Continuing the legacy: KPMG identifies three fundamentals to be a successful family in business – Ef

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.

Effective communication

In this article, we share our first hand observations and insights into ‘effective communication’; why it is important and how working together builds family relationships based on mutual respect and trust: In effect a cohesive family business. 

One must note that family members talking to each other about issues in the family business at every opportunity does not equate to effective communication. In fact, it can often be destructive for family relationships and the business because you need to have the right family members, having the right conversations, at the right time. 

How would you rate the level and quality of communication amongst family members?

When assisting family businesses resolve their issues, we interview family members and often pose the question: “How would you rate the level and quality of communication amongst yourselves?” Responses from two brothers at a recent such interview elicited the following:  

• “Things are only communicated on a need-to-know basis or unless it is a personal grievance which may then manifest into an argument or disagreement.”
• “It has been difficult. I would say a rating of 6 (out of 10) but everyone is walking on eggshells. If we aren’t talking about work it is more like an 8.” 

Communication is a common issue in family businesses if it is not used correctly. Yes, it can be an issue in any business. However where family businesses differ, is the layer of emotion, familiarity and family dynamics that come with conversations and decision-making. 

When asked about communication, family members are proud to report that “yes, we talk all the time”. However, when you dig a little deeper, a different picture emerges. Yes they talk, but have difficulty communicating effectively about issues that concern them and do not clearly separate family, business and ownership issues as they are all muddled together. 

Some families are on the opposite end, where, in the interests of maintaining harmony, they fall into the trap of using the ‘silent treatment’. For example, the first generation family owner may not discuss leadership of the business in the next generation of future ownership. The issue isn’t resolved, it just simmers below the surface, creates tension and builds up over time.

• “I will inherit this business but our future direction is unclear…it’s all in my father’s head.” (Quote from second generation family member)
• “What am I working towards? I have my own aspirations” (Quote from second generation family member)

Furthermore, many family members wrongly conclude that silence equals agreement. When no one in the family voices disagreement with an idea or plan, some family members assume everyone else is on the same side. In this scenario, different family dynamics are at play: 

• The first born family member assumes that they are the decision maker for the family;
• Passive family members want everyone to be happy and see it  as a sign of disrespect; to question the decision-maker/founder or 
• The family business leader who is sensitive to other family members asking questions, seeing it as a sign of mistrust.

So what is the answer?

Learning to communicate better is a fundamental element for family business success. Our role is often focused on assisting the family, to progressively shift from ‘talking all the time’ to effective communication. 

Here is some food for thought:

• Effective communication is the sending and receiving of messages where the recipient clearly understands the intended message. However, we often focus more on the sending part: “we need to communicate more” is misconstrued as meaning “we need to give more information”, but to foster effective inter-personal communication, attentive listening is of paramount importance.
• Listening is greatly facilitated when the message is transmitted in a proper manner. The message is often lost due to the familiarity of family member relationships i.e. “oh they aren’t arguing, they always deal with each other like that”.  
• Mean what you say – be open and transparent with respect to your intentions, motivations, views and reasons for taking a certain stance on an issue.
• Robust debate between family members with differing views can be a good thing, provided it is constructive and respectful.  
• Engaging family members in some key decisions not only improves the quality of decision, but also enhances the satisfaction and motivation of all concerned – even when the decision taken is not necessarily favourable to them.

Tension and disagreement amongst family members on family related business issues and ownership is ‘normal’, if not inevitable, regardless of how harmonious the family is. The key is how the family effectively communicates to address the issue so it doesn’t become deep-seated, cast a cloud over family relationships and decision-making in the family business.

On a scale of 1 to 10, how would you rate the level and quality of communication amongst family members?

The succeeding articles will discuss the other two core elements structure and planning. Given the importance of creating awareness and ensuring the success of family businesses in Sri Lanka; KPMG’s Family Business Practice hosted a number of knowledge sharing initiatives over the past two years and has been working with family business clients locally on various governance and succession engagements. These initiatives have included family business experts from across the globe, aimed to share key insights on market-leading, world-class professional services that are aligned with the changing needs of family businesses and markets.