Investing in the Family for Business Success

If your company is like most others, investments in the board and the business take priority over spending money on the family. This needs to stop.

For the sake of the business, companies need to change their perception of the family. Stop pushing them off to the sidelines, and start really investing in them. Spend as much time focusing on the family as you do as the board and the business. The continued well being of the business depends on it.

This is because the family has as much impact on the corporate bottom line as hiring good managers or appointing an experienced board does. Although families shouldn’t be meddling in the business, they impact it just by the fact that the company is family owned.

Because the business is family owned, management constantly makes assumptions about the family and invests based on those assumptions. For example, management relies on the assumption that the family wants the business to remain family owned, that the family is invested in the company, and that there isn’t going to be a huge sell-out or big legal issues coming up. If a company ever does perceive that there are any of these risk out there, they will start accumulating cash and taking less risks in the business because the family is presenting a large risk to them. Like any other risk, they must balance it out by taking fewer risks in other areas. Business leaders may feel that they need to store up cash in case they need to do a big stock buy-back, or that they need to maximize revenues because the company is going to be put up for sale in the near future. These decisions, made only to hedge against the threat of turmoil in the family, may hurt the business.

Your family impacts your bottom line as much as all the other entities that are involved with the business, and yet in general companies invest a lot less in families than they do in corporate boards. Having a well-run family council and a good governance process can reap as much benefit for the business as having a well-run board.

Shareholders who have been educated about the business make better stewards, and are better able to serve as the best possible partner to the business. So it makes a lot of business sense to invest in educating the shareholders, rather than marginalizing them in favor of investing in leaders who have a shorter-term stake in business outcomes.

I’ve met a family recently who has an annual budget of $50,000, and that includes stipends for the family council chair, stipends for all the family council members, and bringing 65 people to the annual family council every year, including all travel expenses. And yet this is a large company. They are doing well and could afford to invest in the family. The family is a big player and yet the family is still marginalized and they can’t do any of the work they need to do in terms of developing new family leaders, or putting together a next generation program so that they can start educating and recruiting the next cycle of leaders into the business and the family governance structure.

One of the best ways to get value out of your family council is to actually pay a salary to your family council chair, and set up accountability around that role. Task that person with moving the family forward, and with keeping the family aligned with the company.

The risk of a company not investing in the family council is that the company doesn’t have a window into the family. The company then is making assumptions about the family that may be completely false. That’s a big risk. That could be the entire value of a family council itself–it keeps open the dialog between the family and the business. The family council takes the pulse of the family.

If you aren’t investing heavily in your family council, you lose opportunities to build connections with each successive generation as the family gets more mature. You lose chances to bring highschoolers and college kids in for internships, because their families are not coming to annual meetings, or they are coming to annual meetings and they’re not having any fun. Over time, the family becomes less and less engaged with the company and with each other. If you don’t invest in the family council, you lose that emotional cohesion with the company and relationship cohesion with the family.

When you invests in the family council, you tap into huge potential. You find people you didn’t know could be contributors. You find ways for the family to contribute that you haven’t thought of before. The family becomes more committed and more engaged with the business, and it instigates a beneficial cycle where the family and the business help push one another along.

Such an investment also helps you tap into a great feeder population when the next generation family members consider the company as a possible place to work in the future. They see the board as a way they can make a contribution, and they see family governance and family leadership as a great way to stay connected to the family and the business without needing to be in the office every day.

With that kind of commitment from the family, the company is able to recruit top talent. They may not be able to compete with public companies on stock options and salaries, but they are competing by having a fun and exciting place to work that invests in doing things right, rather than managing to a quarterly return like a public company would.

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