Multi-generational business families remain a powerful economic force in numerous industries worldwide. Trevor Dickinson looks at the lessons that family-run farms can learn from these success stories.
Most companies face competition, unpredictable market changes, and the vulnerabilities of globalizing industries. In addition to these challenges, family agribusinesses may have to address family rivalry, later generations’ indifference, variable family member competence, and a possibly rocky succession.
Older, successful business families have to deal with estate taxes, growing membership, and the need to teach younger generations about responsible wealth management.
There are three well-documented fundamentals of a profitable, long-lasting family business:
In addition to this foundation, a successful family business has 10 key attributes:
Skill at resolving paradoxes
Negotiating complex family business issues presents many contradictions, such as balancing individual freedom with collective commitment, embracing both tradition and change, celebrating the past while focusing on the future, and respecting individual differences while forging shared values and vision.
The overarching dilemma is how to balance the interests of the business with those of the family.
Successful families don’t hide from these problems; they discuss them fully and seek compromises. But they also go beyond compromises to develop true win-win resolutions.
For example, they may conclude that individual creativity is cultivated best by communal support, and loyalty to a group is most genuine when one has freedom of choice.
Maintaining a focus on the long-term future also helps families integrate solutions to dilemmas into a common purpose.
Focus on process
A family constitution is fundamental to business success, as it can anticipate potential problems and promote family unity and commitment. But no matter how comprehensive a family’s constitution, charter, or code of conduct, new issues will inevitably highlight this document’s gaps or inconsistencies.
A successful family constantly tries to improve these guidelines, focusing even more on communication, problem-solving, and decision-making. It puts challenging questions on the table to test and improve its capabilities. It assesses the success of past solutions to draw lessons for the future. It knows that skills and trust grow most through the resolution of new challenges.
A human resources (HR) committee
Developing and selecting the next generation of family leaders for the business is an obvious task. How to do so is much less clear, in part because family members rarely gain valid personal and professional feedback, even when the system is in place, and managing the succession-related expectations of members is an ongoing challenge.
A related challenge involves career-path planning for the next generation. “Where do I stand?” and “where am I going?” are perhaps the most common questions among potential successors.
But relatives often feel uncomfortable answering these questions and tend to avoid them.
As a solution, some families establish an HR committee, which may include an industrial psychologist, the HR head, and/or an independent director.
The committee typically tests and counsels next-generation family members early in their careers to understand what their optimal paths may be, whether within or outside the family business. The family HR committee also usually offers performance feedback and personal development guidance, along with coaching to help family members deal with myriad issues, including jealousy or tensions within the organization.
Succession task force
This is an ad hoc group supporting the actual transition between generational leaders. Its makeup can parallel that of the family HR committee, or it may include a senior adviser to the family or a recently retired executive from the firm.
The task force, which usually reports to the board, might start its work two or three years before the anticipated announcement of a new CEO or chairperson, and continue for up to 18 months afterward.
The task force sets and monitors succession timing and addresses all facets of the succession: compensation, titles, press releases, company communications, office changes, board relations, and impact on others’ career paths. It supports both generations involved in this often-challenging process.
Successful family businesses try to avoid mistakes by seeking outside education and counsel. They develop a large appetite for family-business education. They also seek out other successful business families and meet with them to benchmark and identify best practices.
Pruning the family tree
Successful families know that when someone wants out, it’s best for that person to go. Otherwise, frustrations can turn to litigation, and everyone loses.
Careful pruning also helps the senior generation let go more easily, as their financial security is more established. A generational harvest is a fair way to provide the senior generation with funds to be generous to others while passing much of their ownership to their heirs.
Many fear that such harvests will kill the goose that lays the golden egg. Yet, paradoxically, when all owners share the same vision and feel financially secure, the business makes bolder strategic moves, usually creating greater new wealth in the long run.
Pruning involves three actions:
– First, putting in place a buy-sell agreement for shares. The sooner that valuation formulae and terms are stipulated, the better the result for the business;
– Second, having a growing pool of capital for shareholder liquidity as needed;
– Third, approaching exits graciously. Individuals should be able to choose their own paths without judgment or inducement of guilt.
A neutral view of wealth
Successful families steward their wealth for future generations, maintain their drive for achievement, and live privileged lives without guilt.
Those who handle wealth adroitly often have a curious perspective: they don’t see money as good or bad, nor do they let it define them. They are neither ashamed of, nor extravagant with, their wealth.
Family decision-making is difficult. Every instinct is to make decisions by ‘unanimous consensus’. Achieving this is difficult in the face of divergent perspectives; it’s even more of a challenge in a family where individual recognition and past perceived injustices remain unspoken.
Successful families nurture consensus by cultivating genuine respect for each member and limiting the influence of personal agendas, striving for a truly fair decision-making process.
Going beyond business
If the family farm is the family’s only interest, most members of the next generation will feel they have no option but to join it, whether or not they are passionate about it or capable of doing the job, in order to preserve their identity in the family. Those who choose not to join will feel like outsiders.
Long-lasting business families know that most family members must feel that the guiding principle is ‘family for family’. To gain wider participation among family members and greater commitment to the business, there must be other highly valued roles and activities for members.
These include leadership of family philanthropy, the family council, or perhaps a family office or investment company. Members in these satisfying positions are more likely to appreciate and protect the business’s financial strength because this funds all other roles.
Managing family philanthropy
Many business owners say it is easier to make money than to give it away well. This is partly because entrepreneurs, immersed in growing their businesses, often put aside the notion of philanthropy. It’s always better to start the next generation thinking early about philanthropy and collaborating with them on it.
Successor generations also face questions regarding philanthropy, including whether they can adapt their parents ‘donor’s intent to fit their own passions and, perhaps, changing circumstances.
Here again, thinking strategically and for the long term is the key. Successful families plan philanthropy carefully and collaboratively with the next generation.
If you’re part of a family business, you’ll know all about the many market challenges stemming from rapidly changing technology and a competitive global economy, and that these are in addition to the obstacles inherent in your family and business dynamics.
Adopting the key attributes presented here can help your business sustain its performance, as well as maintain harmonious family relationships.
Trevor Dickinson is the CEO of Family Legacies, a family business consulting company.