How do families keep the creative spark alive while keeping order? The awkward truth at the heart of family governance is that procedural frameworks and innovation are not natural bedfellows.
Maintaining family control through the succession of multiple generations requires order and a framework that is clear and stable over time. Creating wealth is different. Family wealth creators tend to break the mould and are usually blessed with an abundance of energy, vision and courage. Very few of them champion bureaucracy or would hold it up as the secret to their success.
So the first challenge is to get the tone right and create a family system which promotes both stability and innovation. I always tell clients to think of a bicycle. A bicycle is a rigid framework that is absolutely useless without energy—forget to pedal and it will fall over. Used correctly it can focus and amplify the energy applied.
Family frameworks without enough impetus can lead to passivity and a lack of drive. A decline over time due to a lack of energy and a passive approach to business may be harder to identify than an explosive conflict or botched succession, but the end result is the same.
To design frameworks that are as good at lighting the spark as they are at keeping order, we also need to emulate those companies that thrive on innovation. Forbes has a handy list, but we can all think of ones that inspire us personally. Through ingraining the right practices they are able to embed innovation within their systems and cultures.
Leading families have for some time experimented with the creation of family venture or entrepreneurial funds. A leading example is the Mok family of Hong Kong which has set up a highly structured development path that includes a family nurtured spin-off phase (ages 35—40) where family members are required to experiment in creating start-ups.1
There are variations on the theme, such as search funds, where there are defined acquisition targets, usually aligned in some way with the original business. Another variant is a seed fund where only part of the capital is provided while the rest must be sourced elsewhere. Some try the incubator concept. But as an industry we need to go further. We need to find new and (dare I say it) innovative ways for the families to spark their own growth. As Professor Justin Craig, of Kellogg School of Management, put it to me: "Every family needs its own Skunkworks". Our job is to help them work out how to build it.
The last element is the right type of people to lead these initiatives and create the momentum. Most professionals are risk averse, if not by nature then as a result of their training. They are usually better suited to imposing discipline or limiting damage rather than driving innovation. We need a little extra, some enthusiasm and inspiration.
So the first challenge is to get the balance right, to promote energy and order. Signal that a bit of pedalling is called for. Next we need to include features in the framework to create the right conditions (including pedals). Lastly, involve the right people to inspire the next generation to get the bicycle out on the road.
Note: 1. Au, K., and C.Y.J. Cheng (2011). Creating "the new" through portfolio entrepreneurship. In P. Sieger, R Nason, P. Sharma and T Zelwegger (Eds), The Global STEP Booklet, Volume: Evidence-based, Practical Insights for Enterprising Families. Babson College, 17 – 21.