Andrew Keyt is president of the US chapter of the FBN and executive director of the Loyola University Chicago Family Business Center.
Family councils and boards are have long been linked to the notion of good governance, but without true accountability family business may find themselves in one too many logjams. Andrew Keyt explains
Running a family business can feel like a three-ring circus at times. While the clown car is unloading in the ownership ring looking for financial return, in the family ring, the family is doing a balancing act around the issue of the son's drinking problem, and in the business ring, the management of the company is taking on debt and essentially putting its head into the mouth of the lion. What makes this three-ring circus special is not the individual rings, but how the three rings work together to make this circus The Greatest Show on Earth.
Balancing these three rings of ownership, family and business can truly be a Herculean effort, and the foundation for this effort is family and business governance. By this we mean the processes of accountability used to make sure the family makes important family and business decisions in a thoughtful and efficient manner. Common wisdom recommends the use of family councils and boards of directors to fulfil this role of providing accountability. Yet merely having a family council or a family business board does not guarantee accountability. Indeed, the true capacity of family councils and family business boards cannot be realised until there is a strong foundation of individual and family accountability to build on.
Accountability is the latest media buzzword, so it is important to define what is means, at least in terms of family business. Accountability means someone doing what they say they will do, to an expected level of quality and within a given timeframe. In the event that an individual knows they will not be able to accomplish the task, they must communicating this as quickly as possible to the relevant parties.
Sounds easy enough, and while family councils and boards can aid this process, they won't work if there are existing problems with the individual or family accountability before the governance process begins.
So what is meant by individual or family accountability? When we talk about individual accountability we mean some one being clear to himself/herself about what they are going to do, and developing a sense of self-control and confidence to accomplish these tasks. Family accountability involves each individual family member and how they communicate and hold each other accountable. When this individual and family accountability is absent, family councils and family business boards can flounder and become emotional battlegrounds for family members.
When there are problems with family or individual accountability it is typically a question of either intent or dysfunction. If the individuals or the family don't have the desire or intent to be held accountable, it is difficult for a board or a family council to work. Likewise, if there is dysfunction on either an individual or family level, this can prevent the creation of a culture of accountability.
Let's start with the question of intent. If individuals don't believe in accountability or don't want to be held accountable, then it is difficult for a family council or a board of directors to be efficient in providing accountability on a larger scale. If individuals don't have a sense of internal integrity and an ethos of living up to their word, then no system aside from a court of law will be effective in holding them accountable. The core of this individual accountability is self-esteem and self-confidence. Without this, individuals fear being confronted with their own failures and eschew any efforts to hold them accountable. Individuals who believe in themselves will see the accountability process as one through which they can truly learn who they are and what they are good at. It is a process of self-discovery. The foundation for this is good parenting.
In a family, having a group of individuals with an internal sense of integrity and accountability doesn't guarantee you success either. The family must have the intent to create an environment that fosters accountability. Work by Lee Capps suggests that in any system creating an environment where an individual will do what they say requires three key interlocking elements: trust, conflict, and commitment. In a family building trust can be accomplished by giving family members a clear sense of the expectations of them as family members, and an opportunity to participate in shaping those expectations. In the same breath, trust cannot be maintained if a family doesn't allow individuals the room to show vulnerability and fail for fear of retribution from other family members. Overly harsh criticisms may create an environment in which failure is intolerable and reduce feelings of trust amongst the family. Family members can show their commitment to accountability by acknowledging when family members do what they say they will, provide appropriate rewards in those situations and create outcomes and expectations that all individuals can buy into.
A crucial part to maintaining trust and commitment is developing a process for the family to experience conflict in a healthy way. Disagreements are to be expected, but if a family deals with them by pretending they do not exist, or degrading those whose opinions are contrary to their own, then the trust and commitment necessary to attain accountability will erode quickly.
Still there are many families where the intention to have clear expectations and accountability is there – they have the family council, the board, and accountable individuals – but it still fails. In these cases it is most likely that there is some form of individual or family psychological dysfunction preventing accountability from happening.
On an individual level there are a variety of biological and personality disorders that inhibit or impact a person's ability to hold themselves accountable or let themselves be held accountable. Biological depression can diminish interest in day-to-day activities and impact an individual's intent to be part of the accountability process. Other psychological issues that can have an impact are substance abuse, anxiety disorders and bi-polar disorder.
On a family level there are additional dysfunctions that can prevent a family from pursuing their intent of being accountable. The most common family issues that affect the accountability process are probably related to interpersonal boundaries within the family. The idea here is that there is a healthy level of closeness or distance between individuals in a family, and that there is a healthy sense of what is personal and what is family information. In families where boundary problems exist, you will see one of two common outcomes: first, the family is too enmeshed with each other's activities for there to be any personal responsibility or accountability; second, the family is too disengaged from each other to interact in a way that builds the trust necessary to provide accountability.
Other common family problems that can hinder the accountability process include lack of appropriate leadership structure, historical conflict patterns that are passed down from one generation to the next and generational differences in approaching communication.
Managing the three-ring circus that is a family business and creating a culture of accountability is not easy. Family councils and boards cannot guarantee accountability on their own. It takes the intent of the individuals and the family and the commitment of all involved to overcome the individual and family dysfunctions that can prevent family councils and boards from working. But through the creation of a culture of accountability, individuals and families develop a better sense of who they are and what they can be. With this as a foundation, the family business can use their family council and boards to explore their potential as a family business.