Extract
Family businesses face unique business challenges such as family conflicts, lack of professionalization, difficulties in succession, role confusion, financing limitations, lack of talent diversification, short-term focus and family talent management. To overcome these difficulties, it is crucial to focus on professionalization, establish clear succession planning, promote a strong company culture, and effectively manage family talent.
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When You Can't Separate Personal Life from Work Life
From small local businesses to large multinational corporations, many organizations find their roots in family. However, behind the apparent unity and loyalty often associated with family businesses, lurks an intricate web of unique challenges and complications that, if not proactively addressed, can threaten the long-term sustainability and business growth.
Proactively addressing the challenges of the family business involves questioning and transforming paradigms rooted that, although they apparently provide stability, can be obstacles to the sustainable development of the business. Among them:
“The business endures everything” where long-term financial health is compromised by allocating business profits to personal expenses (events, vacations, luxuries, among others) before meeting business obligations (payroll, suppliers, reinvestment, among others).
“Business is eternal” where ego over past success leads to neglect of customer service, lack of differentiation and reliability, and absence of a clear strategy, resulting in progressive loss of customers.
“Decisions belong to the family” where the organizational structure is weakened by basing decisions on family ties instead of business needs.
“The family does not come from the base” where employees and family members are treated unequally in terms of demands, incentives and responsibility.
“We never think of the worst” where there is no planned transition process between generations that includes the selection, preparation and adjustment of new leaders to ensure the health and continued growth of the business.
“Don't look, here you go” where the potential for innovation is limited by forcing family members to participate in the business without having known other work cultures.
Breaking these paradigms involves overcoming obsolete routines and develop professionalization of business management, focus on efficiency and implementation of clear policies in the operation and administration of the business, among which the following stand out:
Separate Personal Finances from Business Finances so as not to undermine the organization's efforts to prosper.
Develop a Continuous Improvement Culture to promote innovation and competitiveness of the company with the support of internal and external advisors.
Establish Business intelligence to make decisions based on objective data, rather than relying solely on intuition.
Adopt a Management by Results to level the playing field and generate a sense of belonging, commitment and motivation throughout the team.
Proactively identify and address Business Risks to avoid unforeseen surprises that put business continuity at stake.
Prioritize the Personal and professional Development of the Collaborators to encourage the acquisition of new skills and perspectives.
This will build a solid foundation for the continuity and continued success of these family businesses over time and help them overcome entrenched paradigms.
Family Business Administration: Administrative Council and Family Council
One of the most obvious challenges in family businesses is the confusion of roles and hierarchies. Often the line between family and business is blurred, creating significant tensions. In this context, the Board of Directors in a Family Business plays a crucial role in separating interests related to the emotional part (family ties, the interaction between its members and the fight for power) and rational family business (the economic and operational stability of the company). This facilitates the growth and good direction of the organization.
As the supreme body of corporate governance, the Board of Directors makes critical decisions that influence all aspects of the organization:
Make decisions on relevant investments and asset disposals.
Supervise corporate operations and definition of key policies.
Monitor the execution of strategic initiatives and tactical plans.
Establish and monitor budgets and financial projections.
Approve the Strategic plan and changes in objectives.
Among others.
Although it is sometimes perceived as a regulatory obligation, its importance goes beyond legal requirements, since it serves as a management mechanism to promote strategic initiatives. There is no single structure, but for family businesses or SMEs (Small and Medium Enterprises), a board composed of 4-6 members that includes at least a President, a Secretary and several Directors (shareholders or external independents) is considered optimal. In turn, the frequency of meetings varies, but an average between 4 and 12 annual meetings, adjusting to the specific situation and needs of the company, is considered prudent.
The alignment of objectives between the Board of Directors and the Family is essential. For this, the creation of a Family Council is essential to establish and align the priorities and expectations of the family in relation to the management of the company, facilitating effective communication with the Board of Directors. Your responsibilities include:
Solve problems in the business-family environment.
Review business strategies and approaches.
Define family plans and projects.
Encourage family participation.
Transmit values to the company.
Among others.
Disagreements, common in any organization, can quickly become personal in a family business. The inability to manage these conflicts effectively can have devastating consequences in the work and family environment, leading to staff turnover (silent or announced) even from family members. One of the most frequent and critical disagreements for the organization are succession issues.
Succession: Maximum Test of Survival and Business Continuity of the Family Business
Transforming an individual business into a family business marks a milestone, but succession between generations is essential to ensure the significance of the achievement. This process requires proper planning and coordination, and goes beyond the change of leadership.
Succession in family businesses is a complex challenge that decides the future of the company, the ownership structure and the family relationship. This has implications…
For the Administrative Council, which must ensure that succession is a planned process and not a reactive process and subject to unforeseen circumstances such as an accident, disabling illnesses, or sudden death.
For the Outgoing Leader, which must evaluate the most appropriate time and type of departure, develop successors before they are needed and consider different post-succession roles.
For the Incoming Leader, which must provide continuity without interruptions, adjust the strategy and structure of the organization and earn the loyalty, respect and support of collaborators
For the family, which must instill business values, motivate interest in the family business, monitor its performance and establish clear guidelines for succession.
While the new incoming generation is eager to exert control and establish independence, the old outgoing generation faces the difficulty of leaving their life's work. Whereby generational transition requires careful preparation and openness to different possibilities.
The Family Protocol emerges as a fundamental tool for the unification of the family and the institutionalization of the company. This document details principles, values and guidelines of family integration for conflict resolution and performance evaluation of employed family members; which is key in the process of transferring ownership and management of the company. Its creation and maintenance involves meetings, planning exercises and an annual review of the document to adapt to changes in the business and family environment.
Through careful planning, teamwork, the development of capable successors and a lot of adaptability, family businesses can not only pass this ultimate test but also ensure a long-lasting and prosperous legacy in the business world. The Board of Directors and the General Management of the company must be given the authority to communicate, monitor, implement and audit the execution of the Family Protocol so that this instrument serves effectively.
Conclusion: From the Family Business to the Business Family
Although family businesses face unique challenges, they are not doomed to failure. By recognizing these issues and proactively addressing them, family businesses can turn these challenges into opportunities for growth and empowerment.Careful planning, open communication and professionalization of management are key steps to overcome the difficulties inherent to family businesses and ensure the development of a High Performance organization that achieves business success. Ultimately, the ability to effectively balance the family and the business is the key to navigating the turbulent waters of the family business.
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About Pablo Tellaeche (Author):
Owner and main consultant of TACs Consultores, Speaker and University Professor; seeks to bring a true and positive Lean Culture and Digital Transformation to every company with which he has the pleasure of collaborating.