Behavioral Science / Family Business / Governance / Issues in the Family Enterprise / Leadership / Legacy / NextGen

Intergenerational Communication and Family Governance: Myths and realities

The Practitioner

Myth 1: Avoiding talking about business at home generates healthy family relations.

Reality: Lack of fluent communication among family members enhances the conflicts they face. Informal meetings (like the ones that are created around a dinner table) offer the proper mood many families need to go deeper in the conversation about their shared values, mission and vision. Of course, formal meetings are also necessary—when information is not formally delivered, misinterpretations are common. A good combination of both kinds of meetings generates the right moments for coherent conversations about the shared heritage and the future a family wants to build. Not having this combination often results in heated discussions between parents and children or among siblings, who have different perspectives on the same reality.

One of the main objectives when thinking about implementing a governance system in a family business is to help create the right conditions for effective communication between the leaders of today and tomorrow. Initial (and in many cases) informal conversations may determine if the family truly wants to continue with its heritage in the future. The initial informal approach can lay the groundwork for strategies, guidelines and projects to be undertaken by the family to achieve the goals that can be discussed later in more formal meetings. If the family or some of its members wish to separate, they should create mechanisms to negotiate favorable terms for all parties. But if the family wants to continue on together, they must first of all build spaces, conditions and rules for the sake of balance and harmony to create shared dreams of future.

Myth 2: I’ll work hard for my family so my children will never need to work in the family business.

Reality: Values drive our lives. Being a next generation member and not having an active involvement in the family business (which is a valid option if done right), often leads to a feeling of considering the business only as an asset. And that’s OK, too, as long as every member of the next generation develops a sense of self realization. There are some situations when not a single member of the next generation has ever shown any interest in the family business. Some others (and in my experience, sadly more than I would like to admit) find it difficult to complete their studies at university or high level college, or have a chance to develop their professional lives or face real-life responsibilities (including a functional parenthood). When facing their adult stage, many members of the next generation live their lives thinking that their parents’ company will forever ensure their financial security. In these cases parents discover at a late date that they are suddenly in a worst case scenario for any succession possibility, i.e., their children are neither fit successors or responsible owners, nor fit to work in any alternative professional environment.

Myth 3: We can handle our communication and governance problems without an outsider.

Reality: Not a single family has in its natural line-up all of the talent or human resources needed for being a successful business. Families in business need outside help, including managers, advisors and counselors, to tackle the majority of difficult situations they’ll face in their evolution. When thinking about the future, a family can take good advantage of an experienced and objective guide to provide clarity in the steps that they will need to follow. This is especially true if the advisor is someone who can create conditions that allow effective communication between generations through a system of family governance structures. The center of decision-making that works well in many cases is often a family council, a forum in which family members can meet to settle their interests related to the preservation, growth and transfer of their shared family patrimony. The family council can regulate these decisions and provide a framework of agreements that allows them to function properly. It can help to create a set of rules, wherein the family can agree to regulate, among others issues, family culture and values recognition, policies for ensuring the quality of communication and family harmony, rules for entering the company, economic benefits and wage policies for family members, guidelines for the family philanthropy and a succession plan for the next generation.

Myth 4: Implementing a family governance structure is easy.

Reality: Implementing family governance structures in a family business is neither simple nor free of setbacks. In many cases, success can be achieved if two key conditions are fulfilled:

First, all agreements must be consistent with the “Shared Dream” (their concept of the future together), and every member of the family’s personal dream must be consistent with the collective one.

Second, all decision-making within a family council should be based on “consensus,” which, unlike “unanimity,” when well driven enriches the debate, increases group commitment and offers the possibility for everyone to be involved in deciding key issues. But this is only possible through the creation of a dedicated space for conversation about family and heritage issues, based on effective communication, mutual respect and recognition. Some families with advanced governance structures that integrate a next generation owners’ forum, create inter-generational dialogues between the current leaders and the proper and mature next-gen members about the future of the family business. Having well organized sessions, addressing issues related to family governance and legacy is key.

Myth 5: We don’t need to involve the next generation in our decision making process for the future of the business.

Reality: Yes, and no. Depending on the level of maturity of the next generation, a leader generation can manage to shape a forum — adding and separating the functions of the family and the company leadership. This helps to strengthen the role of the board of directors of the family business, focusing it efficiently on their responsibilities as administrator of the company strategy.

When is the best moment to get the next generation involved in this process is a question that usually arises when leaders decide to implement a family governance structure process. For many families the right answer is “whenever the current leader generation is ready.” It is not possible to generate a solution that prepares the future owners as the next leaders if the current ones are not clear about the objectives and rules of engagement for the next generation.

Myth 6: All the education needed to lead the business can be found outside the family business.

Reality: The best value that a family business can deliver to its family members is educational training for current and future owners/managers. In the company, courses can be designed exclusively to improve the group skills and knowledge needed to be responsible in roles and areas not covered by the formal education that family members might have received in their university or high level studies. This training can include (but is not limited to) issues related to economy, finance, company exclusive know-how, human relationships and communication skills. On top of that, in order to generate the necessary conditions and safe environment for the establishment of conversations on specific issues related to the transmission of the family patrimony, participation of both (leading and future) generations in training sessions helps to confirm that the family truly wants to continue on with this heritage in the future. In the worst case scenario, it can lead to solutions for those who don’t want to keep going on together.

About the contributor

Guillermo Salazar is the founder of Exaudi Family Business Consulting, a former member of the FFI Board of Directors and the holder of an FFI Certificate in Family Business Advising. He is the 2015 recipient of the FFI International Award. He can be reached at guillermo.salazar@exaudionline.com.

 

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