Family business-built connections with the family and business are created through the essential elements of trust. Entrepreneurial activity within a business is virtually impossible without trust. Families lacking trust will not grow as they don't take operational risks in business. It will negatively impact business performance, innovation and value creation for the family and other stakeholders.
Family business historians said trust takes time to build, seconds to lose and forever to restore. The broader objective of this article is to create a generational successful family business on the foundation of trust.
Families that run businesses for generations, work hard on family along with working on business. The critical factors for family business success are to ensure succession, transfer of leadership, founder’s vision and ownership from the Now Gen to the Next Gen along with the sharing of various resources and profit. All is possible on a formal governance system, shared purpose, open communication, transparency in financial and non-financial goals, and clear roles and responsibilities of family in business. Above all setting clear expectations is helpful to avoid tricky situations where the family may experience outsider feelings if they believe family members get special treatment like promotions or generous raises. Global research on family business observed that at the time of the untimely death of the leader or Karta of the family, healthy relationships and trust, built confidence in the family and other stakeholders. It gives psychological safety to the family and non-family executives who are equally important for the success of the business.
Trust is the cornerstone in critical situations. Business strategies for managing operations, growth, and controlling ownership, including ownership transfer, buy-sell agreements, employment, management and voting rights, work smoothly in a conducive environment.
Family enterprises can address challenges positively by leading through example. A leader’s behaviour helps build confidence and trust. The family enterprise links to its stakeholders with faith and confidence. Businesses can flourish on social and emotional capital. Family firms can build them rooted in the community.
Family should have a constitution that is clear to the individuals in the family about what the family want to achieve and how. Leadership is the heart of the family business that takes care of the concerns and anxiety of individuals and gives them assurance for their better future in family and business.
Family-built healthy relationships, emotions and letting go create a culture where families forego short-term gain in favour of long-term relationships based on faith. Working with family businesses for the last three decades, I observed that business never fails, it’s the family's failure in trust and relationship and as a reaction business fails. However, on the other hand, too much trust leads to situations where individuals are tempted to misuse the resources.
Family members should learn to respect differences in values, opinions and lifestyles, especially in a multigenerational family business, where family members have different personal beliefs, workings, education, and cultures. Next Gen inherited ownership along with the past experiences and complexities in family relationships. A child sees the world of their family through the eyes of his/ her mother and elders in the family and creates a blueprint for their future relationship. A family that has open communication, willingly discuss the undiscussable and clarifies all doubts in family council on a time-to-time basis can sustain long term.
Next Gen should respect the past and create the future for healthy relations and business. If there have been family tensions in the past, acknowledge them and try to solve them and if you cannot solve them, manage them respectfully without affecting to other person’s feelings.
Family beyond first generation seek each other’s attention, approval and support for better management of family and business. A formal platform of decision-making is needs to be created for sustainable business, where non-family executives can contribute equally to the betterment of the business. Leaders should understand the needs, wants and emotions of others, and respectfully respond to them rather than react.
When there are differences that lead to conflict in the family, it’s tempting to blame other members. Instead, consider what you can do to improve relationships and communications.
Gradually, you’ll move towards family harmony and business strength. Finally, family businesses can build trust through transparency, capability and communication. Once trust is built, it must be verifying time to time through formal governance processes for the generational success of the family business.
About the Author: Hitesh Shukla is a Professor and Family Business Therapist at Saurashtra University, Rajkot in India
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