Andrew Keyt is president of the US chapter of the FBN and executive director of the Chicago Family Business Center.
Ignoring the strategic landscape of the business itself, family firms can focus too heavily on leadership transition because of emotional reasons, says Andrew Keyt. Has succession overshadowed the harder long-term business goals?
In our ever competitive, winner/loser environment we as a global society seem to increasingly focus on short-term gains. Public companies tend to focus on quarterly profits and families mortgage their futures to create material and status today. Very seldom do we ask what is best for our families and communities in the long-term? We have become immersed in the here and now, forsaking the wider vision for our future.
We can see this in the portrayals of family business in the media, the services that our advisers offer, and the discussions of the family businesses we know. The message that emerges from all of these sources is an obsessive focus on leadership succession as a route to longevity of the family business.
Why are we so focused on succession as the main issue? When a family doesn't know what to do, what they often say is important is something that provokes and emotional response in all family members – a rallying point. While this emotional rallying point can provide focus, it commonly creates a situation where larger issues are avoided. In the family business, succession becomes the most common rallying point.
Advisers also get caught up in this process because, as more and more families ask for help with succession, advisers increasingly assume that this is the most important issue for a family business to address. The reality is there is no research that shows that leadership succession plans are important. In fact there is a sufficient body of evidence to show that management succession plans are unrelated to success. In addition, we often see ownership transition plans create structures that support existing family conflicts.
Rather than seeing that the strategic landscape of their business is changing, that their successors are unqualified, or that their business processes aren't working, the family rallies round the emotions of choosing a successor to carry on the family legacy.
Focusing on succession and leadership transition can ease short-term anxiety but the real focus of the family business should be to articulate the vision for the future of the family and the business. Rather than focus on who the leader should be, a family should focus on how the decision will be made and who makes it. Those who have to live with the results of the decision or who's support is needed for effective implementation of the decision, should have chief responsibility in the process where as those who are exiting leadership roles have the task of holding the next generation accountable for making that decision.
Creating a vision
When you look back at the building of the great cathedrals, the vision for their construction emerged over generations. Because it took several centuries to build them there was no one individual there from start to finish. The plans needed to grow, adapt and change, as circumstances changed. This is also the case with multi-generational family businesses. While many individuals devote their entire lives to the project, their contributions are just building blocks in a much larger vision.
The family must ask themselves the following questions. What is our family vision for the future of this business? What should our family and business look like in the future? Why do we want to perpetuate this business? What is it that keeps us together as a family and a business? What are all the pieces? How do they fit? Like the stone masons that worked on the cathedrals the task becomes shaping and reshaping the pieces to fit together, balancing the pieces so that they do not fall, and constantly tending to the foundation and cracks to maintain structural integrity.
Without a vision for the future, it becomes easier for the family to focus on short term needs such as dividends or fighting for one's own personal position in the company. When family members have a sense that the family business legacy is bigger than them, it is easier for them to shift from what is best for 'me' to what is best for 'us'. This is the ideal stance for a firm who's goal is multigenerational success where family members make decisions based on the best interests of the family rather than their own.
Building a foundation
Processes need to be put in place to assure the family business vision can evolve. The architects of the cathedrals started with the design (planning), then had to convey their vision to all of those involved in the building process (communication), and finally had to make sure the cathedral was built according to plans (accountability).
The foundation for the creation of the family business vision consists of these three principles: planning; communication; accountability.
Creating processes to manage these three objectives will help a family deal with conflict, emotional issues and from obsessively focusing on leadership transition, allowing them to shift their focus to a broader vision for the future of both family and business. Research shows that strategic planning, family governance and boards are the family business processes that support successful generational transition. Without these processes families will make decisions based on emotions rather than making conscious decisions.
Strategic planning. The process of articulating the larger vision for the family is intricately connected to strategic planning. To create a vision, you have to have a comprehensive understanding of your current situation and its implications for the future. This process is about developing strategies that are consistent with the needs and goals of the family, planning to meet the challenges of the current environment, while keeping an eye on the larger objectives.
Communication. The next building block in the foundation of the family vision is establishing a process for governance. This is about regularly scheduled communication. It allows the family to answer important questions. Why are we in business together? What is our mission as a family business? What are our expectations of the business? The answers are the foundation of a long-term vision.
To create a process to answer these questions a family must ask: What processes will work best given the size of our family and our family culture? For smaller families (typically in earlier generation firms), a simple process of regular family meetings will work. Larger (and typically older) firms will require a more formalised process, usually involving the establishment of a family council.
Accountability. There must be a process of accountability in place to assure that each component of the vision is being implemented in a way that is consistent with the larger vision for both family and business. This involves creating a system of board governance providing accountability to management for articulating strategy and achieving strategic objectives. Like family governance, this typically exists along a continuum – from informal to formal – based on the size and complexity of the business (see Loyola Guidelines for Family Business Boards at www.sba.luc.edu/familybusiness).
By creating a strong family governance system, a strong board, and doing regular strategic planning, a family will be laying the foundation for increased family unity. While a weak or fractious family is a sure liability to both family and business, one that is unified can be a never ending resource of ideas and energy to ensure a businesses success both now and in the future.