The best family businesses can grow for generations, but,
unfortunately, many families struggle to attain long-lasting continuity. What
sets successful family businesses apart? In one word: intentionality.
Successful businesses have a self-awareness power, and they don’t act randomly
or on a whim.
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. 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.
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.
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. Cleary 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. 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.
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