When Your Own Advice Isn't Good Enough
Mississauga Board of Trade: BULLETIN – September 1992, Volume 15, No. 1
In every family business, and predominantly in first generation family firms, there comes a critical point when the lead participant has to acknowledge the need for participatory decision-making and the establishment of a management team in tandem with family meetings. The business can no longer be run in a unilateral manner. Rather, the lead participant must rely more on colleagues, both family and non-family, and begin to trust them and hold them accountable.
This was theme of a breakfast workshop held in the Business Club titled, "When Your Own Advice Isn't Enough!", hosted by Tim Haunn of London Life. Aron Pervin of Pervin & Company described how family businesses account for more than 80% of all businesses in Canada. Regrettably, they are also plagued with a horrendous attrition rate – only 5% to 13% make it to the third generation. In the ten years that Pervin has advised family firms, he has observed that this is most often due to less than adequate communication patterns between family members working in the business, a lack of long range planning especially for family management participation and the inability to differentiate between the family system and the business system in business decision-making.
Pervin explained that working in the family firm should be regarded as a privilege rather than an obligation. To make this happen, there must be guidelines describing the family's relationship to the business, ground rules for entering, participating and leaving the company, as well as a forum to debate shareholder matters in a structured, non-threatening atmosphere.
The first important decision is whether to keep the business in the family or sell it. If the family decides to keep it over the long haul, then many steps are mandatory to improve the chances of business longevity under family management.
According to Pervin, the critical family factors that must be embraced are mutual respect, shared values and trust between the generations, coupled with business competency, if the family is to make successful long term decisions together with minimal disagreement. All too often, the unilateral management style that was successful in the early growth of the business, and the paternalistic attitude that goes with the parental territory, gets confused to such a degree that a collaborative dialogue on family matters relevant to the company is impossible and, therefore, the decisions are relegated to Dad and/or Mom who are ill equipped or unable to deal with these matters on their own.
Pervin believes that the family must break this cycle and realize that a participatory decision-making style is the path to a healthy family enterprise. He described how many successful family firms have instituted a Family Council where often sensitive topics are discussed in family meetings such as choosing the next leader, managing the transition process, establishing management standards, compensation policies and performance requirements, detailing who can participate in the business, and under what conditions, etc., are openly discussed and agreed to by the family, whether individual members are active or inactive in the company.
If the family business is to stay under family management then business decisions must be a family affair.