Why do we hurt the ones we love? That age-old question never rings more true than when working with relatives. About 70% of Australian businesses are family affairs and employ half the private workforce, but the failure rates are astronomical — 80,000 family businesses will no longer exist this time next year. Statistics can be hard to fathom, so to give you an idea of how significant this is, imagine the entire population of Bendigo disappearing in the next 12 months — that’s how many family businesses will go under. What’s more, each one employs an average of 37 people, which adds up to the equivalent of every person in Canberra losing their job! Unfortunately, most of the trauma will be needless — if more than 12% of family businesses had a family constitution, the in-house bickering that causes the majority of closures could be managed, if not prevented entirely. A family … what? The words “family” and “constitution” may seem like unlikely partners — we usually associate a constitution with the founding of a nation by men with top hats and bushy white beards! However, the pairing makes perfect sense when we see a constitution as an agreement on which a family business is based … and any family business that follows set values and codes of conduct has a greater chance of maintaining smooth operations, not to mention withstanding the emotional tempests that bring others crashing down. Write it down A family constitution is a written document, best formed collaboratively by everyone with a stake in the business. Like all strategic plans, it’s “living”, which means periodic review is in order. As a general rule, you need to include:
- Mission statement
- Family values
- Business goals
- Leadership structure
- Code of conduct
- Communication
- Conflict management
- Employment
- Dividends
- Succession plan
- Exit policy.
In this article, I’ll cover the top three causes of conflict: conditions of employment, succession and communication.
You’ll find a plethora of information about the other topics (and, indeed, samples of whole family constitutions) from even the quickest Google search. Sharing the pie When my boys were little, they had the uncanny ability to judge relative sizes, especially when it came to cake. “It’s not fair,” one would howl if the other’s slice was even a smidgen bigger.
The complex dynamics of families means the adult version of this need for equity continues in a family business, and the only way to effectively deal with it is to create employment and remuneration strategies that focus on what’s good for the business, not your personal feelings.
Your policies need to be consistent and open … even more important, the reasoning must be logical and fair. For employees and shareholders, think about:
- Your employment criteria … can any family member join, regardless of talent and skill, or do you have a list of entry standards?
- Whether people can be shareholders but not employees.
- Entry level into the business … do people start at the bottom and pay their dues or can they take a more senior position?
- How you’ll counsel those not asked to join the business to manage resentment and hurt.
In terms of remuneration, make sure you:
- Match pay to an individual’s skills and contribution, taking industry standards into account — don’t pay according to perceived need or how long they’ve been in the business.
- Establish a rate of return for shareholders or investors who are not active in the business.
- Have a policy for raises, bonuses and other benefits.
- Agree on what happens to an individual’s after a critical milestone, such as marriage or retirement.
Handing over the reins Could your business survive a car accident or heart attack? I thought long and hard about asking such an awful question but, unfortunately, up to 80% of family businesses don’t think about the next generation of leadership until a crisis occurs, which often leaves them with a CEO who is unprepared, uninterested or unwanted. Even if the CEO simply retires, a succession plan takes years of groundwork. To start:
- List the qualities and skills the next CEO requires
- Identify potential candidates … and make sure they’re willing — too many business owner pressurise or assume interest
- Develop a training program for each candidate
- Draw up a timeline for hand-over, preferably one that gradually increases responsibility
- Be sympathetic to family members who unsuccessfully vie for the role … counsel them and provide other meaningful opportunities
- Consider the alternatives … is family succession the best option? Or is selling more viable?
As an aside, I came across a couple of statistics while researching this article that left my mouth gaping open: only 7% of daughters are actively involved in family businesses and five times less likely to succeed the current CEO than sons. What a missed opportunity!
Whoever takes over the leadership, it’s important to let that person own the role. A new management style, new customers and, indeed, a new world comes with each generation, so the departing leader needs to gracefully let go of control.
Straight talkin’ Playwright George Bernard Shaw was spot on when he said, “The single biggest problem with communication is the illusion that it has taken place.” What he’s referring to is ineffective communication, the kind that doesn’t get the intended message across or, worse, miscommunicates that message, resulting in confusion or conflict.
Ask yourself two questions to make sure your communication works:
- Why do we communicate?
- How do we communicate?
The answer to the first is goal-orientated — ultimately, your aim is to pursue what’s best for the family business, which gives your communication purpose. This, in turn, builds unity and trust … you’re less likely to encounter issues with pride, control or personal desires when everyone knows the success and wellbeing of the family comes first. The second question is about developing a communications policy, one that promotes regular and open conversations. I’ve used the word “conversations” intentionally because communication needs to be two-way — give people the opportunity to ask questions, express opinions and suggest ideas, and you’ll see a burst of creativity and motivation. How to communicate is also about developing procedures to prevent or resolve communication break-downs. For example, you might have a:
- Clear list of roles and responsibilities for each family member to ensure no-one over-steps the mark or treads on toes
- Code of conduct to ensure people treat each other appropriately
- A policy of sticking to the facts, no assumptions or emotions, in heated moments
- Course of action to follow to resolve a conflict
After writing this article, I’m tempted to ask one more question: are those involved in family business suckers for punishment? No. Family businesses may be more complicated, but the advantages are real: loyalty, commitment, stability, independence, and collective senses of belonging and purpose. And in those moments when everything seems far from perfect, remember that no business can be on track all the time — no-one is perfect and even those closest to us have different perspectives and ways of doing things. How we deal with our difficulties is what really counts.
