You can feel the admiration and passion that the authors have for owners of family businesses throughout the newly released ‘Family Business Handbook‘ (Harvard Business Review, January, 2021).
Family ownership brings more than the hunt for shareholder return; it brings passion, purpose, a sense of loyalty and a feeling of connection and responsibility to the communities in which their businesses operate.
Debunking the commonly held belief that families go ‘from rags to riches and back again in three generations,’ Rob Lachenaur and Josh Baron, (both Partners at the leading international Family Advisory firm BanyanGlobal), show how family businesses outlive publicly traded ones, are more resilient in downturns and more prudent in upturns. Careful planning and decision making has permitted many to pass on their firms and perpetuate multi-generational family enterprises. But its not easy and this book is a well structured and insightful guide to help make this happen even more frequently.
The ‘Handbook’ is written for family owners who through their curiosity, hard work and adaptability, are set on making this unique and complex family-business system stay healthy over time. As the authors illustrate abundantly, there are so many small or large challenges that if not addressed in a timely, open and consensual way can destabilise the owners and have life threatening impact on their businesses. The book is a guide to help navigate successfully through these challenges. As they state in the introduction “ownership brings the power to destroy your business or position it to thrive across generations.”
Their starting point is to lay out five critical rights that owners have. These five rights represent the uniqueness of family ownership. The five rights are based around:
- the design of the company and its ownership,
- how decisions get made and by whom,
- what objectives and goals the owners have and any constraints that might get in the way,
- what information gets shared with others, and
- how to pass on the assets and to whom.
For each of the five rights, they lay out its importance, give detailed alternatives and add pros and cons for each. The authors are not prescriptive, suggesting that there is no single right answer but prefer to offer a range of options for owners to think through, talk about and decide on. Not deciding, however, is in itself a choice that, they point out, frequently ‘scatters the seeds of destruction.’
This failure to engage on the difficult issues is wonderfully addressed in a later chapter on conflict resolution. Rather than state the obvious that conflict is bad, the authors actually propose that too little conflict can be equally harmful. Difficult conversations postponed between family members, a desire not to hurt a sibling, difficulties in bringing up tough parent-child (the child can be 55 years plus in age!) issues can lead to too low levels of conflict and as such a failure to address ‘the elephants in the room’.
Conflict becomes an issue when it gets out of control, often leading to a downward spiral. The ‘conflict spiral’ they describe would appear to be an interesting tool for families to keep in the top drawer of their desks and to bring out when differing interests appear that may lead to a hardening of positions and a proxy war which can then lead to non-family members being contracted and a legal case seems inevitable. Stop the slide is the advice. Nip it in the bud. Be open about differing interests. Recognise them. Look for commonalities and build from there.
The second half of the book details a series of questions unique to family business ownership that all owners will address at some point. These touch on a range of issues; facing unexpected challenges such as a sudden death or an errant family member, one or more owners being responsible for the family wealth, dealing with family conflict, bringing (or not) in-laws in to the system, family members working (or not) in the family business, servicing family needs outside the business, building a portfolio to last, preparing next generations to be responsible with wealth and more. Each chapter ends with a check list to allow easier recall of the key points.
The final chapter is designed to get the worry level up; ‘how to spot the signs things might be going wrong.’. It suggests there is a strong need to keep a check on how, as owners, you are adhering to the values handed down from previous owners and how distant you feel the ownership group is drifting from the business and their governance. Both can lead to poor decisions, often taken by others that accumulate over time and have a big negative impact.
At the end of the book is a simple one page survey tool for owners to run a quick ‘health check’ and help assess if there are areas that might require the owners to work together to revitalise or address for the first time.
As the authors state in the last paragraph; “Family businesses require a lot of work to sustain . . . but this work is a blessing. When the members do it well and do it together, it is exceptionally rewarding; connection to your family, personal growth . . . pride . . . closeness to loyal employees and an expression of your values in the larger community.”
In my opinion, this is ‘the handbook’ for family business owners and an essential read, highlighting some of the pressures placed on families in business together, but with insights and suggestions as to how to start a conversation. Open and honest conversations are something that I refer to regularly and this book is a good place to start and will undoubtedly help many families in business realise the need to talk, to discuss the challenges and find a way forward that works for them.
Definitely one for the reading list!