Yirhan Sim’s case study focuses on working with a client family to achieve consensus on a protocol for family governance through the use of Key Performance Indicators (KPIs). After an initial engagement, he was called back a year later to help the family reach its goals.
When the Ball Gets Rolling, It’s Easier to Score a Goal:
Two Simple Key Performance Indicators (KPIs) to Use in the Family Governance Process
An overview of the case:
Several years ago, I conducted an initial sharing and educational session on family governance with members of a family enterprise. Following the session, they were very excited to implement the process since they saw the value of the process and its outcome. After all, they thought, how difficult is it really to conduct regular family meetings — just another type of meeting with a different kind of agenda. The family expected that a family constitution, which was one of their desired outcomes in the family governance process, would be available in three-six months time.
When asked whether the family would be willing to have me facilitate the family meeting process, they indicated their preference to do it themselves, as they believed that the process would not be difficult to conduct. They also preferred to have family matters discussed in private. One of the five children, all of whom were involved in the business, was assigned as the meeting coordinator.
The patriarch indicated that since this was a family affair, the family meeting would take place during the weekend so it could coincide with other family activities. Thus the meeting would be a combination of serious matters and informal activities .
One year passed, and I was called again to check on the progress. I found out that the family constitution was not yet finalized. Meetings were not regular, and in every meeting the same topics were re-discussed and revisited — just to clarify definitions and common understandings on meaning and interpretation. Meeting notes were available but follow-ups and closure discussion points were not completed. As it turned out, managing the family meeting was not as simple and easy as it had seemed.
Getting the ball rolling:
Making progress on family governance structures is a common problem when a family sees family governance as an important matter, but the urgency of business matters takes precedence over family matters. Family matters are better addressed outside business hours.
In order to enable the family’s progress, I introduced a performance measurement technique, Key Performance Indicators (KPIs), to facilitate engagement with the family — especially the patriarch since this family was quite business centric. KPIs establish criteria for a business to measure successful accomplishment of a goal or set of objectives. Two simple KPIs were used:
KPI 1: Design, frequency and agenda of meeting
As simple as setting up a meeting can be, it is important to see the meeting’s design elements, e.g., agenda, timing, in relationship to other available meetings in the family business system. Therefore, I worked with the appointed next generation member to redesign the family meeting processes and agendas as part of the overall business governance process. Whenever there was a business leadership meeting, a couple of hours are dedicated before or after the business leadership meeting as a forum only for family members and owners to raise and address issues. This became the new family meeting with no change of participants since all children were involved in the business.
The topics to be discussed were also selected based on categories. We outlined the articles of family constitutions to be aligned, and divided them into two categories. One category addressed topics that intersected between business and family. The second focused on family matters. The discussion priorities addressed the intersection categories such as entry requirement to the business for family members, compensation and benefits for family members including health and education benefits, new business venture interest of family members, succession planning, etc. Examples of topics that fell into the second category included social interest, family vacation, etc.
By designing the agenda to address business related matters that intersect with family matters, the patriarch was more receptive to conducting the family meeting during business hours. Thus, the family meeting became more predictable and regular, i.e., the family meeting became a monthly event, just like business leadership meeting.
KPI 2: Percentage of articles in the family constitution being aligned.
This KPI forced the family to discuss and align on what needed to be included in the family constitution, thus setting the initial scope and boundaries of the family constitution. The family finally agreed that there were 16 articles to align and prioritize, during the meeting process. In practice, this posed some difficulties, as there were elements from some categories that were better discussed together than separately, e.g., personal and corporate social responsibility activities of the companies and families.
Scoring the goal:
Implementing both KPIs has proven to help the family achieve better process management for the family governance. The meeting frequency (KPI #1) has improved from five meetings in the previous year to 11 meetings, almost a monthly meeting the year after, since the business leadership meeting is seldom skipped. The percentage of articles in the family constitution aligned with company goals (KPI #2) has also improved — from less than 25% to about 75%.
These two simple KPIs were helpful for the family and for me as together we monitored the progress of the family governance process. These KPIs can be used with other families in business. Even though each family is unique and different and comparing can be problematic, other advisors and consultants can still you these KPI’s as a point of reference to track progress and identify gaps that need to be worked out.
And…the consistent process of getting the family members together to have open minded and constructive discussions on family and business matters may be more important than the family constitution itself.
Yirhan Sim, international sales manager of Medion in Bandung, West Java, Indonesia is a second generation member of the family business. Medion is one of the largest Indonesian-based animal pharmaceutical and vaccine companies. It has marketed its products to more than 15 countries in the Asia Pacific region and conducts special poultry related training for poultry shop owners and broiler and layer farm owners who operate as family businesses. Yirhan holds the Advanced Certificate in Family Business Advising from FFI. He can be reached at email@example.com.