No two family businesses are the same. They each have their own unique mix of family dynamics and business challenges. The dynamics and challenges also aren’t static and change over time depending on the maturity of the family and the business.
However whilst all family businesses are different, they are also the same. There are predictable family business events or scenarios which the family will need to address as the family and the business grow.
This is why we strongly advocate to family business clients the importance of transition and succession planning, in concert with pre-agreed family rules, to pre-empt how the family will deal with the predictable events or scenarios if – but more likely when – they occur.
One of our family business clients put it best when he addressed his siblings in one of our family governance workshops.
“No surprises… we need to discuss and agree now, so that when something like this happens, this is how we will deal with it”.
So what do family businesses need to plan for?
It’s what we often refer to in our family business workshops as the ‘what if’ and ‘what happens when’ scenarios.
Whilst far from an exhaustive list, family businesses need to plan and agree on rules around:
- What happens if a family member wants a job? What conditions should we have in place for the benefit of the family member whilst also acting in the best interests of the business?
- As a family how do we prepare and equip family members to be considered for future management and leadership roles in the business?
- What happens to family ownership if a family shareholder divorces?
- What happens on the death of a family shareholder…what happens to their shares?
- What if a family member wants to sell their shares and exit the family business?
- What happens when siblings working in the business disagree about expected remuneration and benefits afforded to them by the business?
As you would expect, if these scenarios aren’t planned for – and clearly communicated to family members – they can cause underlying tension or open conflict within the family. This distracts the family to the detriment of family relationships and ultimately the success of the family business.
We are not suggesting that there won’t be disagreements and tension along the way. But by planning and having clear rules, the family is far better placed to lessen the chance of tension and conflict ‘paralysing’ the family. The family will also be best equipped to constructively manage change.
We are often asked, when is the right time to plan and what size does the family business need to be? Based on our experience, the challenges of family business aren’t limited to ‘large’ family businesses. Also, planning under ‘harmonious and calm conditions’ leads to far better outcomes. People rarely make well considered choices in the middle of a ‘crisis’, and it is hard to implement rules retrospectively – i.e. it is very important to establish plans and rules well after the ‘horse has bolted’.
Communication, structure and planning – bringing the elements together
The old saying ‘the whole is greater than the sum of the parts’ aptly applies to the three core elements. Working in unison they generate strong and effective family governance to deliver:
- respect for each other’s views and ideas
- trust in family members working in the best interests of the family and the business
- comfort in terms of the next generation seeing a future pathway and being well equipped to transition into and through the business
- confidence of the current generation in the next generation’s ability to grow and protect the family capital for future generations.
This article has been provided by KPMG Enterprise and the advice is designed to be general in nature.