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Reinventing the family business boardroom

News: family business network

Andres Rico is Executive Director of FBN Columbia and Corporate Governance Advisor.

I recently came across a great book, which I recommend to everyone faced with making decisions, which is basically everybody in this world. Decision-making is probably one of the most influential things we ever encounter in our lives, especially if we are business managers, and if the business is a family business. In this instance we are involving family and business issues in the same line of thought. The book,  Blink by Malcolm Gladwell, is a fact-based account of how we can obtain "the power of thinking without thinking".

Going through Blink, and looking back at all the decisions that I have been part of – as a family member, an advisor and a director – I started wondering if the decisions we make in the boardroom of the family business are thought out or are rather sudden ones.

The family business boardroom is a complex environment, where we are faced with business strategy and operational decisions, as well as family organisational issues. Such decisions are demanding in the sense that decision-makers carry an immense load on their shoulders; for example, it involves being a well-trained business manager with experience in dealing with unorthodox situations. Also, you need to be a well-respected individual in order for others to trust your judgement, because a lot of what it takes to make a decision is good judgement. But what is good judgement?

Let me go out on a limb here, and try to make an analogy between life in the family business decision-making environment and golf.

Golf is a permanent decision-making process. There are 14 clubs in one bag and more than a few options to use each one of them. An average golfer will hit between 90 and 100 shots in one game. That means he made over 90 decisions over the course of four hours. And you are out on the course for one reason, so every shot counts. This should not really be the case because it only accounts for 1% of your whole effort, but it is actually critical. Just like in the family business, every decision matters. All the issues must be taken into account and all the information must be wisely used in order to come up with a clever next step. The similarity is that golfers take the game very seriously. Someone once said that "golfers go to the office to relax". So what is it that is really similar between the course and the boardroom?

I think it is the combination of experience and intuition. When out on the course, I rely on my knowledge of the course and the game in general, using intuition for what is going to happen. Decision-makers use the most available and thorough information they can get hold of and their best guess in order to further the organisation. But sometimes the instant reflex turns out to be the best option.

Decision-Makers
What makes a good decision different from a bad one is mainly the outcome. Personally, I think the difference between a bad and a good decision is nothing other than actually making the decision.

In Colombia, most family businesses are switching from first-generation control to a second-generation, shared decision-making environment. This particular situation tends to bring decisions to a halt, where the first generation is expecting the second one to make the decisions, but the second generation is a bit anxious of doing so for fear of making mistakes. I truly do not think that the difference between those two outcomes is luck. It is the underlying "adaptive unconscious" as mentioned by Gladwell in Blink. It is the part of our mind that makes us think without realising we are doing so. Just like in golf when you hit a massive drive, but you are not at all certain why you did so. The adaptive unconscious does not mean we are not thinking, it just means that we are doing so in a flash using the minimum information necessary to do so.

I recently asked Pilar Escobar, a third-generation member of Acesco, a steel manufacturer in Colombia and Latin America, what she thought made her company so successful in business decision-making. Her answer: "The board uses the intuition of its members to project the business. If faced with investments, we require the adequate financial analyses but the decision is made according to intuition and the long-term vision of the group." Acesco has become a global player and the number one steel manufacturer in the country, only 36 years after having been founded.

Decision-makers should be more conscious of their adaptive unconscious in order to bring a different dynamic into the boardroom.

The dare to be different challenge
Family business owners, directors and executives deal with a lot of tough decision-making, which is aggravated when the business is in generational transition. The first generation are more at ease with making tough decisions – the next generation learning about the business tends to be more cautious.

The fear of making mistakes is a very understandable situation, because there is a lot at stake when it is your family and your business.

When I asked Alejandra Torres, the chairman and second generation family member of Grupo Contempo, what made her company great she said: "We always look at going the extra mile, we have focused our board of directors on strategic planning, and we always look at doing things differently; we trust each other's intuition." For Grupo Contempo, this way of doing things has paid off. Between 2004 and 2007 its revenue has increased tenfold, and the family is working closer than ever through a very organised and formal family council, where they strive at doing things differently.

But, as John Ward has mentioned in his book, Unconventional Wisdom, Counterintuitive Insights for Family Business Success, it is not doing things differently for the sake of it, but to find your own way of doing things. It is to identify the way of performing while having a well established objective in mind. The corporate governance organisms of the family business play a crucial role in changing the pace. They are the springboard towards effective and aggressive decision-making.

Being different usually means that the family and the business can enter into a state of uncertainty and doubt. But the fact is that it will bring great satisfaction to the family.

Corporate governance organisms have a different set of individuals that can be leveraged towards constant change through the exploitation of their adaptive unconscious through their specific abilities. These particular skills, if set free within the organism, can take the organisation to another level. Change becomes the real tool behind the main goal, which in most family businesses is to continue to be a player both as a successful company and as a united and close family. The surroundings must be encouraged to use more of that creative thinking that Gladwell describes as "The Power of Thinking Without Thinking".

Go For It!
Being different relies mainly on the ability of a family business to adapt to the changing environment, business and family. The difference we are aiming at is basically to try and have quick decisions meet analytical ones half-way. 

Like on the golf course where you have the same surroundings but the game changes fundamentally because of external factors and your state of mind, the family business suffers a similar pattern. In order to master the course, you have to try different approaches to the same shot.

This goal is achieved by letting everyone in your corporate governance organisms master their own performance.

Be restless. Do not let the board and the family council rely on the same work patterns. Lever the members' intuition. Constantly evaluate them on how they are approaching business and family issues. Use the evaluations to promote new ideas on how to manage the business and how to conduct it. As an example, following a board performance review, I was involved as an external director in a situation where it was clear that the board had not taken a critically timed decision on a project. As a result of this, it was decided to conduct quarterly strategic planning sessions and monitor implementation through regular board meetings. This change of structure to the meetings allowed us to obtain more efficient decisions on a monthly basis.

It is important to attract external directors to contribute to a board because of the objectivity they can bring, while being sensitive towards the issues that really matter to the family, both as a business and as a business-owning family. Promote the individual family members' talents within the board or the council so they can express their views. Every time you meet, look for an issue that has not been dealt with, or a detail that has been passed on, or propose new ideas even if they get rejected. Go out on a limb!

By challenging "traditional" approaches you will learn more from yourself as a family business and to tackle situations in more constructive ways. If, like in golf, the score does not show improvement you will at least have more fun playing.

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