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Put a dysfunctional business on the couch and clear the blockage

Andrew Keyt is president of the US chapter of FBN International and executive director of the Loyola University Chicago Family Business Center

Emotional resistance is one of the biggest obstacles to a smooth generational transition. Andrew Keyt explains how good structures and balanced governance systems can help a family function effectively and harmoniously and enable the business to move forward 

The challenge of generational transition in family business is probably one of the most complex business dilemmas around. Families are faced with changing business environments, changes and shifts in family structures, and balancing the needs of both family and business. Two-thirds of all family businesses that face this challenge fail. The reason for this stems from a family holding on to stability and status quo, rather than embracing change. Typically families wait to change or address change until the emotional costs or pain of the current family or business situation becomes so high that they have no choice but to change.
The image of family businesses that is most commonly presented is one of, nepotism, entrenchment, and small inefficient businesses. People embrace this image of family businesses as slow to change, slightly dysfunctional, and paternalistic. Typically they don't think of family businesses as forward thinking, cutting edge, and innovative. It is when these negative images of family businesses are true that we find reasoning for the statistics on family business failures.

The real question is, Why do we hold this image of family businesses as being paternalistic and slow to change and what do we do about it when it is true? The roots of these thoughts can be found in two psychological concepts that have been used to help understand family functioning. These concepts are 'homeostasis' and 'emotional resistance'.

The theory behind homeostasis is that families seek a level of stability, a level of normal ups and downs within which they live their lives. This stability provides predictability that allows for the growth and development of family members, enabling a family to fulfil it's core purpose of protecting, nurturing and supporting each other. It is through providing this stability that a family can provide the foundation for children to grow and prosper. The challenge is that this stability becomes a liability to the family when it fails to recognise important, deep-seated psychological or business issues that they are facing, or adapt to changes in the environment around them.
Given the theory that a family seeks stability, dramatic shifts in the family or business environment force a family to confront a dilemma. The dilemma is, in dealing with the change and challenge that the family business is faced with, do we ignore the problem and seek the stability and protection of the family or do we recognise the problem and adapt to meet the environment ahead of us? While we would all hope to fall into the group of families that proactively address these changes in their environment, the reality is that many don't. Why don't families choose to proactively address the issues? The answer is most commonly emotional resistance.

While being a part of a family business can be both a rewarding and stressful experience, it often seems like the solutions to family business issues are rational and close at hand, but when you seek to implement those ideas, it feels like you are mired in mud. This tension arises from the complex emotional life of the family. Individual and family fears about the impact of change, manifest themselves in a concept known as emotional resistance.

Emotional resistance is described in the psychological literature as how a person will resist the treatments or suggestions of their therapist. The 19th century psychoanalyst Sigmund Freud believed that resistance protected patients from the anxieties inherent in recognising their inappropriate thoughts and internal dilemmas. The result is that, even though the family is seeking a solution to their issues, they often resist the change required to find the solution to their problems. This keeps the family stuck in their current situation, choosing stability over adaptation to change. By choosing this posture of stability, a family is almost assured of having to be reactive rather than proactive when faced with change.

One of the things that we know about generational transition in family firms is that in order to be successful in generational transitions, a family needs the ability to proactively recognise changes and challenges that lie ahead, and adapt and change both as a family and a business to meet these challenges.  So, how does a family move outside the stability of their homeostasis and overcome emotional resistance in order to adapt, change and grow to the changing environment around them?

The answer is that a family needs to have a strong leadership and a business governance structure to help them be proactive and to recognise when their homeostasis becomes a liability and when emotional resistance may be preventing them from moving forward. Councils and boards are important tools to help take action in these cases, and move the family out of that comfort zone and through the emotional resistance to change.
There are some common signals that a family council can use to help determine when they are coming up against emotional resistance in the family; some of these are when family members outwardly express support for a change, but work against change behind the scenes; when family members seek to discredit the change agent rather than engaging in a dialogue about the concept or principles of change, or when the family is actively denying that a problem exists.
While a family council shouldn't function as a therapist, it can and should help to create the conditions and culture through which the family can embrace change and push forward. A family council does this by creating accountability, building trust, and a culture where conflict is embraced and managed. This involves education, skill building, and communication.

As much as we would like to believe that a family can anticipate any of these changes, the reality is that no family will be able to see everything ahead of time. Because a family council is made up of family members, it is prone to seeking the stability of homeostasis, as well as emotional resistance. The board of directors is an additional source to help the family see the blind spots.
When a family may be stuck in the middle of emotional resistance, the role of the board is to prod the family to consider that they need to step out of their comfort zone. The board needs to help the family identify the issues and important family and business changes that are on the horizon. This is where outside directors earn their keep.

Boards can achieve this objective by helping the family to depersonalise the conflicts, help them identify the fears and risks associated with the change, and help them to engage advisors to help them manage the family dynamics.

In order for the board to be able to have the capacity to influence the family in this way and help them identify the issues, it must have the trust of the family and the family council. Through experience and over time, the family council and the board need to develop a record of working together so that when the really important and difficult issues come up, they have a foundation of trust and experience necessary to push the family and the business forward. This can only happen if there is a mutual respect between the family council members and the board of directors.

In the end a family business has a choice; Do we proactively address the challenges and issues that we face or do we seek the comfort and stability of the status quo? Ultimately it is the role of the family council and the board of directors to position the family business to proactively address important family business issues, rather than passively reacting to changes in the environment. Through building trust and creating a culture that embraces conflict, a family can help to build the foundation for a successful generational transition.

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