Family Business: How To Keep it in The House

Family businesses around the world account for 70-80% of all businesses and are the growth engines of the world’s economies. 80% of these are small medium enterprises (SMEs) and thus contribute greatly to the social and political landscape of their nations, empowering the citizens and improving their livelihoods. 

In this article, I would to look at the experience of a long term investor, consultant among so many other things, when it comes to family businesses. Research has also shown how successful family businesses have harnessed their unique unique ‘family capital’ to build solid empires, be it domestic, regional or international levels.
Family businesses can be defined loosely as entities in which more than two family members are the majority shareholders or have the controlling stakes and are actively involved. A successful family owned enterprise model is able to develop a balanced management based on economy, entrepreneurial and social responsibilities.

It is well recognized that entrepreneurship has a positive effect on an economy –entrepreneurship drives job creation, wealth creation and growth, economic competition and positioning as well as commercial innovation and prosperity.

The challenge therefore lies in getting a substantial portion of any populace to engage in entrepreneurship since this is the avenue through which broad national and regional economic and social goals can be achieved.

Building entrepreneurship ecosystem is about developing practical programs that will help promote high-growth entrepreneurship as well as providing incentives that bring out the entrepreneurial spirit of a nation.

The best entrepreneurs globally happen to be family business leaders running globally-renowned successful firms. They are charismatic, determined, innovative, passionate, hard-working and persuasive. But that is not all. Those leading voices in the firm must make fundamental choices about the business and family on areas such as: conflict; the business’ competitive advantage and prosperity; family values; alignment between management, family and shareholders; governance; succession and ownership.

Family firms have exceptional performance proficiency that build power, influential and distinguishing winning cultures, whose value proposition gives them an advantage with stakeholders and in the market place. By they have also have unique challenges and threats that often derail them. So let us examine three of these most glaring threats.

Succession, ownership and multi-generational collaboration
Family businesses have a fast-mover advantage over other corporate because of their unique consolidation of human capital with benefits such as skill sets of different family members from different generations paired with a cache of knowledge, experience, networks and other external relationships. In this case, a professionally designed internship/apprentice model that allows for the next generation to have a successful transition is important. A proactive exchange with the next generation helps build and inspire emotional ownership in younger members of thee family. The next generation family members can be exposed to the business so that they can make informed choices with support and counsel from the senior members and family.

For success of the transition process, the right balance must be found between the family influence and the business influence. Family members should discuss the best family leader/s for the business into the future and share clear agreements on issues of succession, ownership and prosperity.

Here are a few tips on a transition process that family-owned enterprises would find beneficial:

  • Design and develop a succession plan framework to aid in the transfer of ownership, whether it’s due to retirement, death, or disability. Including in the process is the assignment of assets and wealth accumulated by the company.
  • Lay out the vision, mission, family values and long-term growth prospects for the company, along with the relationship between management, family, in-laws and stakeholders.
  • Discuss performance, remuneration and right competencies and the need to bring in outside management talent. Accountability goals and task timeliness for all parties in the succession process must be developed.
a proactive exchange with the next generation helps build and inspire emotional ownership in younger members of the family
Discuss family members’ commitment versus profits and dividends by;
  1. Reviewing each individual family member’s skills, vision and ambitions. And
  2. Crafting individual development plans for exit and retention including how restructure the ownership enabling family members who want to exit to cash in on their holdings.
For success of the transition process, the right balance must be found between the family influence and the business influence.
Family conflicts
Experts say that family-owned companies need to be run with emotional, as well as professional, leadership that take care of both the ‘soft and hard issues’

To succeed in long-term conflict resolution is the best to set up well-functioning basic family governance structures whose aim is to establish formal communication channels that allow family members (and the management) to share their ideas, aspirations and issues on matters regarding the business’ mission, long-term vision and the family values. Governance structures include the development of a family business constitution, policies and agreements.

A family business constitution is a legal/quasi-legal document with a collection of the family key policies; the mission, vision and of the family; the composition and role of the family council; family assembly; a separate ownership council or forum; a board of directors; and perhaps also an advisory board. This soft and hard issues model, if adopted, will depend on th size of the family and/or business. Family values are important to adopt since they support continuity and often facilitate long term thinking. 

Family policies would include an employment policy, dividend policy, code of conduct, family learning and development curriculum and philanthropy policy, among others. A few simple guidelines enriched in the particles of association or a shareholder’s agreement can however be adopted, especially by smaller family businesses.

Expansion and stability

Corporate compliance and good governance must be high on the agenda of the family-owned firms that want growth and prosperity. One of the ways of seeking expansion capital is access to the capital markets.
Family Business: How To Keep it in The House

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