Decisions in a family business are made in the context of not just the business, but of the family relationships. Families are complex, emotional systems, so what can seem like straightforward business decisions are deeply affected by the history of the family relationships and the health or complexity of those relationships. That is why taking decisions in a family business can be such a slow and complicated process.
There are various reasons as why decisions are never taken or hugely delayed in family businesses.
- The first one is when family business owners have a difference in vision or objectives, either for the business or themselves individually. These differences can be in business strategy, liquidity, management, succession and/or governance.
- The second reason as to why decisions are never taken in family business revolves around unresolved family tensions that spill onto the family business itself.
- The third reason is what I call “Artificial Harmony” which can be due to the fact that family business owners prefer to avoid conflict and hence decide to not voice their opposition to the vision of the business or the general direction of the business. However, when the time comes to make a decision, they just block it, without anyone knowing the real underlying reason as to why they are doing so.
- The fourth reason is the opposite of the third reason. Some family businesses have too much of a casual approach, leading to family business owners and leaders feeling comfortable arguing or saying things they would never say to a person who was not related to them. Families need to be wary about how they speak to one another in a business setting to avoid acting unprofessional and disrespectful. This leads to losing focus on the decisions to be made and instead use time to “lick” the wounds from what was said during arguments.
Having the right decision making forum
Many family businesses find it very difficult to take timely decisions as they lack the basic forum where family business leaders can meet, discuss things and ultimately decide. So to effectively work as a family team, it is important that family business leaders hold business meetings (they could be proper board meetings if strategic matters are to be discussed or management meetings for operational matters). Most family business leaders underestimate the importance of regular family business meetings. Such business meetings provide a vehicle for making important family business decisions. These family business meetings need to be held properly as outlined below:-
- Business setting – Meetings should be held in a business environment. If possible meet in an office, not around a kitchen table. Turn off your mobile phones to eliminate interruptions.
- Meet regularly – Meetings should be held on a regular schedule. Meetings held on an “as needed” basis are usually only held during emergencies. Also it’s easy to postpone meetings because family members often don’t attach much importance to them. If a meeting has to be cancelled, it should be rescheduled. Holding regular meetings should become a habit.
- Prepared an agenda – Prepare and circulate an agenda in advance. At the beginning of the meeting, give a copy to each family member. The agenda gives the meeting structure and keeps the discussion focused on the important topics. Ask if there are additional items that should be added. All family members should have the opportunity to place topics on the agenda – either in advance or at the beginning of the meeting.
- Prepared materials – Prepare materials on important decisions in advance. Give the materials to the members in advance or during the meeting. This would include financial materials, information on proposed capital expenditures, etc. If the materials are distributed before the meeting, it’s important that the family members review and study the materials before the meeting.
- Minutes of the meetings – Keep formal minutes of the meeting. Appoint someone to take notes. Minutes provide a record of what topics were discussed and what decisions were made. Unless minutes are kept, disagreements may emerge later over what decisions were reached.
- Set a list of meeting rules or guiding principles – It is good for family businesses to have an agreed-upon set of meeting rules or guiding principles. These guiding principles should include the need of treating each other with respect during meetings, not interrupting one another, the importance of listening to each other, encouraging debate and varying opinions and letting everyone speak up. These rules can guide behaviour and keep the meetings productive and members engaged.
- Use outsiders – Many family business leaders also underestimate the importance of having outsiders attending such meetings. The participation of someone who isn’t related to the family business owners will enhance everyone’s level of professionalism and raise the level of good operating procedures. Frequently, outsiders like a business consultant, have great experience with other business organisations and hence can bring with them a much needed higher level of discipline, professionalism and formality for all types of family business meetings.
Types of decision making processes
The culture and the situation of a particular family business has a big impact on type of decision-making process adopted. Thus, the decision making process is based on many factors, including values, the personalities of the leaders and the generations in power. Typically, a first-generation family business tends to make decisions much differently than a 2nd or 3rd generation family business, where it is likely that ownership is spread more broadly among people who didn’t grow up together in the same household. Below is an overview of the different decision making processes that are typically used in family businesses.
- Autocratic Decision Making: Autocratic decision making by one person, such as the father, is the fastest and easiest way to make decisions. However, lack of ownership of the decision by the parties involved is a major disadvantage. People tend to support and feel ownership of decisions they have had a voice in making. Conversely, they feel little ownership of decisions made by others. The autocratic approach works best for decisions where the individual parties don’t feel a need to contribute, or the time for making the decision is very short.
- Democratic Decision Making: “Let’s take a vote,” is the hallmark of the democratic approach to decision making. The majority wins and the minority loses. This is a good procedure for decision making in large groups, though other methods are preferred for small groups. This type of decision making tends to split the family. The minority may not support or may even sabotage the decision. Also, the minority may criticise the decision if it does not do well. However, if the other methods cannot produce a decision, voting may be the only viable alternative
- Consensus decision making: Consensus building relies on the belief that opponents will gravitate to your solution when they are provided with the right information. It involves educating the opposing party and having confidence that individuals will re-evaluate their position.Consensus building works best when facts are used to outline the pros and cons of the decision. However, many decisions are not based on facts but on attitudes, perceptions and emotions. Also, as the number of issues used for advocating or opposing a decision increases, it becomes increasingly difficult to achieve a consensus.
- Collaborative Decision Making: Collaboration is a process. With collaboration all parties join together to constructively explore their differences in search of solutions that go beyond their separate visions. By debating the various perspectives, the complexity of the problem is recognised by all parties and new alternatives are discussed that consider the positions of everyone. All suggestions are considered before alternatives are ranked. No single position is sacrificed at the expense of another alternative. This process is sometimes called “brain storming”. Although collaborative decision making is the most time consuming, it is often the preferred method for making major business decisions.
So, to summarise, please note the following:-
- Autocratic – Use for routine decisions where others don’t feel a need to be involved.
- Democratic – Use for large group decision making, or where consensus or collaborative decision making is inappropriate or unsuccessful.
- Consensus – Use for decisions where facts can be used to outline pros and cons, and alternatives ranked.
- Collaborative – Use for making major business decisions which require the support of everyone involved to be successful
Family business need to keep improving their decision-making over time. In the present business environment where heightened turbulence is the order of the day, family businesses that keep postponing decisions are likely to find it very difficult to survive.