With several stakeholders having varied perspectives and expectations, conflict in multi-generational family businesses is inevitable. Personal passions & belief systems, varied life understandings, egos, and misunderstandings lead to broken relationships, court battles, erosion of family values, damage to social standing, and eventually business division. Only a handful of family businesses make it to the third generation and a meagre 3% to the fourth generation.
Multi-generation family businesses face unique challenges in balancing the preservation of the family business legacy of the founders, the capital requirements of the family enterprise, dividend distribution to family members who are also owners, and also wealth management.
This constant balancing of family needs, business vision, and legacy objectives can be achieved by understanding the family values and goals of the family in totality and the individuals within the family business.
Working in Multi-generational businesses is quite overwhelming. A strategic plan needs to be worked out for business succession while operating in the highly complicated multi-generational family dynamics.
Many family businesses have perpetuated for generations, but are few in comparison to family businesses in Japan, and Germany where family businesses have survived for more than 200 years, and the oldest family businesses have been able to survive for over 50 generations.
Family businesses must understand the disruptive forces impacting the business and the family and also the fundamental concepts which can help sustain success for generations.
Families in business who survive for generations must know that the longevity of the family-run business requires change and agility. Family businesses need to continually adapt to maintain continuity and growth.
In today’s world, family-run businesses must analyse their readiness, strengthen approaches and capabilities and plan for their legacy building.
Families have a choice of either single leadership and ownership approach, as in Japan, or retaining majority shares and control over the business. In both cases, strong family values are translated into business ethics, which drive the family business for generations.
“Family” is definitely the essence of the family business, but at times it is important to put the business first. Family members must understand that it is not important to involve every member in the family business. Business and complexities grow hand in hand. In multigenerational families, meritocracy should take precedence over lineage. Experienced executives to spearhead and a professional board of advisors to navigate the business become a necessity.
Thinking in terms of benefits for generations rather than achieving yearly goals is important. Strategies must put employees and customers first along with social responsibility. Long-term strategic thinking positively impacts decision-making for investments and recurring expenses, dividend declaration, and wealth management for building strong foundations for a legacy.
Every incumbent CEO must know when to exit. A succession planning framework must be designed and policies and structures should be followed at an early stage, enabling the ambitious next generation to have better clarity of their role in the family business. Family members also get prepared to adapt to the change during the transition phase.
To meet the expectations of the current and future generations, it is advised to have an experienced family business coach and family life coach on board, who understand and synchronize the family and business needs. The family coaches assist the family in discussing, drafting, and executing the family constitution and preparing and executing governance structures. They also help in preparing the family members for leadership roles through mentoring and coaching.
The
senior generations
want to be valued
for their
entrepreneurial
spirit, retain
authority, and
maintain strict
control for
financial security.
The younger
generation seeks
more freedom and
embraces technology
while ignoring
traditional methods.
Egos, experiences,
seniority,
hierarchy, etc. impact routine
decision-making &
result in the status
quo, and long-term
conflicts leading up
to court battles.
The purpose of the
family business, the
boundaries of
family, management &
ownership should be
discussed
frequently. The
family vision, goals
& values need to be
embraced with faith,
periodically.
Conflict resolution
mechanisms must be
put in place with
the help of family
advisors who can
coach the family
members on the
essentials of
togetherness.
It is important to document the informal and unwritten family values, ethics, and family goals for understanding and strict adherence by the current and future generations. The governance structures also need to be framed and followed for family bonding.
The younger generation needs space, freedom, and opportunities to prove themselves in the family business. As the family members grow, the senior generation must create equal opportunities for the younger generation so that they can drive those business divisions on their own and feel satisfied through a sense of ownership and control.
Family dynamics become quite complex with an increase in the number of family members. Subsequently, the views, expectations, and degree of freedom vary leading to situations of being unheard in the forums. Actions of family members become tangential to family business needs, leading to acrimony and no communication. The locked horns create a stillness in the board room and uneasiness in the family forums. Forgiving and moving on are the only way forward to maintain harmony in the family and in the business.
Family governance structures designed through the constitution, play an important role in family harmony and togetherness. The family governance structures such as the family council, the family business forum, the family non-business forum, the family office, the family foundation, etc. are designed by the family, are meant for the family, and comprise the family members. Family members through these forums have enough opportunities to lead the governance structures, participate and voice their concerns and expectations without fear. The frequent meet-ups through the various forums create a strong sense of family togetherness and build mutual faith and responsibility towards the family business.
In a nutshell, to sustain the family business for generations, it is highly critical to discuss, frame, agree, and document the unwritten and informal family rules and understandings in a family constitution.
The family constitution helps create boundaries between ownership, family, and management. It also brings about role clarity with authority, responsibility, and accountability, while considering family togetherness as the fundamental pillar. The family constitution helps future generations appreciate the true spirit of entrepreneurship of the earlier generations and reinforces the family values and culture for sustaining the family legacy.
The framework of trust, communication, and togetherness marginalizes internal conflicts, resulting in a highly dependent yet mutually exclusive work environment.
