When a family business sustains for more than one generation, problems often arise. As the family business ownership passes hands, differences develop in opinion, mindset and skills. It becomes hard to work on a shared philosophy towards a common goal. When family-based values and professional business values clash, conflicts arise. This often leads to the downfall of the empire. These things are far away from each other in a non-family business. But in family businesses, these overlap and become interdependent. The role of a family office advisor in materializing family business governance problems then becomes significant.
The Evolution of Family Business Ownership
Studying the lineage of ownership and its effects help understand the conflicts in a multi-generational family business. The more the company spreads out and becomes diverse, the vaguer the connections and control become. It is crucial to develop a common goal and vision and a shared sense of responsibility and purpose. As long as the ownership stays within the generation of siblings, it is manageable. But as it crosses generations, more and more cousins and distant relatives come into play. And once the ownership reaches this stage of the conflict, it becomes tough to maintain unity and quarrels arise. Managing the business also somehow identifies with control over the family and thus causes unpleasant discords.
Responding to Increasing Complexity
In a situation of conflicting family business ownership, as mentioned above, the challenge becomes to manage a network of expanding interconnected families with different levels of involvement and varying skills and opinions. It leaves two options at hand. The ownership is with few hands by offering the cousins money and eliminating their claims. But this turns out to be very expensive and often leads to selling the company. Another option is to retain this complexity and case of over-involvement but keeping the problems caused by it at bay by carefully managing it. It requires setting rules and policies and keeping everything in check, which involves appointing expert family business advisors.
The Family Governance Process
The family governance process for family business owners should be based on a method that is fair, inclusive, transparent and shows clarity. It is essential to have a family enterprise advisor who takes the initiative and decides these things. This family enterprise advisor can coordinate with the whole family and set up a professional family office. The family office can then take care of the issues in terms of coordination and communication within the family. There are often two types of family opinions that often arise. One type believes that everyone should be involved from the beginning. However, the other kind believes that it should start with a few key members and others should be brought in gradually. Conflicts usually arise between them. Decisions, in this case, should be made carefully keeping in mind the goal to promote unity and inclusiveness.
Structuring Family Governance
Firstly, for family business ownership, it is essential to create organized accountability among different groups in the family and the business. With proper structural family governance, family issues and business issues can be successfully separated. An elaborate governing structure supervises all the different groups formed within the family. A family office helps to do it. The family office can create a family council, including a representative member from each of these families. The goal is to make a unanimous decision that will satisfy everyone.
Getting the Structure Working in Family Business
For the family business governance structures to work, there needs to be proper collaboration and communication between family members. Communication is a major issue here. Apart from that, avoiding situations and a lack of transparency and hidden agendas only make the case worse. A family office advisor can play a significant role here. He or She can provide a safe environment for family members to communicate and cooperate. Family members must listen to each other and try to understand each other’s views. Showing respect while at the same time, being ready to explain one’s own honest opinion is essential.