Managing family businesses is complex. In addition to managing the business, the family needs to manage itself. This is part 2 of a series of articles related to family enterprises that are going through a period of sweeping generational change and disruptive events primarily triggered by family conflict. Our subject matter will solely deal with communication as it is one of the single biggest challenges in managing the family component.
In one of our internal W+B surveys, we discovered that 75 percent of the clients we polled often assume they’re indeed communicating. But is it effective? Unfortunately not. In that survey, family members have this “conditioned mindset” that since they’re family, they are naturally communicating, but, in reality, it is quite the exact opposite. Those regular Sunday lunches with the founder or daily chats with the clan leader makes them assume that the family is communicating. Again it is not. So even when there is a conscious effort and desire of family members to talk and share notes, the methods and actions they typically employ to encourage regular contact should never be mistaken for real structured communication.
Without Open and Honest Communication, conflict is at your doorstep.
As PWC’s Amin Nasser highlights in his article, “the two greatest threats to the successful continuity of family businesses are conflict and succession. And these two critical elements are caused by a failure to communicate! He further explains: “Conflicts in family businesses are rarely caused by poor business performance; most conflicts arise because the family owners perceive that their needs are not met. Conflicts also surface when situations are unclear or not properly understood. The management of these conflicts becomes the key to survival of both the business and the family. Indeed, the main reason behind the emergence of conflict in family businesses is the lack of understanding and communication between the three family dimensions, namely the family, owners and management.”
The dimensions that Nasser was referring to is known as the three circle model of the family business system developed at Harvard Business School by Professors Tagiuri and Davies in 1978. The framework clarifies in simple terms the complex system comprising each of these overlapping sub-systems. Being mindful that there exist three separate, dynamic, interlocking circles is a significant accomplishment for a family business. Sadly, family members especially the founders may be in denial or they acknowledge these overlaps exist but do not embrace it or they are just plain oblivious that this emotional minefield is something they can easily resolve.
The predictable conclusion can easily translate to poor communication, resentment and a lack of commitment to the future — the very things the business family is trying to prevent. And what will happen if the leader is no longer around? Your guess is as good as mine, real conflict that may scar the family and its descendants for life!
Let me illustrate a typical mid-sized family business obsessed with growth and expansion with limited communication. To family members, the business is an extension of the family. Every family member is expected to be “all hands on deck,” meaning everybody is expected to be part of the business. In my work as a family advisor helping families operating in Asia, I would hear disheartening words from tense and edgy offspring: “Our founder (father), would always hound us that working in the business is like our sense of duty and obligation and that we must live up to his standards. In truth, we are not aligned. I am here because I still respect him. If he goes, I’ll be the first one to exit and sell my shares. It is just so frustrating.”
To create internal stability, families must establish structures and processes in place to help them govern themselves so that they can lead the business better.
To be continued...
January 24, 2022
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