Succession
Transferring leadership between generations is one of the most difficult aspects of family business. Particularly for a business founder their sense of self is often defined by the business they created and the thought of letting go is paralysing.
Putting the family first and the business second is a good place to start and recognising that this is an emotional journey for the whole family, irrespective of individual family members involvement in the business. With or without the business you will still be a family and that is important to remember. Most families will have a CEO – Chief Emotional Officer, who understands how everyone is feeling and often manages everyone’s emotions. Knowing who that person is and allowing them to run the meetings is important. It can also be beneficial to find an emotional facilitator for the process. This person can work along-side the other advisors as sensitive topics come along and help guide the group and individuals through the process.
On a more practical level if documented structures relating to remuneration and dividends are not in place, they should be dealt with right away. Paying family members market rate salaries and sharing dividends equally among all family members irrespective of their involvement is an excellent foundation. Family members need to understand that things will never be equal, but they can be equitable.
Governance is as important in a family business as an ASX listed company. Best practice is if you have a family member CEO then the Board should have an Independent Non-Executive Chair. The opposite is also true with a Family Chairman the CEO should be a non-family member.
Having these documents and structures in place will allow a much smoother succession plan. Everyone will take comfort from these measures, and it provides confidence for family members because they will have been consulted along the way and felt involved.
In many cases doing nothing is the worst possible choice. Family relationships will suffer and deep down none of us want that.
Build a Team
Too often family business operators feel compelled to do everything themselves. From marketing, to accounting, to HR, a mentality of it’s my business, so I need to do it all can take hold. A powerful moment is to consider what you are good at and admit what you aren’t good at. Once you have that list start hiring people that are experts in everything you’re not. Building a team around you will release you back into doing what it is you love and are passionate about.
Think of it like a medical situation, instead of having one GP working on multiple issues, you can have a team of specialists solving individual issues with better outcomes. The acceleration in business growth this achieves is remarkable.
Family Council
When some family members work in the business, and some don’t this can often lead to friction. If family outside the business are not communicated with, they will just make up the story themselves and it is usually wrong, leading to distrust and the breakdown of family relationships. Asking family members outside the business what information they would like and then creating and providing dashboards and commentary on a regular basis allows everyone to understand what is going on.
Best practice is to create a Family Council. This is a non-legal structure that sits above the Board of Directors and provides the opportunity for family members outside the business to engage with it. Information can be disseminated and access to Non-Executive Chairs, board members and CEOs can be provided. While not able to make business decisions the family are able to provide the board with moral and ethical guidance on the direction of the company.
A Family Council is often founded off a Family Constitution. This is a non-legally binding document that the family create, sometimes with a facilitator, and everyone agrees to. A typical constitution covers a family vision and values, a code of conduct, employment of family members in the family business, family employee remuneration, benefits provided to the family such as mobile phones and cars, a dividend policy, external directors, meeting schedules and education funding. It is a good idea to revise this document every few years to keep it relevant for changes in the family and the business.
The interactions of families and businesses can be complex and at times difficult. Getting in front of issues that can cause conflict is important for having a happy family and a successful business.
About the Author:
David Hammon has 15 years of C-Suite experience as a CEO and CFO, Non-Executive Board Director, and Not-for-profit Chairman across retail, government, and not-for-profit sectors. He has a proven record of creating growth within businesses he has been involved with, including significant experience in family businesses.
