A family enterprise is a business organization actively owned, operated and managed by two or more members of a single family. It comprises family members related by blood or marriage or adoption. Some of the unique characteristics of a family enterprise are:
1. It owns a majority percentage of ownership, including voting control
2. The senior management team are mostly if not all drawn from the same family
3. It has exclusive decision making power over major (sometimes even minor) decisions
4. Through time, the ownership is transferred to the next generation offspring
5. It includes multiple generations of the same family
6. Under a generational change, the family transitions and changes leadership by way of succession, conflict, death, incapacity, misconduct, separation, and exit of some relatives
But what really makes family firms different? The answer lies in the unpredictable nature of the family component as the core of the enterprise ecosystem. The potential impact the latter can have on the management and ownership of the business is such that it needs to be thoroughly understood, embraced, addressed, and managed. Many of what are considered family business factors and benefits can quickly turn into liabilities or roadblocks. Ignoring them can create irreversible damage/conflict within the family. For context, what I referred to as roadblocks can be any or all of the following elements:
a. A business managed with emotions
b. The mindset that major decisions are the exclusive domain of family members
c. Presence of entitled (mostly unqualified) family members
d. Nepotism results in zero accountability, translating to a perceived unfairness that can cause infighting and rivalry
g. Creation of silos or mini kingdoms managed by a family member (a breeding ground for isolated grouping of a department that functions apart from other business units)
h. Combustible blend of family members working and not working in the business wanting to have a say on how the business is run and managed
i. For many families, the presence of extended family members (in-laws, illegitimate, adopted)
Some family businesses have successfully managed these issues and have done so by applying proven ‘family best practices.’ However, many have failed miserably, resulting in acrimony and, in some cases, hostile and emotionally charged litigated disputes. The key is creating a powerful structure with control and oversight over the family system interlinked with the business and ownership system. We refer to the structure as family governance (not to be confused with corporate governance), where the end goal is to promote alignment, provide clarity, maintain family, diffuse tension by avoiding potential conflicts, embed a culture of stewardship, and instill a sense of collective purpose.
It is important to underscore that as the family business transitions from a simple owner/parent stage (where the founder solely makes decisions) and moves along its generational timeline, more family members join and become actively involved in the business. With the presence of additional family members (and their spouses and children), you can expect an explosion of personal interests clouding business judgments. Being part of the family business offers many potential benefits but also brings with it many inherent dangers and can set off many disruptions and challenges when ignored.
I am sharing some of the more common challenges that my firm, W+B Family Advisory Group, has encountered on family-owned enterprises operating across Asia and North America:
The problem with this family is the lack of communication! Unclear, infrequent communication leads to gaps in understanding and creates conflicts. Therefore, transparency and regular meetings, both formal and informal, must be institutionalized to avoid unfair accusations. The leader must devise forums for open communication where members can say what they need to say to others. The lack of trust is primarily due to the absence of communication! A forum or platform known as a family council must be institutionalized.
To be continued...