When more than one family members get involved in running a business, management of the family owned business poses more challenges than those arising only from running the business. This is because of the unavoidable friction and conflicts between the family members on the matters related to business.
The reason for these conflicts is due to the overlap of the following three:
1) Family’s internal issues
2) Business ownership equations
3) Business management challenges
The complex interrelationship of the above three issues makes the balancing acts very crucial and challenging. So, a family business requires careful managing of the three priorities. The founders/owners must be clear that conscious efforts are required to manage them.
Proper management of a family business requires understanding and working on the following:
1. Finding the causes of conflicts and taking steps for preventing and solving them
2. Regulating the family and business management by implementing certain policies, practices and guidelines
3. Avoiding confusion and conflict by laying down clear policies and guidelines for the involvement of family members as employees in the business
4. Attending success planning by giving it a priority and avoiding mistakes in selecting and training the successor
5. Balancing the family and the business
Common Causes of Conflicts in Family Businesses:
A family business managed by more than one family members faces challenges due to some of the following causes:
i) Differences about the Direction of the Business:
Family members, particularly the second generation onwards, differ among themselves on strategic matters, i.e. which way the business should go and grow. Differences about which new industries or markets it should get into, which product or service lines it should offer, which geographies it should address etc. crop up and become a source of the conflicts.
ii) Unclear Roles, Responsibilities and Accountabilities:
If there is no well-defined process to formally decide the roles and responsibilities of the family members working in the business, there prevails confusion about who will do what, who is responsible for what and to whom. Some of the members possess equal ownership rights over the business and hence they don’t feel any accountability towards anyone else in the family. They operate on their own, sometimes in conflict to the business interests.
iii) Conflicts Arising out of Unclear Decision Making Authorities:
Due to the same reason above, there exists a lack of clarity about who can take which decisions. Sometimes, this leads to a lot of confusion and avoidable friction and ego clashes, if the family members have not worked out a rational way out of such a possibility.
iv) Compensation and Benefits to Various Family Members in the Business:
There could be disputes and arguments about who gets what. If the compensation and benefit structure of family members working in the business is not worked out thoughtfully, it may become an issue of contention.
v) Leadership or Succession Issues:
Ideally, a business has to be headed by one person, to drive it in a single direction. When the original founder is thinking of retiring from the business, he must decide on his successor who will take over the baton from him. If the decision regarding succession is not taken in advance and if there are more than one potential suitors to the top seat, the conflict for the leadership position is common in many family businesses. These conflicts sometimes result into splitting of the business or complete collapse of the business, if they not resolved amicably.
vi) Interferences by Spouses and in-laws of the Family Members in the Business:
This is a strange but real side effect on family businesses. Immature or misguided spouses and in-laws’ natural human limitations or short-sightedness sometimes blow the smallest issues out of proportion and create avoidable conflicts in a business.
vii) Lack of Communication:
In the absence of a formal communication channel to inform and share the developments in the business to those family members who are not involved in running the business, miscommunication and grapevine flourish. This creates a lot of misunderstandings, which, if not resolved in time, lead to a lot of problems later.
How to Manage a Family Business?
Each family is different in terms of its size, complexity, priorities and internal dynamics. So is every business. Because of this variety, same rules can’t apply equally to all family businesses. But, to ensure smooth running of a family business without disturbing the peace and harmony in the family, some or all of the following things need to be put in place.
a) Clarifying the mission and values of the business
b) Family constitution
c) Family council
d) Business management policy
e) Family members’ selection policy
f) Family communication framework
g) Leadership succession plan
The following sections elaborate the above in detail along with some other inputs regarding the management of a family business by the family and succession planning detailed in separate sections.
a) Mission and Values of the Business:
How mission and values can help a family business are discussed below-
Mission gives direction. It is the purpose for the existence of the business. It guides the business owners and leaders at every generation about the purpose of the business all the time. In the absence of any such direction, the following generations may chart a different course in business which would not have been approved by the original founder or which is contradictory to the values, character, capabilities or strengths of the business. Going in that direction, the business may lose its momentum also. Following a consistent mission helps in maintaining continuity.
Some conflicts in a family business arise due to disagreements over the direction in which the business should move ahead when the next generation takes it over. If different members of the family have different preferences or views about which industry, market, products or services the business should get into then that becomes a reason for dispute. If a clear mission is in place, it can easily guide the family members in making these choices clearly and avoid such conflicts.
Similarly, a well-defined set of values provides a consistent framework of guiding principles to the business owners and leaders in all generations. These principles help them in decision making. It tells them what not to do or which things should not be compromised with.
In some specific situations where more than one options exist, which option should be chosen, what the original founder could have done, that inference can be made based on the values adopted and practiced by the business.
The values provide a reference while drafting or modifying company policies towards customers, employees, vendors etc. The business owners can avoid issues or clauses which are not aligned to the current character or practices of the business. E.g. If customer focus is one of the values of the business, it will always consider customers’ interest first while making or changing any policy which affects the customers. Similarly, if fairness is a value accepted by the company, all its policies will stress on dealing fairly with all parties, including employees, customers, suppliers, society or the government.
b) Family Constitution:
A family constitution is a document which lays down all the guidelines which the family should follow while conducting the businesses owned by it and other family activities. It sets up a framework for the family members to discuss issues, formulate policies and procedures, clearly define family members’ rights and obligations and make decisions about the important issues they are concerned with.
A family constitution should spell out-
What will be the mission or purpose of its businesses?
Which values the business must not compromise with?
Which principles the family should always adhere to?
Which types of businesses the family may enter?
Which are the different policies which govern the interactions of the family with the businesses? (E.g. Business Management, Family Members’ Employment, Leadership Succession etc.)
What will be the ownership structure of the businesses and all the other assets of the family?
How will the Family Council be formed, who will be a part of it and what will be its role?
What will be the role and say of the family members in the Family Council who are not actively working in the business?
How will the Family Council handle and resolve the disputes among family members?
How should the ownership, leadership, management of the business pass from generation to generation?
How the constitution may be modified?
A family constitution should combine the founders’ needs, the business’ requirements and the family’s wishes. Done properly, it offers a variety of important benefits. It helps in building not only a stronger business but also a stronger family, as well as opening up the succession process and planning for the future of the business.
A family constitution is an ideal mechanism for family members to confront contentious issues and collectively decide how to handle them. Of course, a family constitution may not be able to prevent conflicts but concrete policies and processes will assure the family that the potential problems can be resolved quickly and that the decisions will be applied consistently to each family member.
In short, a good family constitution can perpetuate a family business for a long time. Therefore, the founders of every family business should consider the formulation and implementation of a family constitution as a high priority to ensure an efficient planning for the future and the long term prosperity of the family and its businesses.
c) Family Council:
A family council is a type of supervisory board comprising of some selected family members to govern the working of all the businesses owned by the family.
The composition of a family council must be done as directed in the family constitution. Generally, it comprises of the members of the family who have some stake in the businesses.
A family council is usually advisable for families with some significant size.
This council chooses the representatives of the family who will be a part of the Board of Directors in the various businesses of the family.
It is the primary link between the family, the business and its senior management. It meets regularly to deliberate on the family business issues.
The council guides the businesses in the strategic and planning matters. It may revise the mission, vision and values of the businesses it owns.
It sorts the family related disputes and conflicts. This can help to isolate the business from being affected by such matters.
It also ensures proper career plans for the aspiring family members. The council determines how many family members should be involved in the family businesses and in which roles.
Effectively, it acts as a balancing mechanism for coordinating ownership, family and business related priorities.
It drafts and finalizes various policies which determine the family members’ interaction as well as the ownership of the business. In doing this, it follows the guidelines spelled out in the Family Constitution.
The family council also deals with the other important matters related to the family which arise from time to time.
The family council may set its criteria for membership (i.e. age, experience, qualification etc.)
The membership of the family council must be revised every 3 or 5 years so that more and more family members can be its part in a rotating manner. This lends it a quality of fairness and provides equal opportunities within the family.
The family council is the main guiding force for the business. Hence, a mature and well-represented family council is a must for any big family which has business interests owned by it.
d) Business Management Policy:
It is necessary to decide how the family business will be managed by the family members.
Answering the following questions may help-
Will the business be managed by the owners or their children and family members throughout its life or the management may be given to outsiders?
Will the family remain in power and control of management throughout the business’ life or it may be shared with non- family professional executives?
Will only the family member managers always take all the key decisions in the business or the professional managers will also be involved?
How will the business involve outsider professionals in senior or top positions?
In which areas or functions the outsiders will be allowed to lead?
Till which extent will they be given independent responsibilities and authorities?
Will outsiders always remain under the family members, regardless of their seniority?
It is advisable that the ownership and management of the business are kept separate, if the company has grown to a size and scale where only the family members can’t manage it successfully.
If the business has to continue to grow, it will require different types of talent and abilities. These talents and skills may not be always available within the family when it is required.
It is always advisable for the founder(s) to be open-minded about appointing the right people in their business team, regardless whether they are from the family or not. The interest of the business should be given the highest priority which selecting team members for the business.
If we insist upon depending only on the family members and relatives to hold the responsible and powerful positions in the company, we will not be able to attract the right talent which may be available in outsiders. This may always keep the potential and the size of the business limited.
In today’s globalized economy, right competencies and talent can help drive businesses to scale newer heights. If we fail to identify and hire the right talent, we won’t be able to grow the business rapidly or to its fullest potential.
So, it is very important to welcome outsider talented individuals as the key members of our business team on professional basis, if the business situation so warrants. These professionals should be given independence to function within their domain or functional area if such freedom is needed and if they qualify for and deserve the same.
Remember, the independence will need to be given not only in responsibilities, but also in authorities.
We should encourage the promotion of merit in the company. If the family members are competent enough to take the business to its highest potential, they must be given an opportunity to lead the business. That decision should be based on merit and not on relationships.
Any progressive individuals having competencies to work at senior levels will expect to see their personal growth prospects in our company. If they realize that in a family owned company their growth will always be limited by the presence of some family member and that, too, not by merit, no good people would continue in our company for a long time.
e) Family Members Selection Policy:
Members of the owner family may naturally wish to work in the business. But, people vary in personality, attitude and behavior and conduct even if they may belong to the same family. Different work ethics, habits and commitment levels among family members working in the company often become a source of friction.
Hence, the founder(s) must be very clear about the approach they wish to take for the inclusion of the family members in the business. In the interest of the business, the founder(s) must objectively prepare and implement a transparent policy for selecting family members as employees in the business.
The policy must clearly spell-out how will the company absorb family members in the business.
How will the company select family members for working in the company?
Will it favor merit or will give concessions to the family members?
Will qualification and/or experience be required for the family members or will they be given concessions in the selection criteria?
Will all siblings or equal relations be given equal positions and compensation or it will depend on their merit, qualification and skill?
Will the rules, promotions, compensation structure be equally applicable to the family members working in the company or they will be above the rule?
What will be the criteria to be an ordinary employee in the company and what will be criteria for a leadership position in the company?
Does the family member have a freedom to choose their employment elsewhere, outside the company?
What is the process a family member needs to follow before exiting the company?
In which circumstances the family member may be removed from the employment of the company?
It is advisable to clearly specify the answers to the above questions and communicate to all the members of the managing family.
The company’s expectations in terms of following the mission, vision, values etc. from the family member employees should be clearly mentioned in this policy.
The family members must get a clear idea about their future prospects in the company and the requirements or conditions for the same.
A fair, transparent compensation policy for family member employees consistent with the Human Resources policy of the company should be adopted.
It should be clarified which company facilities and privileges they can enjoy free and which they can’t.
The policy must clearly differentiate between the company benefits, facilities and privileges available to those family members who work for the company and to those who don’t work for the company but simply remain passive owners of the business as members of the owner family, charting their own independent career paths outside. Those working for the company must get a better deal in such benefits for their contribution, even though their share of ownership may remain as per the family constitution.
The family members entering the business must be encouraged to come to add value and not to suck value out of it. Their inclusion must help the business in facing the challenges it confronts. The family member selection policy must spell this out clearly and the founder(s) must explain this to the every member of the family.
A clear, transparent and fair policy and its appropriate implementation will avoid a lot of confusion and misunderstandings arising out of the family members working in the business.
f) Family Communication Framework:
Establish a process through which all the members of the family who have a direct or indirect stake in the business meet regularly to share information related to the business. This may be in the form of regular family assembly and/or any other communication process where the requisite business information is made available.
The family council or those family members who are running the business formally inform the rest of the family about the developments in the business.
The content, details, format and frequency of the information and the duration of such a meeting must be decided in advance and must be followed. Gradually, the process will evolve and mature itself, if executed and cooperated by all in the right spirit.
The right and timely information should leave no room for misunderstanding or misinterpretation by anyone.
It should become a robust, structured forum for facilitating, promoting and assuring regular sharing of information, views and ideas about the family business.
The process may lead to healthy disagreements and conflicts, but it must take care of the same such that members’ attitudes or feelings get an expression without disrupting the united fabric of the family.
Constant, consistent and healthy communication among the family members and the business is crucial in the success of any family business. This process must ensure the same.
Guidelines for Introducing Family Members as Employees:
i. If we wish to involve family members as employees in the business, it should be more on the basis of merit than as a matter of right.
ii. If the new members willing to join the company are members of the owner family and are going to inherit their share of ownership eventually, their inclusion in the business as an employee should not be automatic, but it should be based on their qualification, experience and suitability to the job.
iii. Before a new family member joins the company as an employee, following things must be clarified-
Does the business need the involvement of this new family member as an employee?
Can the business afford the expense of compensation of this employee?
Will it create any confusion, insecurity or misunderstanding among the family members working in the company?
Will it create any confusion, insecurity or misunderstanding among the non-family member employees working in the company?
Is the person qualified and experienced to take the job?
If suppose the person is not a member of the owner family, can he still be selected on merit alone?
iv. If the family member is a fresher, it is advisable to include them in the business as a trainee first. This will give them a first-hand experience of the job and also of their own company as an employer and its good or bad traits as an employer.
v. During their training period, they should go through the process of working in the company as an ordinary employee. They should be treated just like any other employee and should follow all the applicable rules. They should also be compensated in the same manner.
vi. After the training period, if the business owner(s) feel that the new person is competent and suitable enough to take up some leadership responsibility on his own, then only they should be given an appropriate leadership position in the company. This decision should be taken completely objectively and collectively by all the stakeholders or partners.
vii. If the new family member is not suitable to lead the company, but they can be employed as a regular employee, they should be given some kind of non-leadership position in the company on the basis of merit alone. Here, too, they must undergo the usual evaluation process and they must follow all the rules applicable to other ordinary employees.
viii. Many times, it is seen that some incompetent or unsuitable family members are given a position in a company which they can’t do any justice to and they cause a lot of damage to the company by their ignorance, immaturity or other limitations.
ix. A business is not a family and incompetence of any family member should not be allowed to affect it adversely. Such family members should be kept away from the business. The business owner(s) may also decide to give compensation to such unsuitable family members for “staying away from the company”. Such compensation will prove to be much cheaper than the consequences of the damage caused by their inappropriate actions.
x. If we let mediocre people to run our business, we will create a mediocre business. That is a higher price to pay than paying some nominal amount to keep mediocrity away. Yes, it is bitter and tough, but it is right to do so in the interest of the business. The business owner(s) must possess and exercise this maturity to ensure that the business does not crumble by poor leadership after they are gone.
xi. If such people can’t be kept out of the business because of any reasons, they should be given some ornamental position and work which does not affect the working of the company.
xii. Remember, these family members will remain the owners/shareholder of the company and by that right, they will always get their share of the profit of the company, but their inclusion in the business as an employee should be based on merit alone.
xiii. Only those family members should be taken in who can add value to the company. Liabilities should be taken care of appropriately.
xiv. All the family members working in the company must put in equal amount of effort in their work. Ideally, being owner(s) family, they should put in more efforts.
xv. They should come and go on time as per the company rules.
xvi. If their timings or leaves are treated differently, it will cause demotivation among the other, non-family employees.
xvii. The family members working in the company should not be given any undue favor in terms of compensation or privileges which is not given to other equally or more deserving non-family employees.
xviii. If more than one family members work in the company, their compensation should be as per their work profile and position. Giving the same compensation to all family members working in a company may discourage the more effective ones while overpaying the incompetent.
xix. Number of hours or days spent at the business should not be the only criteria to decide the compensation. The quality of results produced and true performance should be the only benchmark to decide the compensation package of the family members working as employees.
xx. The same applies to their positions and designations in the company.
xxi. If a family member working in the company violates any rule or needs to be punished or removed, she should be treated at par with the other employees. Such an impartial approach is necessary to establish the merit based culture in the company.
Succession Planning in a Family Business:
The lifespan of a business may outlive that of its founders. There are many businesses which continue for more than one generations. There are some very inspiring success stories in which a business founded and successfully grown by a founder continues to grow when the next generation takes over. Sometimes, the new business leaders have not only continued the business successfully, but have achieved much higher level of growth and expansion, which surpass the achievements of the founders.
Such a successful leadership transition is a dream for any family business founder who wants his business to flourish and continue growing for generations to come.
On the other hand, many of the successful businesses founded by first generation entrepreneurs fail miserably when the next generation takes over. Many businesses crumble after the first generation because the founder(s) could not find and establish a successor and did not hand over the control to the right person.
The task of choosing the right leader to be the successor of the business is one of the most difficult one for any founder.
Common Errors in Choosing a Successor:
Many business owners don’t give a serious thought to the succession planning. Due to the pressure on their time, they put off the things which are not urgent. Due to this, they just don’t attend to it and ignore the need for choosing a successor well in advance. This leaves a lot of confusion and uncertainty when the founder is gone suddenly.
Choosing a successor is a challenge and a disturbing one if there are more than one probable candidates. To avoid a conflict arising out of the selection process, the founders sometimes put it under the carpet and delay the process. Finally it becomes too late and the inevitable happens. The confusion takes its toll on the business which crumbles under the weight of the conflict among the probable successors.
Some founders follow the practice of handing over the reins of the business to the eldest of the children. This does not work always. Unless the successor is really capable to shoulder the responsibility, the choice backfires. The damage is done and it sinks the ship of the business.
In some cases, there is no suitable candidate within the family who possesses the necessary skill, attitude and experience to be the right successor. So, the founder chooses the best among the available, but that ‘best’ proves to be the ‘worst’ for the business due to his inadequacy.
In some cases, the successor just lacks the vision, passion or the interest in the business. In both the cases, final outcome results in the sickness or untimely death of the business.
Sometimes, when a successor is chosen, there is a silent revolt or reaction among the others who are left out. They stop taking interest in the business and focus their energy on finding faults of the selected candidate, causing stress to the business owner(s) and a serious harm to the business.
Occasionally, to satisfy competing egos and ambitions of more than one siblings or cousins, no one person is given the full authority to take and implement the final business decisions. A group, committee or board is formed which takes the final call. Here, for every major decision, consent is required from every person in that group. This slows down decision making and confuses many things.
Sometimes, the succession planning is not properly formalized in a written, formal document, but is shared verbally with some family members. This becomes an issue of contention and dispute, if some misunderstanding among the family members crops up later.
Guidelines for Choosing a Successor:
i. Give priority and importance to the issue of selecting a successor of the business, well in advance. Succession planning is not only urgent, but it is important. Every visionary entrepreneur must consider succession planning well in advance. It is one of his important duties to ensure continuity of the business he has created.
Future of the owner family and a lot of other people associated with the business depends on it. Silence can be interpreted in more than ways as per the convenience of different people, so it is not advisable for the owner(s) to remain silent and let time take its own course in such important matters.
ii. Don’t avoid conflicts. It may be uncomfortable in the beginning, but facing it and handling it will bring a lot of clarity and peace of mind to you and to everybody else. Handle it with determination. Take the help of some other responsible and understanding individuals or professional advisors, if needed.
iii. In the matter of business leadership, the eldest is not necessarily the best. Be objective in the selection of the successor. Give importance to the ability to handle and grow the business and not to the age or seniority of the successor. Take the help of some proper evaluation methods to determine the aptitude and suitability of the right candidate among the probable candidates in the family. The business’ continuity and progress should deserve more importance than family pride or individual egos.
iv. If necessary, look beyond the family. Look at the extended family. Or, take the help of professionals to run the company. Safeguard the ownership and interest of the family members, but don’t leave the business management to them, if you know they can’t handle it or lack passion for it. Choose merit.
Business successor should be chosen on merit alone. In the longer run, it will be good for everybody. Also, if the person chosen for succession is not ready to take up the responsibility, some interim arrangement can be made, in which some professional caretaker or manager may take temporary charge on behalf of the successor.
v. Communicate. After you make your choice, try to take all the family members in confidence. Explain to them that only one person can head the business and explain the rationale behind your choice. If some of them can’t be won, give them an option to move out from the business related responsibilities after assuring and ensuring that they get their due share. Be assertive. Don’t allow others’ emotional immaturity to harm the business. If this is not handled in time, eventually it will crop up and cause the damage later. Keep the business interest in mind. If the business is run properly, it will also serve the family interest in the long run.
vi. Ensure that the chosen person is at least as interested in and is as passionate about the business it as you are. Also make sure that she appreciates the potential of the business and shares your vision. If she doesn’t, don’t hesitate to choose another captain for the ship.
vii. If there are multiple aspirants for the top position, we may try one of the following options for choosing the successor:
a) Consensus:
All aspirants are convinced and agree to one person as the successor. This is the most advisable option to provide continuity. Consensus may be difficult to obtain. But, proper communication and persistence may bear result. So, try if all the aspirants can arrive at the name of one single candidate and accept his leadership.
b) Giving Each One an independent Charge of a Separate Division:
If all aspirants can’t work under one single leader, there can’t be a consensus. In such a situation, it is advisable to split the business into some distinct divisions and give independent charge of each division to one person each. We must ensure minimum overlap or interdependence among various divisions to avoid confusion or conflicts. However, such a division is advisable only if it is feasible and the business has reached the required size and scale.
c) Rotating Leadership:
Here, all the aspirants are given a chance to lead the organization for a fixed number of years and then the next one is handed over the charge on rotation basis. Some companies have implemented such rotating business leadership process. Business leadership requires continuity for a long term. If there are frequent changes at the top, continuity suffers and finally the organization has to suffer. So, this option can be considered if the business can withstand such regular leadership changes without losing momentum.
Finally, one person must be the leader of the business. Or if required, the owner(s) can form a family council consisting of the leading members of the family. This council may act as a body to guide the business by taking some important decisions collectively. But, it must give autonomy to one person (just like a managing director or CEO) to take some decisions single mindedly. If for every decision the council needs to be consulted, the decision process will be crippled. No powerless leader can lead a company powerfully.
Put your succession plan on paper. Formalize it with the right legal process by taking the help of experts. The transfer of leadership of business should not be left to the misinterpretation or whims of some people, because in addition to the ownership, a lot of people’s careers and future are also at stake in this matter. One should not hesitate in formalizing the succession plan.
Preparing the Successor:
Once the successor is chosen, her training should be undertaken. In fact, the overall succession plan must also include the agenda of preparing the successor for the job.
Errors in Preparing the Successor:
Here are errors which some owners make in getting the successor ready for the top job:
i. No Planned Hand-Over Process:
Sometimes, the owners don’t realize the importance of training. They themselves have learned doing the business on their own, so they think that the successor will also learn on her own.
ii. Hesitation:
The owners have founded and nurtured the business for a long time. It is their own baby. They may feel possessive about the control and hence may hesitate to pass on the control to the new incumbent.
iii. Only Superficial Hand-Over:
Sometimes, the owners knowingly or unknowingly keep the successor busy in operational matters. The successor is occupied in “running” the business. He is not involved in strategic matters of “building” the business. So, he is not exposed to newer possibilities.
iv. Being Too Impatient:
All people are different. So are all business leaders. A new leader may take time to settle and get his groove. He may make some mistakes also. Sometimes, the owner is not patient to grant the successor that time or the liberty to make mistakes. The owner’s own experience, expertise and mastery over the business issues make him impatient about the different style of working of the successor. Due to this, he interferes with every decision of the successor and makes him feel inadequate for the new assignment.
v. MBA Block:
In some cases, the successor may be an MBA or has done some management course. So, the owner thinks that he already knows everything about running the business. The illogical belief that MBAs know everything comes in the way of the owner(s) training the successor about the essential things unique to the business.
On the other hand, some owner unknowingly gets competitive while working together with such a business school graduate successor, even if the successor is his own child. He thinks that he himself could achieve so much without a management degree and in spite of nobody training him. He is a “self-made” man. So the successor, too, should know everything on his own. To prove his own superiority over the successor, he doesn’t train the successor, preventing him to learn about the business.
Guidelines for Preparing the Successor:
i. Give Succession Training a Priority:
Spending time, money and efforts on grooming the successor is worthwhile for the business. It pays off very handsomely. The successor may be talented and of course, she may learn from her mistakes, but our timely tips and training may save a lot of time and some costly mistakes which finally may be paid for by the business.
The owner must prepare and execute the training plan of the successor in a phased manner. Also, if we invest our time with our children while they are growing up, a lot of training about values and virtues is already imparted. We must make sure that this is done by us.
It may be natural on our part to be possessive about our business. But, if that prevents us from disclosing the critical information and from passing on the experiential knowledge to the successor, it will damage our business.
Remember, if you are handing over your baby to someone to take care, you must tell that person everything that she needs to know about the child. Hiding critical information will hurt the child. We should be equally forthcoming while handing over the business to the successor.
Yes, initially, the successor must be trained to know the business and hence must get acquainted with all the operations. But, if she is going to lead the organization in future, she must be gradually introduced to and involved in the strategic planning process also. You must involve the successor in the discussions regarding the future of the company and its strategic direction.
Pass on the complete control gradually to the new leader, when she is ready to take it up. And once the baton is passed, don’t come back and temporarily take it back and take some decisions on her behalf. You may guide her if you think she is making a mistake, but let her take the final decision and the responsibility for the outcome.
iv. Give Time to the Successor:
The successor may not be able to get ready for the job quickly. So, she may take some time to understand and to take decisions. She may also have a different way of working. During all this, she may also make some mistakes. We must remember that we, too, made some mistakes in our time. It was only that we were not being monitored by somebody else at that time.
Moreover, just like brining up children, we must remember that we can’t teach all the lessons that they need to learn even if we know those lessons. Some lessons can’t be taught. They can only be learned. The children will learn these lessons on their own by making their own mistakes or through observation of others’ mistakes. The only thing we should do is be patient, be watchful and step in only if they ask us to do so.
Yes, we must be watchful about the development of the successor. For that, we must not sit on her shoulder and scan her behavior every moment, but we must track the critical numbers and metrics which indicate the business health.
If she is not shaping up as expected or is failing at delivering the results, we may help her personally or through some professional. If all fails and the successor’s attitude, abilities or competence are found to be lacking, we must reconsider our succession decision and take a corrective action.
v. Look at Management Education Objectively:
Yes, MBA or any management course helps people learn about business in general and to have a holistic view of the business environment. Every business has its unique nature and character. So, the application of the management techniques to every business requires some discretion and personal judgment, which cannot be taught by any business school.
It may come after knowing the intricacies of the business in little more detail. So, initially, the management school graduate in our successor also will need time to know about the business and its dynamics. We must grant him that concession.
MBA does not solve all problems, but it can surely help the manager solve the problems better and faster. Also, we ourselves may have learned business management by making our own mistakes. Business schools train people to learn management from others’ successes and mistakes. We must understand that it is a cheaper and time saving approach.
So, we must be reasonable in our expectation from the management education our successor may have received and we must help him leverage that experience such that it is beneficial to our business.
Guidelines for Balancing the Family and the Business:
Managing a family business requires managing of both, the family and the business. We must also take care of their impact on each other. The exercise can become tricky at times, if there are complexities involved on both the sides.
Following guidelines may be helpful in achieving this delicate balance:
i. Separate the Business and the Family:
The family members’ share in profit may be equal, but it need not be the same in managing the business.
Equality in ownership may not mean equality in powers or responsibilities in running the business.
The business leadership and management responsibilities must be given on the basis of merit alone.
ii. Develop a Culture of Transparency:
Any relationship survives only on trust. So does the relationships within a business family.
Family members running a business must ensure complete transparency to reassure the other, non-working family members that their interests are safeguarded.
All the transactions involving money must be very transparent and must be available for checking by anybody.
An on-going and healthy dialog through a structured communication framework must be used to ensure transparency.
iii. Implement a Robust Policy Framework:
Disputes arise due to misunderstanding, miscommunication, ego or unfulfilled aspirations.
Also, mismanagement of wealth creates a lot of conflicts in family businesses.
All this can be reduced by putting the appropriate policies in place.
Money may start becoming an issue of contention among family members when things go either very right or very wrong in the business (i.e. when the business is doing very well or it is incurring heavy losses.)
Entry into or exit from the business, evaluation, succession etc. must be governed by the policies.
We must specify all the opportunities, benefits and facilities available to the family members along with their duties and commitments with terms and conditions.
The policies must be fair to all. If everybody is treated equally as per the policy, it is easier to control the disputes and conflicts.
The family members must be explained not to link their personal ego with their position in the business.
The needs of a business are different from those of a family. Ideally, the best person should run the business, regardless of whether he is from the family or is an outsider.
Business interest should come first always, above and before anybody’s personal ego.
v. Provide Operational Freedom:
Interference or intervention of non-executive members in the business matters must be minimized.
All should remember that business management by a remote control is dangerous.
Those who manage the business should not be unnecessarily interrupted by those who don’t.
Just like the other employees in the business, family members’ working in the business should also be evaluated on the basis of their performance.
Equal number of working hours is not equal to equal work. Hard work should not be linked with the number of hours or days worked, but should be linked with the results produced.
vii. Ensure Single-Minded Leadership:
Successful businesses work on single-minded determination and ruthless execution.
Sometimes, a business requires prompt decisions and actions. If the leader has to wait for consent from everybody in a group before taking every decision, that delay can prove to be very costly at times.
Democracy is a good thing, but not for a business. In managing a family business, the priorities of the business challenges must be given the preference.
Family council may set direction and policy, but one person must be given some clear authority to take the final decisions to execute daily affairs.
This should be done only on the basis of the abilities and the results produced by the person.
Seniority of age alone should not be considered while deciding power equations within the business. Merit should matter the most.
In some family businesses, some family members are brought in only because of their trustworthiness. They are otherwise useless. Such practices don’t help the business much, unless the person adds some real value to the business.
Trust is not the only factor which should be considered while assigning business related responsibilities.
Talent, abilities, attitude and emotional intelligence must be considered as well.
In business, operations must be carried out equally regardless of whether they are managed by a family member or by a non-family professional.
Some trustworthy child or relative may not be competent or may have negative attitude which may be damaging to the company. If we don’t accept such shortcomings from our professional employees, then we must not allow the same in our family members as well.
Don’t let the business being affected by mediocrity, in any case.
x. Create Well-Defined Career Paths for All:
The family must ensure aspirations of younger family members who are getting ready to enter the business. They need opportunity, guidance, support and encouragement.
Along with that, it must also ensure alternative career plans for the retiring leaders. They have a wealth of experience and wisdom. They need activity, support and care.
The family, through its businesses, must provide right opportunities to all, such that abilities and talents of all are used properly, constructively and most rewardingly.