I have been advising and working with Family Businesses, long enough, to know that the root causes for the multiple issues and problems faced by family businesses are always the same. As a business leader of a family business, you may think that the issues you face are somewhat unique – the context may be unique but the underlying root causes which are fueling the issues and problems are not.
Power and control issues effect family businesses, just like any other business. What makes the inevitable power and control struggles even more complex in a family business are the family dynamics that play a significant role in decision-making and succession planning. So whenever I work or advice a family business I can almost immediately realise that the issues they face are likely to be fuelled by one or a combination of the below root causes:-
Lack of trust: As family businesses move from the 1st to the 2nd generation, with the likelihood of more people involved, the risk of lack of trust becomes higher. Research across various countries shows that only 30% of family businesses survive into the second generation. This means that in 70% of family businesses relationships are potentially destroyed due to lack of trust and the lack of proper communication, which is responsible for 60% of that failure rate.
Lack of a shared purpose: When the family business was in its 1st generation, with few or a single family members involved the identification and living of a shared purpose within the family business was somewhat easy to obtain. Them when family members from different generations start being involved in the family business, they being with them different set of values. This means that to maintain a shared purpose, this shared purpose need to be communicated officially and needs to have corporate governance structures to support it, to make sure that everyone (family members and employees) align to these values and interests in support of a common mission.
Control Issues: Family businesses cease to exist when family members get blinded by infighting and conflicts related to financial management, poor general management and the succession of power from one generation to the next.
Cordial hypocrisy: Family members that are supposed to be leading the business do not have the capabaility of discussing tough issues that they feel are hampering the family business. Many times they are too proud to ask for external help. The end result is that they end up often avoid discussing and tackling such tough issues by avoiding meaningful conversations. However these tough issues do not just go away. Left unaddressed, tensions build up over time which leads to increased distrust among families, which inevitably has a negative impact on the performance of the family business.
So what can be done to address these 4 root causes?
With the right skills and structures in place and the right external help, such core issues can be overcome. Here are some practical suggestions:
- Build trust in concrete ways. Family members must promise only what they can deliver, based on their level of competence. This makes it easier to execute plans and achieve goals.
- Inculcate the shared purpose of the family business. Family business leaders should proudly declare what the firm does, who it serves, and how employees can contribute their passion and skills to help the company win. Effective leaders exemplify their values by their actions and deliver what they promise to their clients, employees and stakeholders.
- Establish effective communication protocols. Family business leaders and employees can learn how to provide feedback, coordinate action and engage in difficult conversations. With their shared purpose in mind, family members can view disagreements as opportunities to find the best way to achieve their goals.
- Develop decision-making processes that take power, family dynamics and business priorities into consideration. Traditionally, key family business leaders have exercised their power to declare desired outcomes from the top down. I always recommend a two-way approach – to also embrace a bottom-up approach where ideas from employees are given a listening ear, building their commitment and passion to the family’s mission. More than that, setting a clear decision making process, helps clarifying roles around how the common mission of the family business is to be attained and how each individual can use his or her talents in support of collective goals within a common framework for coordinating action.
The payoff of aligning a family business’s shared purpose, mutual trust, and collective decision-making is compelling. Effectively aligning power and family dynamics bolsters business performance and family relationships — which are especially crucial during these turbulent times.