In our blog looking at who’s best to manage a family owned business, it was evident that the most successful are ultimately those who combine family ownership with professional management. Over time, as the family and the business grows, the stakes become higher and the decisions more complex and sensitive. If you want to ensure the effective stewarding of the wealth your family has tied up in the business and you want to oversee the participation of family members as executives in the business, you need good mechanisms and processes to achieve these goals. The best time to define the rules of problem solving is at the outset, when relationships are strong and in advance of situations occurring. So if you’re going to transition from a family managed business to a meritocratic family owned, professionally managed business, what do you need to consider?
The family itself must have good mechanisms for ensuring transparency and dialogue across all the family members who financially benefit from ownership. For instance, once processes are put in place they need to be continually refreshed. To achieve this an effective Board will invest in external advice - family members have too much personal vested interest to work through them well on their own.
Succession planning can be a sensitive area and this is where the establishment of a Family Council can help prepare for the future. Its goal should be to enable a thriving family - nuclear and extended - with a healthy relationship to its wealth, assets and operating businesses. Yet within a family there are often different groups with different interests. The relationships between them may be inconsistent but unspoken issues can lead to confusion without the existence of clear platforms. The existence of a Family Council acknowledges that ownership is different to executive management. Stewarding the family’s wealth and assets is rarely straightforward, but a well run Family Council increases the probability of rising to this challenge. For a family owned company there is an additional dynamic to ensuring fairness and equality. Family must be held to the same standards as other colleagues and communications have to be honest and open.
Long term success for family owned businesses requires professional management and ensuring the ongoing commitment and capability of the family. The best family businesses permeate their ethos with a strong sense of purpose through effective governance. This brings stability and develops purpose, unity and trust throughout the company. This structured approach also helps to achieve longer term planning and moderate risk taking to help protect the family’s wealth and assets. It’s worth reflecting on a survey by the Institute for Family Business in 2016 that showed only about 30% survive beyond the founder’s generation, and just 12% make it to a third. Still need convincing?
Life rarely unfolds in predictable ways and who knows what choices family members will make about their lives and careers? Some will have the talent and the passion for the business, others may not and may even struggle to find something outside - what are the family’s obligations? For those family members who decide they don’t want to work in the family business, there’ll still need to be a vehicle beyond informal family politics where their voice can be heard. Such a position only makes the coalition of interests within the extended family more complex. By starting the process and developing a habit of a Family Council you’re preparing for the future, whatever the eventuality.
What is the Family Council about? Let’s be clear, it’s not about strategy or execution. It’s about stewardship of the business: oversight, purpose and values. In other words, holding the executive to account for what the owners want their business to be. It should meet at least twice a year, maybe three times. And the issues it considers are likely to be more long term than short term.
A Family Council makes a lot of sense for a family owned business and in our next blog we’ll take a look at the help available to establish and moderate a Family Council; the best way to bring in outside knowledge; the most effective way for the Family Council to collaborate with the Executive; connecting strategy and execution; and the important role to be played by coaching.