A family business is a unique structure and we must find the delicate balance of combining the family system and the business system, while keeping them separate enough to avoid conflict
To deal effectively with the conflicting interests of some families and their businesses, it’s important to understand the relationship between family values and business values and how they differ.
The family involves emotional acceptance, while the business demands rationality and results.
The two systems are shown below and this illustration may help families in business visualise the dynamics of the situation and understand the conflicts they may be experiencing. To the extent that the family system and the business system overlap there is potential for conflict. The family system seeks to preserve harmony and minimise change. In contrast the business system sometimes requires conflict and change to move forward.
The stages that a business progresses through don’t always keep pace, or match the development phases of a family or an individual. For example, the business may need renewal and revitalisation just when the owner is thinking about retirement and enjoying the benefits of years of hard work.
The next generation may not be ready to take over the business or may lack the skills and expertise.
In order to promote better understanding and cooperation a well structured business provides a clear separation between the family, the business and the business owners. Communication is the key to long-term harmony and avoiding the pitfalls that can arise from the conflicting interests of these parties.
In family businesses a lack of communication creates a knowledge vacuum. Inevitably people will fill this vacuum with their own assumptions that can often do more damage than the truth. By creating formal communication forums the interests of the stakeholders can be better understood from each of the above perspectives. As family businesses grow they become more complicated, with more people involved. And by creating communication structures, decision making can become less onerous and more effective.
Creating a family council
The objective of the family council is to bring the family together to share goals and decisions, to discuss common problems, to learn more about the business and to preserve the family values and traditions.
It also helps to delineate between the family and the business to assist in planning for the future in an orderly and constructive way.
It can help in smoothing the succession to new leadership and ownership and assist in avoiding conflict by helping families address early on and openly issues that will inevitably arise.
Here are some tips for effective family meetings:
- The meetings should be run by someone who commands the family’s attention and respect (this does not need to be the owner of the family business)
- Families may want to utilise the help of a professional and experience outside facilitator
- An agenda should be set that does not focus too narrowly on the business, but more to items of mutual concern to family members
- Hold the meeting away from the family home or
- Hold the meetings at least four times a year
- Do not use the meeting to make business or management decisions
The focus should be on the balance between the business and the family and this will include issues such as:
- What are the family values?
- What does the business mean to the family?
- What is the future of the business and how does this affect the individual family members?
- What are the resources of the family and how can they be put to best use?
- What are the goals and aspirations of the family members and how does the business help in achieving these?
Arranging family meetings can require considerable effort, but they can also yield major rewards. The dynamics of gathering as a family can encourage members to act on agreed values, yielding collective decisions that transcend the individual’s interests and strengthen the family as a whole.
Keep it formal
Large companies utilise board meetings as the forum for key decision making in order to bring objectivity, independence, strategic input and commitment to the business.
Similarly, formal family business meetings can assist in clarifying the boundaries between business and family.
It is recommended that these meetings take place at least quarterly and the meeting date should be cast in stone.
An agenda should be set for each meeting and include areas such as:
- Strategy (overall direction, allocation of resources)
- Financial policy (financial health, returns achieved, benchmarking, liquidly needs, distribution policy)
- Succession plans
The agenda should be circulated at least 10 days before the meeting.
Attached to the agenda should be a pack of information that will assist the attendees to prepare and consider issues because this will improve the quality of time spent at the meeting.
Some examples of inclusions in the pack include:
- Management accounts comparing budget to actual
- Cash flow report and forecast
- Sales and sales forecast
- Capital expenditures (actual to budget)
- General expenditure forecasts and productivity
- Background material on strategic issues
Minutes should be taken because they provide valuable summaries, which can be recalled for assistance in making future decisions and plans
The communication systems between a family and the business are complicated.
Formal planning and structuring to enable ongoing, open and effective dialogue will create better understanding, unity and a commitment to a successful future.
Next Rural have put together a simple yet comprehensive guide to business transition and succession planning. To obtain a copy of this FREE guide, with no obligations, email Next Rural at email@example.com or call 1800 708 495.
Mark Scanlon and Ric Moffitt
Next Rural specialises in business transition and succession planning
Call 1800 708 495