Recently while attending a church service our preacher, Dr. Bob, delivered a sermon titled, “Behind The Manicured Hedges” that struck a chord personally and also as a professional family business succession planner. The preacher was referring to Winter Park, FL a largely affluent community consisting of families who have above average means, fabulous homes and impeccable landscaping surrounding their homes. Many who drive along the brick paved, tree lined streets are impressed with the meticulous landscaping and are somewhat envious thinking that these families have no issues or no problem that money cannot fix. If only that were true! The fact is, regardless of how perfect a family looks from the outside, all families have issues.
Family issues exist for a multitude of reasons which include but are not limited to: lack of communication, lack of trust, entitlement, sibling rivalry, jealousy, resentment, generational issues and the list goes on. Familiarity in a business environment inevitably breeds contempt, which in many cases, is the foundation of issues. Unfortunately, many families prefer to avoid the conflict and sweep issues under the rug in hopes that they will go away or never resurface. The reality is, these unresolved issues typically fester and eventually reveal themselves in some tremendously destructive ways, creating even more conflict. This is especially true in family-owned dealerships when family and business collide. The fact is, family business is an oxymoron. Family represents unconditional love and acceptance, whereas business represents conditional performance. Navigating these competing priorities can be quite difficult.
Statistically, approximately 33% of family owned businesses make a successful transition from first generation to second, approximately 10% successfully transition from second generation to the third and approximately 1% make a successful transition from third to fourth generation. There are a variety of reasons for these depressing statistics. However, there is a common thread that exists among family-owned dealerships that have made successful generational transitions. Based upon my experience and that of other family business succession experts, the families who have made successful generational transitions are those that acknowledge they have and will continue to have issues and proactively work to address the “issues of familiarity” and other issues mentioned above.
So what exactly do these families do to effectively address issues and increase the odds of achieving succession? Here are five best practices that breed family business Succession Success™ :
Establish a Family Business Council: A Family Business Council is a family group designed to discuss various topics that are important to the family’s general welfare and business success. This forum provides family members an opportunity to learn, ask questions, share concerns, confirm family values/priorities and remain informed about the strategic direction of the family business. These meetings typically take place twice each year and in some cases time is allocated for the family to spend time together or participate in fun activities, especially if they do not live in close proximity to each other.
Create a Family Mission Statement (or Family Constitution): To quote Steven Covey, “A family mission statement is a combined, unified expression from all family members of what your family is about – what it is you really want to do and be – and the principles you choose to govern your family life.” The development of a Family Mission Statement helps confirm the values that are the cornerstone of the family and can serve as the guiding principles in the family business.
Develop Operating Covenants: Operating Covenants are morally binding agreements family members make to each other that serve as a foundation for effective communication and interaction. Operating Covenants are a tool designed for family members to help hold each other accountable to commitments each has made to the family and the business. The process is designed to align expectations by engaging each family member and drawing out reasonable expectations each has of the other. Sometimes the expectations are realistic and at times they are not. In the event they are not, an independent third party can be instrumental in working through unrealistic expectations eventually leading to aligned expectations. Operating Covenants also help address other items such as how family members will resolve conflict when it inevitably arises.
Develop a Family Business Employment Policy: A policy establishing criteria for how families may enter the business, specifying educational requirements, requiring external work experience prior to joining the family business, compensating based upon position regardless of family relationship and reporting directly to a non-family member are some of the common elements of an effective Family Business Employment Policy. Successful family businesses are careful about not creating positions around family members but rather defining the positional needs of the organization and hiring the best available candidate (may not be a family member).
Form an Advisory Board: Advisory Boards are used for a variety of reasons which include but are not limited to: providing independent advice to family- owned Dealers, offer strategic guidance in areas the family and/or management team presently lacks, serving as an educational forum for actively employed family members and serve as an informal accountability partner by reviewing and monitoring business performance and making suggestions as to how owners, managers and family members can improve the business. Unlike a formal Board of Directors, an Advisory Board is not legally responsible or liable for the performance of the business.
Does your family business look great from the outside but not so great from the inside? Answering this question honestly can be the difference between long-term family business success and failure. If your family business has achieved business success, do not rely on the façade of outward success and neglect to cultivate effective working family relationships. Perhaps it is time to prune your family business hedges by addressing family issues, establishing forums to foster enhanced family communication and developing written policies that provide clarity and direction to current and next generation family members. Taking these steps will help ensure that your family business is as healthy and strong on the inside as it appears from the outside!
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