Tips for keeping family businesses under control

Most extended families are to a lesser or greater extent dysfunctional. It only takes a family occasion – a wedding, birthday or christening, for example – to test the cohesion of the typical family. What should be considered a joyous occasion inevitably degenerates into a re-enactment of an old-style national ALP conference replete with bitter rivalries, arguments, rumours and intrigues that would make a bruvver blush. Labor conferences are highly choreographed snoozefests these days, but the family barbeque remains a highly combustible event.

So who in their right mind would consent to be in a family business? At least one can drift in and out of family affairs, but when you’re in a family business with siblings, cousins and distant relatives, it’s not so easy to distance yourself from family dynamics. In the case of family businesses – unlike distant cousin Freda’s wedding – those dynamics can affect your livelihood.

Many people working in the family firm don’t so much choose to be involved; it’s simply what they do. Much like minor royals who spend much of their time opening school fetes. If there’s any choosing to do, it’s more likely the decision to bail out. Thus those infamous third-generation jitters that most family businesses experience.

Family businesses may not be easy to keep intact, but they can be very prosperous and rewarding. So how does one bypass the ever-present threat of discord and disarray in family businesses? Much of that responsibility rests with the leader of the family business, says Family Business Australia chief executive Philippa Taylor.

“Strong leadership is the foundation upon which every successful company is built,” she says. “This is particularly important when the average tenure of a CEO in a family business is 17 years.”

Taylor offers these tips for keeping the business all in the family:

1) Make sure the next generation of leaders is ready and able

The challenge for family business comes when the benevolent dictator decides to retire and no one has been trained to make executive decisions. Children working in the business need to be allowed to make decisions and gradually take on the responsibilities of running the business.

2) Prepare the business for sudden change of leadership

Leadership transitions don’t always happen in an orderly fashion. Generational changes may be forced upon the business as a result of the death or disability of the existing owner. The family constitution and succession plans should be drafted and agreed upon to factor in such possibilities.

3) It won’t be easy, but utilise outside expertise

As family businesses grow they become more complex, which often drives the need to establish a board of independent directors and hire non-family executives. The shift to more formalised governance structures can be marked by a period of stress as the founder experiences the pain of letting go, having their leadership challenged and being held accountable for decisions and performance. This can be a major leadership test for the family, but good governance structures make the business more attractive to external stakeholders, including banks and business partners.

4) Good governance ensures continuity

Good governance is essential for family business continuity across generations. A dual governance structure consisting of an independent board and a family council can achieve the balance between legacy and renewal. The board ensures that the business is on track strategically and the family council ensures continuity of family ownership from one generation to the next.

5) Traditions, values and networks are conveyed at an early age

From a young age children are watching the current leaders make decisions that reflect the values and culture of the business. This can be a source of competitive advantage as values, traditions and even social and business networks are transferred from one generation to the next.

6) Relationships, communication and shared values are vital for family business success

Relationships between family members and between family members and non-family employees are essential for success in a family business. While family businesses may survive economic downturns and competition, the breakdown of relationships can grind business to a halt and tear the family apart. Open and honest communication, a shared vision, common values, clear expectations and accountability will ensure a positive culture for the business.

7) Family members have to earn their place

Employing family members has many advantages, including a built-in desire to see the business succeed, but many family businesses fall into the trap of giving family members key positions without the proper training or experience. Appointing family members to positions they are not ready for can be detrimental to the individual and the business. Many family businesses require family members to have suitable qualifications or several years of professional experience outside the family business. Family members may also be required to apply for positions in the company along with non-family applicants.

8) Do not create two classes of employees

It is important to treat all employees equally and not favour family members over non-family members. Giving special treatment to family members, intentionally or unintentionally, can de-motivate employees and cause ructions in the business.

Like all good families, Family Business Australia enjoys having the occasional get-together. Fortunately, unlike most family reunions, these seem to be convivial and productive affairs. The 14th Annual National Family Business Conference will be held in the Hunter Valley, NSW, on August 23, 24 and 25.

• Tweet