Previously, I’ve outlined some of the major missteps that contribute to family business failure: lack of financial education for successors, not teaching responsibility or sharing values, ineffective corporate governance structures, and little-to-no succession planning. Here, I want to shift gears and focus on being proactive and making positive decisions.
Here are three things every family business should try to build:
$1 1) Consistent Leadership and Vision
The U.K. based BDO Centre for Family Business finds that only 13 per cent of global family businesses reach the third generation (Australian statistics are roughly the same), but those 13 per cent share similar qualities. Not surprisingly, the BDO Centre argues that culture is more important than a company’s specific business decisions.
In my many years around Australian family businesses, I’ve seen first-hand how successful families engender a culture of leadership and vision. They promote a common purpose and sense of belonging, starting from the top and matriculating down through the ranks. They’re proud of each other and their name, and they’re committed to seeing that tradition passed down from one generation to the next. Great family businesses are unique because they are patient and care for everyone involved.
Each family has a special personal brand, with a unique vision that can create cohesion, growth, sustainability, and, ultimately, profitability. Not coincidentally, a 2014 Ernst & Young study – which collected responses from more than 1,000 global family businesses – found that “cohesive family businesses also have a strong positive effect” on their community and the environment.
$1 2) Contributions from Mothers and Daughters
Women contribute more to family businesses than in any other type of company, and it pays off. There’s been a lot of good research of this topic in recent years, but you don’t need the data to understand why it works. Women bring unique talents to the table, and mothers and daughters are crucial members of the family unit; it’s logical to assume that women are crucially important to family businesses, too.
More than 70 per cent of businesses in the E&Y study were considering a female for succession. This is likely a good business decision, since we have reason to believe that women make more successful leaders on average.
Want to create long-term cohesion? Get mother and sister involved. Have them contribute to business decisions – especially succession planning. Female coworkers and leaders are particularly good for encouraging unity, collaboration, flexible thinking, and a culture of caring.
$1 3) Clear Communications and Strategic Planning
Once the critical emotional foundations are in place (leadership, vision, contributions from both genders), strategic planning is the next step for cementing long-term cohesion. Family businesses need to plan around lots of obstacles – taxes, competition, when and how to reinvest, day-to-day management, etc – but arguably the most daunting is formal succession. Failure here can bring down even the strongest companies.
Create written succession plans with input from everyone affected. Clearly communicate with each other about what needs to be accomplished and how the family wants to define itself. I’ve often endorsed the idea of a Family Constitution, which is a collaborative and formal family governance document. The Family Constitution should contain rules for nominating, training, and appointing management. There should be rules of conduct. It should establish the rights and obligations of family and non-family members of the business. You’ll also need procedures for amending the constitution. I’ve written more about this topic here and here.
A Family Constitution isn’t just a document – it’s a powerful process. It creates a unified vision and then structures that vision in written substance. Families will learn more about each other, their business, their values, and how to work with one another to ensure multi-generational success.
David Harland
Managing Director – FINH
FINH is a financial and human capital specialist, completely focused on family businesses, that provides financial and human solutions that go beyond the day-to-day services provided by family offices. Cleardocs, a leading online document provider, has partnered with FINH to create a family constitution or charter for the sustainability of a family and its business interests across generations. For more information on the Family Constitution document package visit www.cleardocs.com/afsl.
