Continuing the legacy: 3 fundamentals to be a successful family in business

While supporting family businesses to grow, preserve, transition their wealth and ultimately be a harmonious family in business; KPMG identifies three fundamental/core elements as essential requirements:

1.Effective communication

2.Structure

3.Planning

At first glance, these appear obvious and simple. However, we have observed many family businesses either do not recognise the need (or importance) of these fundamentals, or how to implement and sustain them. Ignoring these, would pose a real risk to the current and future family relationships and the business.

Structure 

We need to understand how families in business can maximise the value of effective communication by establishing family and business governance structures to define:

• Who should be communicating
• What they should be communicating about
• When they should be communicating

How would you rate the value of your family business meetings… do they add value?

A common misconception in family businesses is that if they can communicate effectively amongst the family members, they are well positioned for efficiently managing the business and achieving their goals. 

Central to the operation of any business is bringing the management team together to work on the business.However, what would your response be to the following question regarding meetings in your family business?“Zero”(a response from a family member when in meetings with his siblings and parents).

What we often see is the “one in…all in” situation. All the family members coming together to have their say on everything…and I mean everything. For example: The ‘attitude’ of the front reception person; why cousin Kasunishould be employed in the business; the purchase of a new commercial building; the date and location of grandma’s 90th birthday; and the declining trend in monthly profits.

“Our family board meetings run for about five hours. There is a lot of information but little discussion, debate and decision making”(a response from a family member in board meetings involving 10 family members).

In frustration to the situation, some family businesses adopt the “us and them” approach. Only family members actively working day to day in the family business meet to make decisions on the future of the business,but what about those family members who are shareholders are but not working in the business? Should they be privy to what is happening and have a say in the future?

This is where ‘Structure’ isimportant to succeed. Structure ensures that the ‘right’ people come together in the ‘right’ forum’ to discuss the ‘right things, at the ‘right’ time.

• The right composition of the attendees – the people who should be at the table making decisions regarding the business are those who have been charged by their stakeholders (if it is a Board meeting, they are voted by the shareholders, if it is a management meeting, those appointed by the Board and CEO).  Having the wrong composition of people at the table will destine the meeting to failure.

• Fewer family members with a seat at the table – in the context of the Business Advisory/Board meeting, those family members with the appropriate skills, experience and insights will be discussing and making business decisions in the best interests of the family business, and ultimately for the wider family. Similarly for the Family Council, the mix of family members should be selected to represent and make decisions in the best interests of the whole family, not just family shareholders.

• Regular meetings with a clear purpose and agenda – in the family business we often help families establish two meetings with clearly different purposes. One is the Business Advisory/Board meetingsfocusing exclusively on the business issues and decision-making. The second is a Family Council meeting focusing on family issues that relate to the family business.

• Tools and rules – these are important for any formal gathering of people to: direct the discussion; set the boundaries (or guideposts) in terms of what topics are discussed and what decisions can be made; and how contentious issues or scenarios will be resolved. In terms of a family business, these take the form of Family Rules (or often referred to as a Family Agreement or Family Charter), which we have helped to establish for the families.

Leadership – to set a positive tone and ensure the meetings are focused and remain ‘on topic’. Often this leadership comes from a non-family member until the family becomes familiar with the new structure and meeting behaviours.

In our experience, most families need support to make the distinction between the role of the Family Council and the Business Board of Directors – for many families these bodies have always been ‘one and the same’. Once the family understands the distinction and embraces the new structure, they will benefit from a non-family member chairing the meetings for effectiveness and the family can focus on new behaviours and conversations.

Another challenge on a daily level is family members understanding which hat to wear and when to wear it.  Some family members may have multiple roles in the family business/es (i.e. they wear multiple hats). These family members have the added challenge of recognising which ‘hat’ to wear in different conversations and making decisions. 

“My daughter now runs the day to day business and I talk to herevery day. I need to stop and think before the conversation: am I offering advice as a father or am I talking to her as a shareholder” (comment from a first generation family member).

The trick is to structure and frame the conversation/communication before going into it. Now thinking about you…ask yourself before the next conversation: 

Is it a family topic or an ownership topic or a business topic?

• Should I be making the decision as a family member; an owner of the asset; or an employee/director of the business?

If family members individually and collectively exhibit Effective Governance and embrace Structure then the family is well on the way to good family governance.

Are your family meetings a ‘one in…all in’, an ‘us and them’ or a clear structure which all family members understand and observe?

Given the importance of raising awareness and ensuring the success of family businesses in Sri Lanka, KPMG’s Family Business Practice has hosted a number of knowledge sharing initiatives over the past two years as well as working with family business clients locally on various governance and succession engagements. These initiatives have included Family Business experts from across the globe sharing key insights on market-leading, world-class professional services that are aligned with the changing needs of family businesses and markets.