Planning for Continuity
Family Ties® is now established as a newsletter to help improve and preserve business family life. It complements the existing body of knowledge in the marketplace and I hope it will capture your interest differently from others as we explore the day-to-day phenomenon of the business family's relationship to one another and to the business as individuals, as shareholders, as family members and as employees. We will investigate the many proven systems and structures that help shape the values of a dignified accidental partner interaction.
In my company's 1998 Trends in the Family Business Environment survey, I observed, "accidental partnerships are becoming more complex" and "distinct decision making and accountability are gaining in popularity". This newsletter introduces and explains the terms "accidental partner' and "governance'. In my consulting practice and research, I meet more and more business family members who are involved in complex stakeholding situations – ones that they never would choose. But, as these accidental partnerships evolve, the participants have to find a way to make sense of their relationship. They might be in business together, or inactive shareholders, or they might share in the management of the family foundation, but, whatever the case, good governance underpins the partner relationship and gives everyone the framework to listen, keep the peace, make decisions and enjoy a shared future.
At the annual Family Firm Institute (FFI) conference (www.ffi.org) recently held in Washington, DC my colleagues and I shared a lot of these thoughts. It appears that all over the world the opportunities facing family businesses have never been more spectacular (for example see www.fbn-i.org). To deal with these issues of business growth, leadership and more complex shareholder situations, business families are beginning to embrace more sophisticated leadership selection criteria, and governance systems than ever before. More advisory boards, owners forums and family councils are being established to foster accountability, improve communication, and to satisfy the increasing need for more sharing of information and decision-making. Naturally, this has also strongly influenced the methodology for choosing competent family leaders who can straddle both the family and the business – a tall order for many next generation accidental partners.
For more complex situations where there are shareholders who are business employees and those who are not, the owner's forum is the key decision-making body. Depending on the number of shareholders, everyone with stock might participate or there might be a method of representation that makes sense. But, the importance here is the need for rules and guidelines to allow for smooth decisions that will affect how you enjoy a healthy relationship and a thriving business.
The family council is the family voice in the governance structure. Typically, this is the forum that represents everyone in the family, spouses and other non-shareholders, whether in the business or not. This is where the relationships, traditions, values, myths and rules are discussed and a creed or constitution developed, especially for family participation in the business.
It seems clear to me that the success of the family firm requires choice – the choice to develop relationships that work and rules that provide the context for a healthy interaction. If we view family business problems as relationships with faulty communication patterns, we can focus on the here and now – not the past – and build interactions that work for the future. Establishing governance systems and structures is just the beginning of the journey – making the relationships work requires a strong commitment. This newsletter will try to help in these areas.
In the world of governance, we typically know that the shareholders choose the Board and the Board monitors the business, and that more shares or voting shares are important c o n t rolling mechanisms. Of note is the difference in the way shares are transferred in Brazil, where the laws specify equality to the next generation while in other countries, their laws allow for unequal share transfers. This has led to an interest by Brazilian business families in having fewer owners over time, but it is difficult to accomplish and gender differences exacerbate situations. North American and European cultures might share in this strategy, but, perhaps for different reasons. In India, families seem more interested in larger shareholder groups. At times, I have also observed some family leaders, especially those with a particular controlling nature use differing share ownership as a weapon rather than as a business decision or a legacy.
It appears that the hermetic seal of secrecy crosses all borders and remains a family business theme. Internationally, there appears to be a strong cultural resistance to outsider participation in private family affairs, unless forced by a financial lender. In Brazil and India, for example, an outsider on a family board is extremely rare, and, typically these independent directors would only serve on the "public' not the family board, or be part of the shareholder appointed audit committee. In North America, and in the UK, anywhere from 15% to 30% of family firms have a board, but the 85% insider rule reigns. The good news is that the use of outside independent directors is slowly gaining in popularity, as owners become more open to the value of good, objective advice.