Governance Leadership Management Next Generation

Ten Factors Creating Family Firm Satsifaction

When we talk about the good practices of managing a family business, we refer to the layers of experience that have accumulated over the years and that are constantly presented as effective habits in managing relationships, making decisions and change strategy. From these practices, here are ten that we have had the privilege to learn from our clients and that we consider guarantee to a great extent of a high level of satisfaction in a business family:

1. Separate the concepts of ownership, governance and management

The family must clearly establish these differences, since they facilitate a better understanding of the management of power. The owners have a series of rights and obligations inherent to the ownership of the shares as their owners. The government sets the company’s strategy, for which we recommend that its managers have a broad knowledge of the company and the sector, as well as minimal financial and accounting knowledge, so that their contribution is positive and valuable.

Finally, the managers’ obligations have to do with the execution of the major decision lines set by the government. As long as the family is clear about this separation of roles, a professional management of the company that meets the demands of the responsibilities of the mentioned functions can be better understood.

2. Create governance structures in accordance with its complexity

Implement a Family Management System that, based on the adequately empowered forum for decision-making (for example, the Family Council or the Board of Directors), planning activities to achieve real and measurable objectives (such as a Work Agenda), rules adapted and adaptable to the circumstances (an effective Family Protocol), based on a clear and defined north (the Shared Dream), can work based on conversations about a strategic plan that the family has designed and follows up on constantly.

However, the design of these structures must obey to a reality commensurate with the complexity of the company-family-property system: too much structure can bureaucratise decisions, little structure reveals a lack of order.

3. Transparent management and continuous accountability

Trust between adults is based on the transparency of the information that is exchanged. Adults can be the partners of a family business that are not linked in a parent-child relationship, which has another, a more natural and deeper concept of trust. Transparency is based on consistent account performance. But an accounting performance is effective if the person who receives the information (which is usually basically financial, as it is the language of the partners), knows how to interpret them correctly.

To interpret them correctly, you must have a minimum knowledge, which is had or is acquired. In summary: if we want to generate trust, we must know.

4. Generate the concept of stewardship

The idea reflects the need to preserve great value, the family name as a brand, its reputation. It is not just about money since equity, as patient capital, allows you to invest with a much longer time frame. It is thinking of different cycles. They are not years. They are generations. The families that succeed in transcending generational change are those who understand that what they inherit is not a gift from their parents, but rather a loan made by their children.

5. Improve communication, cultivate dialogue and tolerate differences

One of the main objectives when working with business families is to help create circumstances that allow effective communication between the interlocutors, who throughout their daily interaction are constantly discussing, analysing and proposing the different scenarios to face the future of the heritage they share. But be careful: this is only possible if we accept and tolerate differences, not only in basic terms of the message but also in communication styles, recognising and respecting the preferences of each one, for which a better knowledge of all members is required by everyone in the family group. Fortunately, this is a practice that can be learned and improved.

6. Keep on continuous training (shareholders, directors and next generation)

We must constantly prepare ourselves to face the challenges inherent in their nature: find capital to grow without weakening family control, resolve the difficulties associated with generational change, anticipate the demands and challenges of the processes of economic change.

Being able to guarantee control in these and other circumstances, maintaining order and ensuring the stability of the business, depends to a great extent on the constant training of directors, company managers, current shareholders and members of the next generation of leaders and owners. If you think that knowledge is not important, do this mental exercise: disconnect from the business environment and try catching up before lunch six months later, where you will attend with all the leaders of your competition.

7. Accept that conflict will always be present

As the family enterprise evolves and becomes more complex, conflicts within the family are inevitable. In fact, conflicts are necessary to be able to break with inertia and adapt to new circumstances that arise from changes in the environment, or as a consequence of the natural evolution of the family or the business. Therefore, we must understand that crises in business families are not necessarily negative: depending on multiple factors and how we re-qualify and manage the situation, a conflict can lead us to a healthy and necessary solution to a motionless situation that cries out to face change.

8. Trust the judgement of external advisers

Although it depends on each case, in general a Board of Directors must be made up of representatives of the shareholders, representatives of the managers and, in addition, some external professional who adds value to the company. They must be trustworthy people, with business experience in the sector, with recognised and valuable prestige and criteria, but above all, truly independent. They provide the family business government with a fresh and objective vision, help to professionalise the decision-making process, and thus, prevent family conflicts from affecting the proper functioning of important decision-making centres.

9. Accept the definition of ‘institutional retirement’

The guarantees of effective transfer of the management of a family-owned business will require (beyond the role of the family, environmental factors or the planning and preparation of successors), enthusiasm, capacity and responsibility. But above all, will require a bond of trust and commitment to solve things together between successors and the leaders in charge.

We are not looking to replace the personality that once played a role, as that is simply impossible. The key is to understand that it is the substitution of the functions of the position and not of the person himself: it is the institution in command that requires a new person in charge who meets the previously defined objectives of the position.

10. Draw up a family protocol based on the ‘Shared Dream’

Many times, in the path of the evolution of a business family, the owning family is sooner or later with the necessity to write a Family Protocol. It is usually presented as an excellent opportunity to develop a set of rules that regulate their relationship with the company or the main economic activity. If the drafting project is completed, the owner family will have in their hands a manual for the strategic managing of their assets, which will allow them, among other things, to carry out the transition of the business to the hands of the next generation.

But in our experience, these “user manuals” are only sustainable over time when they base their manufacturing process on the methodology of a Shared Dream, in which all individuals find the common place where they can bet as one for the future they want.

The implementation of these recommendations in a family business is neither simple nor free of obstacles, but the goals set can be achieved as long as two conditions are met: First, all agreements must be consistent with the future projection (which it is known as the ‘Shared Dream’). And, secondly, all decisions in a Family Council must be based on the concept of “consensus” which, unlike ‘unanimity,’ fuels debate and increases the group commitment.

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