Family can be both a strength and a challenge for a family run business. The following are some great tips on how to avoid some of the most common issues.
Challenges for family businesses include:
• Nepotism and family conflict
• Succession planning
• Different shareholders with varying aspirations
• Making sound business decisions as opposed to emotional ones
• Accepting outside directors
• Understanding the director's liability of family members on the board
Family-owned businesses dominate New Zealand's our commercial landscape.
It's surprising, then, that so little is known about them.
We do know family businesses are extremely diverse, ranging from the relatively small to very large and successful companies. Also, they have one defining attribute - that one or more members of a single family own and manage the business - can be both a strength and a weakness.
From my personal experience, many founders feel that they are "a family with a business rather than a business owned by a family".
They sometimes put family first which means occasionally doing things a full commercial operation would never consider doing. They often see it as a balancing act to keep the family united and/or happy.
Family businesses can have a great culture, a very close relationship with their customers and be very nimble in responding to market or customer forces. Typically, they are also more focused on creating value over the long-term.
"On the other hand, family businesses have a very different set of shareholders with varying aspirations. Particularly as generations move on and families grow larger, responding to everybody's needs becomes more difficult" according to a family business founder.
Some family businesses draft a constitution that to be considered for the family business, you must have the relevant skills and qualifications and must have a minimum number of years' experience outside of the business. As one business owner says "I think it's important for the younger generation to know it's not their birth-given right to leave school and start working here."
Dealing with conflict
Succession is often at the heart of the most serious disagreements in family businesses.
Its often best to talk openly and honestly about potential conflicts as early as possible and seeking different views.
Avoiding these issues or dealing with them behind closed doors can lead to bigger challenges later. Often the best way to avoid a family feud is to have a strong, considerate and courageous family leader who deals with issues of succession and direction openly, early and clearly, making sure everyone knows where they stand and ensuring expectations do not get out of hand.
The family board
Not all family companies have a board of directors and some "boards" are little more than ad hoc collections of advisers, friends and family members. This can put the company and the individuals at risk.
It is important, even for those using advisers and trusted friends, to ensure all are aware of the role of a director or even those 'deemed to be a director' by their involvement at a strategic level.
Introducing a non-executive director (NED) to the board who isn't a family member can help a larger business become more professional, commercial and outwardly focused.
It's absolutely critical to have independent, sage advice offered at board level.
Of the challenges facing an "outsider" on a family board the most fundamental is winning respect otherwise the directors input is not heard.
Non-family NEDs also need to understand the dynamics of the various generations in the shareholder base. They need a good understanding of the history of the business and to balance that with an appreciation of where new generations would like to take it. They must also understand the emotions of family businesses and not get themselves aligned or alienated somewhere where their skills become sidelined. If they can find that balance, their skills will be of great value; any organisation should challenge the status quo.
It is best if 'family issues' are kept away from board discussions. In short, best practice family business governance involves using family and business governance structures and processes and ensuring these entities cooperate to ensure a strategic plan is developed to direct the business in ways that respect the broad expectations of the family owners. If governed correctly, the potential advantages cannot only materialise as superior performance but also prevent the downsides of family firms undermining their performance.