Three difficult conversations every family business needs to have
9 min read
22 December 2017
Family businesses are the mainstay of the UK economy, accounting for more than a third (36%) of employment, and generating over a quarter of UK GDP. But running a family business presents a unique set of challenges.
With the business and family structure so closely linked, keeping a business in the family can often mean walking a fine line between emotional and logical decision making.
As Deputy Chairman of CPJ Field, a tenth-generation funeral directors which dates back to the late 17th century, our business is well practised at navigating this often tricky landscape.
More often than not, the process of tackling the biggest family business challenges starts with a conversation. Open and honest communication is at the heart of any successful family business.
How do you create boundaries between family and business time?
Family businesses are complicated structures – and rarely just include the teams that work within them on a day to day basis. There are family and non-family team members, also those who own shares, but aren’t involved in the day-to-day. Each of these stakeholders have different forms of engagement with the business, and a different perspective on how things should operate. In fact, the group that are often overlooked are those who neither work within the organisation nor participate in ownership – but in the family environment, they could hold the key to family cohesion.
With all these differing perspectives and forces at play, it’s vital that the right family governance structure is established so that everyone knows the rules and can assist in preventing disagreements, and ensure the business continues to evolve. This can involve a Family Charter or Constitution, or a written Shareholders’ Agreement.
The best time to establish these rules is when there is seemingly no requirement for them – essentially “fixing the roof when the sun is shining”. For many the perfect opportunity is when a family acknowledges that their company is, or has become a family company. As ownership starts to transition through generations, there are naturally a growing number of individuals involved in the decision-making process, each with their own opinions on how the business should operate – each with an increasing distance from the original founding values.
An effective family governance structure should therefore do three key things, to ensure that the family direction remains united.
• Provide a formal framework for family members to come together to make decisions – some might call this a family assembly or council
• Establish a common set of values and purpose on which all participants can agree and sign up – recognising the founding principles of the business, but relevant to its current environment and ownership
• Maintain the communication outside of formal meetings – it’s important to ensure that everyone is kept abreast of critical information, no one likes to feel left out
Defining clear roles for each family member to suit their strengths is equally as important to maintaining harmony within a family business. Equally recognising skills gaps and hiring the right non-family members is essential.
Whilst it might seem overly formal to family members, everyone working within a family company should expect to sign formal contracts, with terms of employment which clearly outline entrance and exit policies. Whilst no one should ever start a role anticipating their exit, it’s prudent to ensure that mechanisms for an orderly transition are in place just in case.
Creating this structure might seem too much, but by ensuring you have time to talk business at dedicated points in time, it avoids a family gathering descending into an impromptu board meeting. But remember – a family business is usually a family passion so a little side chat isn’t the end of the world.
How do we tackle succession planning?
Succession planning is both a blessing and a curse in the family business world.
On one hand, passing on a business to the next generation is the ultimate indicator of success. However, it’s impossible to do that without first tackling some fairly tricky conversations with family members.
Honest communication is the most essential component for achieving a seamless succession process. It’s not only crucial when discussing the finer details around ownership and management of shares, but it also plays an important part in identifying and preparing for potential points of tension.
Handing over your life’s work to a successor is incredibly stressful, regardless of whether you are related, as is the pressure in knowing that your decisions will impact the livelihoods of other family members. In many cases, the next generation (in their eagerness) interpret a reluctance to let go as a lack of faith or trust in their abilities, adding to the tension.
The best way to avoid conflict is to start planning early. In fact, it is never too early to start planning. Through a well thought out next generation engagement programme, through work experience placements and finally an active role, we can assist in preparing future successors for their eventual role. Closer to the time, it’s likely that specific areas for development will become apparent. This will allow successors to receive the appropriate level of training and leadership development required.
Getting advice from trusted, experienced advisers is also invaluable. There are many organisations that specialise in succession planning for family businesses. This not only provides families with specialist expertise, but also ensures that key decisions are made rationally, rather than emotionally. However, good advice doesn’t necessarily have to come from expensive advisers. You may know individuals that understand the business and the family, who may be able to provide advice informally.
How do we engage non-family members in our plan and vision?
Employee engagement is key to any successful business. For family businesses, however, it can be particularly challenging to engage non-family employees.
The first step is to create an atmosphere of fairness that applies to everyone. This means that under no circumstances can family business leaders be seen to be providing preferential treatment to family member employees – yes it is possible to apply meritocratic nepotism.
Mastering this balance between keeping family members happy, whilst simultaneously motivating non-family employees is crucial to achieving success.
Implementing high-quality training schemes, and establishing clear development opportunities are important ways to demonstrate that the business is invested in personal development beyond the needs of family members.
As with succession planning, gaining an outside perspective at a board level can be helpful. Not only does it underline your commitment to making the right decisions for the business, as well as the family, it can play an important part in holding other family members to account. A non-family member can challenge and stimulate discussion in ways that a family member often cannot.
Every family business comes with its own set of unique characteristics – so there is certainly no one-size-fits-all approach to implementing change. But with clear communication and a willingness to tackle the difficult conversations head on, most family businesses will be well on their way to achieving long-term success.
Charlie Field is Deputy Chairman of family operated funeral directors CPJ Field. He manages the business alongside his siblings Jeremy and Emily, and his parents. He is also a non-executive director of the Institute for Family Business (UK) and Chair of the IFB’s Next Generation Forum.