve their vision. Those who were willing to partner – by purchasing an interest in an existing company or starting a joint venture with another company – were able to enter new geographic markets and businesses more rapidly and successfully.
Dr. Anji Reddy, founder of now second generation run Dr. Reddy Labs, is described as a visionary, yet grounded, he is a “realistic visionary.” Is that a paradox? If so, it seems resolved by combining a long-term view – for him, 10 years – with conviction and commitment. This is how his visions (often) become real.
So what was one of his realistic visions? – The company, a $1.5 billion generic drug producer in India led by his son-in law and son, provides the means to seek safe drinking water for all the villages in India. Some might say “ an unrealistic vision? “ Ah, yes, but they have reached 2 million.
Lack of accountability is often a major cause of succession challenges within family businesses. Why not make the establishment of effective accountability the top priority on your New Year’s resolution list?
In cases where transitions are running into trouble, lack of effective accountability is frequently the cause. This can manifest itself in many ways. For example, parents are often the ones who administer and deliver the performance management feedback for the next generation. Unsurprisingly, this frequently causes conflict among and between generations. Why? Because family issues and emotions often end up overshadowing the performance management process. In some cases, a process is not even present.
A related example is compensation, which is frequently managed on a basis other than merit. We have seen clients where they have policies based on a concept of “equality”, others on the basis of gender or years of service. Such policies are often the causes rather than the cures of conflict. So, I encourage the senior generation to consider the following resolution for family accountability in the coming year:
The owners, in collaboration with the Board of Directors, shall establish a written comprehensive participation policy for family in the business.
What are the prerequisites to joining the company (education, experience, etc.)?
What is expected in terms of on-going performance for family working in the business?
Ownership shall develop an agreed upon Vision for the future of the business and owner expectations for the business. These will be updated and communicated to the Board of Directors in writing annually.
Wherever possible family in the business shall report to non-family managers for performance management purposes.
Family members shall be formally reviewed a minimum of semi-annually with the following guidelines:
Wherever possible performance shall be measured on quantifiable and agreed upon written performance management objectives.
An annual blueprint for personal and professional growth and improvement shall be established for each family member in the business.
At each performance management review, each family member working in the business shall be given at least three areas in need of improvement and action plans to improve within those areas.
Adherence to business culture and underlying family values shall be a regular topic within the evaluation process of each family member working in the business.
Family member compensation shall be in accordance with established company compensation policy for the position occupied and performance within that position. Wherever possible such compensation shall be based upon position responsibilities and performance-based goals previously agreed to.