Common Thread: The Major Factors in Successful Family Businesses: Rule #1 Communications

Not many successful family firms stumble beyond the second generation of stewardship through just good fortune.  The children of founders of a firm become interested in the firm for their own career for two primary reasons: their parents have demonstrated the firm’s financial and social potential.  There you go:  greed and fun. But firms that are eventually operated by the founder’s grandchildren, great grandchildren and beyond typically possess a large dose of another key ingredient: solid intra-family communications.

Among our siblings, parents and children, we have each experienced poor familial communications and their consequences: torn relationships, resentment, confusion and misunderstanding.  But the potential hazards and consequences in the family firm are multiples more severe.  Conversely, the rewards in a family firm of crisp communications are both more intricate and satisfying when they enable the family firm to prosper and pass on.

In the successful family firm, it is often the founder’s values and their evolution that form the foundation of the family attitudes regarding communications. In the agrarian society of a hundred years ago the process of mining the family farm for future generations was reasonably simple. It was understood that Elmer Junior would take over the back forty whey pa wasn’t able to hitch up the horses anymore. Neither his younger brother, Ferdinand, nor his sister Gertrude were considered, unless, of course, Junior decided to go west. Oddly enough, in the information age of the twenty-first century, many family communications issues are far more complex.

The founder’s attitudes toward hard work, responsibility, power, communications, expectations, their product, customers and vendors sow the seeds of content or otherwise.  It is the founders who set the stage for the succeeding generations, and it is the succeeding generations’ attitudes toward their traditions and progressivism that carry the flag to the next generation.

In the modern family firm there are a wide range of communications practices that build the company’s value and effectiveness. They take considerable effort to work, but this is one investment that always pays off.  After the founder’s values are transcribed into a modern mission statement, the next most important arena of concentration is the attitudes of the family towards this mission and towards each other.  Foremost here is the attitude toward stewardship.  Within long-lasting family firms, the generation in power most often views themselves as stewards of the business, not necessarily as owners, or CEO’s and VP’s.  The business and its previous operators take on a somewhat reverential quality.  Their attitude can often be seen as “we are fortunate to have this firm handed down to us by caring operators who were our ancestors, and we are going to improve upon their work and when we are done, pass it on to our heirs, and encourage them to do the same.”

In the modern successful family firm care is given to both the family and non-family input into strategic decision-making.  The two common forums for this all-important variable are the family council, and the board of directors.  The family council is a regular meeting of defined family members with rules for participation to gather input from the stakeholders on the direction of the firm.  Well-organized family councils go a long way toward promoting continued family harmony.

There is a broad range of prototypes of family councils, from informal and advisory, to highly structured and embued with specific powers. Usually larger firm’s and families require more structure. The purpose of the council is to provide the non-managing family stockholders participation to the firm’s strategy and policy. The earlier in the evolution of the firm that the council is established the more valuable and credible it will be.  One model establishes meetings just prior to the company’s board meeting.  Membership on the council is established by agreed rules.  Spouses of family council members may be invited as well as teen or post teen children.  Council members are given the same hand-out material as board members.  The council focuses on family input to the board agenda items. Members of the council who are also board members are charged with providing council input to the board.  In some cases this may only be the council chair. This model is intended to provide flexibility, broad family exposure, and ensure that family issues are dealt with appropriately and not necessarily in the boardroom.  In most cases it is highly beneficial if the council chair is well versed in conflict resolution and exhibits strength and grace in the face of the inevitable tensions that mark these sessions from time to time.

Another threshold communicative decision that family firms face is whether to have a board of directors.  There is also a continuum of board prototypes, from non-binding advisory boards to highly structured corporate boards of directors who have the power to hire and fire the CEO among other important roles.  For smaller family firms under $10 million in sales the disadvantages may outweigh the advantages of operating with a board.  The prime advantage is formalized input from outside the family by people who are interested in the company’s success.  A board is often cheaper than consultants who may provide much the same information.

The currency of the information age is ideas, and the most important commodity is knowledge.  For most firms, the crucial knowledge is what their customers want from them.  Boards of directors primary purpose is to draw from the experience level of a varied group of individuals who possess business acumen and fundamental market knowledge. Most especially, the family firm should be in touch with its customers, being aware of trends, emerging needs, satisfaction levels, error correction capabilities, and market prices.  A solid board of directors will ensure these and other variables are being consistently monitored, evaluated, analyzed and the firm’s personnel and practices are retooled accordingly.  The average family business--usually noted for service and local involvement--is not often oriented in these directions of its own volition.

One of Portland’s more prominent management consultants, David Hawkes, who serves on 10 corporate boards, believes that boards in family firms hold these responsibilities:

• Regarding the CEO
• Evaluate his or her performance
• Make recommendations regarding compensation
• Motivate and guide the CEO
• Guide the strategic plan
• Set and ensure adherence to company policy
• Represent the next generation of the family business
• Buffer any family tension
• Ensure a fair compensation system
• Be a catalyst for succession plan, i.e., keep gently pushing to ensure a succession plan is in the minds of all the family members.

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