Choosing a Consultant to Work with Your Family

I was recently interviewed by a family for a consulting job. I was one of three consultants they were interviewing. At first, I was extremely nervous – the last job I had interviewed for was about 15 years ago–and then I realized what a great opportunity this was. There were several benefits I saw to this process:

  • The family could make sure that I was a good fit for them in terms of style and approach.
  • I could make sure that the challenges and opportunities that the family wanted to address were ones that I could help them resolve. Not every consultant has the tools, experience, and/or interest to work in every client situation.
  • The family made the choice as a group, rather than one individual finding the consultant and then introducing them to the family. I have seen this many times, and although this may be an innocent arrangement, the perception is that the consultant is working for that one person, not the family. This makes it almost impossible for the consultant to be truly effective.

Since I had this experience, I recommend every family who approaches me to follow the same process. I encourage them to go to a conference or find a few more consultants through recommendations from other family businesses and have each consultant conduct a webinar with the whole family about their experience, philosophy and methodology. Then the family selects one or two individuals for an in-person meeting and a more in-depth introduction. Finally, the family can vote on the consultant they feel is the best fit for them.

When the selected consultant starts working with the family, he or she will already have a good feel for the family and the family will be ready to start working with a clear path and set objectives. This is a win- win for both the consultant and the family.

I have started using this approach for other service providers as well. One family I recently worked with was implementing a Development and Education program for their family leaders and family directors. Part of this program includes professional coaching. We found three coaches who work with family businesses and had each prepare and conduct a 30 minute webinar with the family. This was an immensely helpful process – the family learned more about professional coaching and at the end of each webinar had a sense of the coach’s approach and who they would like to speak with further on an individual basis. This was a small effort on the coaches’ part and was immensely helpful to the family.

When Family Doesn’t Feel Like Family

Many families think that a 4th or 5th generation business-owning family should act and feel like a 1st generation family. That leads to strain and conflict or a feeling of inadequacy. Trying to have a sibling or cousin relationship with a second or third cousin just feels strange, and yet I have spoken with many families who believe like they should act more like a family with the people with whom they co-own a business.

My response to them is to ask them if they have stayed in close contact with 4 or 5 generations on the side of the family that doesn’t own a business. Family in a family business is an artificial construct when you get to 4 or 5 generations. Don’t get me wrong, many excellent relationships can develop within a family-owned business, but expecting close connected relationships with all 40 or 140 of your fellow family members is impossible.

Many families enjoy much commonality, like shared values and similar upbringing. But there are also vast differences as a family business grows – differences in dividends and other income, growing up in different environments, having parents who worked in the family business or parents who never even went to meetings, parents who felt loved and accepted by the family and those who felt misunderstood or rejected. That creates unique individuals with very different perspectives.

It’s far better to strive to build and maintain good working relationships than try to build family feeling amongst many disparate family business members. The feelings of family can be generated through working together and building context for your relationship. Some families volunteer together for Habitat for Humanity, or other charitable organizations. Others work together on specific task forces or projects for the family council. It doesn’t matter what you do, just so long as you are working consistently for a common goal, and provide some time for socializing around the event. This will create the opportunity to get to know one another without the pressure and expectation of feeling like you should feel like family.

The Essential Ingredients For a Successful Family Partnership

A successful family partnership in a family owned business requires three kinds of returns on their investment of time and money. Families must get an emotional return, a financial return, and a relationship return. Let’s look at why that’s necessary.

We’ve already discussed the concept of the best possible partner. The family, the board and the management all need to do their part for the business to thrive, and each has an equal influence on the successful and unsuccessful outcome of the business strategy.

A lot of families don’t think about the family’s role in the success of the company. They’ve made the family a second-class citizen. That means they’re not efficiently addressing any family-related risks that come up. In fact, they’re not even aware that conflict within the family poses any risk at all, but viewing it as a nuisance or mere unpleasantness. Conflict can represent an opportunity for growth and change, but for every opportunity there’s a counterpoint–the risk it represents.

When the family element of a successful family business is working well, the family is getting something back from the business. This encourages all of them to keep the needs of the business high on their priority list.

First, the family gets an emotional return when they feel connected to the business. They’re passionate about what the company does. They like that the company makes values-based decisions. Perhaps they like the company’s commitment to investing for the long term. They like the way that the company takes care of the employees and the community in a way that goes above and beyond many public companies. The business is buoyed by the family’s passion and engagement.

Second, the family’s financial return cannot be neglected. Of course, it can’t be the only return a family gets, but it’s a crucial part of keeping the family committed to the business. There has to be some recognition that the families and individuals have committed a portion of their assets to the company. Everybody knows family business can be challenging, and it may be tempting to invest in a public company instead, where you may even be getting a better return on your investment without as much hassle. But investing in a public company doesn’t provide an emotional return, other than the thrill of looking at your balance sheet. You’re not going to get the kind of passion family members get from being good stewards of the family business.

Lastly, there has to be some kind of relationship return. As the business moves into the fourth and fifth generation of family ownership, for example, relationships with your fellow owners may naturally become more distant. The business is what holds you together, and it has to be pleasant if not fun to be with your family members, or co-owners. If it’s a hostile environment, the strain can outweigh the benefits of the emotional and financial return. Remaining family owned can start to feel like it’s not worth it. Families don’t have to like each other, or mirror the kind of deep friendship you have with people you choose to spend time with. But you can have really rewarding relationships with family members who you wouldn’t have met or known without the company, especially as the family grows and becomes multi-generational. The business offers an opportunity to broaden and deepen your relationships with your extended family.

If the family has two out of the three–emotional and financial return but terrible relationships, for example—they usually have a solid foundation and a good reason for working on improving the third category.

I worked with a family that has a financial return and a relationship return, but they didn’t have the emotional return. There wasn’t a lot of connection between the family and the business, and the owners didn’t feel passionate about it. But because of their robust returns in the financial and relationship arenas, they were able to leverage those strengths to make changes. They tried new programming, organized more plant tours, and increased the amount of interaction between the management and family.

As long as you have two of the three ingredients for a successful partnership, it gives you time to work on the third. If you don’t work on it, the company will slip out from underneath you. Lacking in one crucial area erodes the family’s passion for the business and they don’t even see why it’s worth it. Why invest all these assets and get such a small return? Or why keep going to family meetings when all people do is fight? That’s the worst-case scenario.

If you can look at your family objectively and realize that you don’t have all three, what you can do is leverage the two that you have and really focus on the third. For example, if you don’t have good relationships, you can start putting together task forces to address whatever big issues are out there–whether its dividend policy, attendance requirements, transparency, financial reporting, and so on. By working on all of those things, you start building context for the relationships.

Relationships can be especially tricky. You can’t build relationships in a vacuum, especially in a company that is three, four or five generations of family members. The relationships have no context or meaning without the business. The business is the reason you need the relationships.

If you find that you’re missing two of the three, you have very little time. You have to take this 100% seriously if you decide you want to remain family owned, and address the problems with all hands on deck. When you only have one of the three ingredients, you are one crisis attention away from completely losing control of your company, having to sell at a reduced price, or falling prey to lawsuits.

That’s when you may have to look outside your family for help. Choose a good consultant to help your family work on the areas that need immediate attention.

Making sure the family is well compensated emotionally and financially, and that they have many satisfying relationships based on the business, will help ensure that they continue to be the best possible partner for the business. This is not an impossible list of ingredients to assemble, but it is vitally important for the continued happiness of the family and success of the business.

Why Bother Talking About Family Values?

I had a conversation a few years ago with a family member of a large family business who told me she didn’t see the point of talking about family values. I have to admit that at that time I didn’t either. But now I’m a convert, having gone through the process with my own family.

Talking about shared family values gives you focus. If you don’t define and measure your actions against those values, you don’t know if you’re upholding the best parts of your family’s spirit. Values are the yardstick with which you can measure the work of the family council.

Here’s another way to look at it. In all kinds of relationships, it’s easier to begin a challenging conversation by talking about what you agree on first. In a family, too, it’s helpful to start difficult conversations by figuring out what you agree on. Families who are in business together may agree that they want to be good stewards of their family relationships, or that they want to be transparent in their communication. The conversation begins with this agreement, and then you can move on to talking about what changes need to be made for the business and the family to function better. But if you started by talking about changes or adjustments that need to be made, you’d get a lot of resistance. People don’t want to change the way they’ve done things. If you dive into talking about the areas you disagree about before establishing you common ground, most people will have a more reactionary approach.

Values act as the foundation agreements of a family. You can use them to make it easier to make decisions, or to implement change in a family.

For example, in one family I worked with, a concern was raised because the family had been sharing information over email for the last 10 years. Early on, it made sense because everybody had a computer at home and computers weren’t very portable. Over time, people started getting a lot more mobile with email—using iPads or smartphones and taking portable computers out of the house. The family’s way of sharing information began to be less secure. When they started measuring their actions against their values, they realized that by sending company information over emails they weren’t being good stewards of that information. There was a risk that somebody would lose their phone or have information stolen in some way.

In order to be good stewards, they could have they could have stopped sharing so much sensitive information, but they had other values that required them to share information. A commitment to inclusiveness meant they had to find a platform that worked for everybody, one that fit all different communication styles and preferences. And transparency meant they couldn’t stop sending that information out. They had to find a more secure communication tool that offered immediate access. They couldn’t as stewards stop sending out that information just because it was of the security risk. They had to find another way to get that information to the family.

The family decided to put the information on a secure portal. They provided iPads to everyone in the family, so each individual had secure access to crucial shared information. They upheld their core value of stewardship by safeguarding the information that was being sent out to the family. They were inclusive in that it was easy to read and accessible, and they offered training so everyone was able to use the new tools. And they were transparent in that they made it as easy to access the information as it had been before.

If the family had had this discussion without first talking about the values, if they had just said they needed to change how they share information by announcing that they were going to put the information in a portal, they would have gotten a lot of push back and resistance. People liked using email. It was very easy for them. But because they had that conversation, reminding the group that they all shared a desire to be good stewards, it became obvious that they needed to change their approach. The values-based conversation helped them all remember that they needed to find something that fulfilled their other values so they could be good stewards while also being inclusive and transparent with their information.

What Can We Do To Build Cohesion In Our Family?

Often, people think of closeness and unity with a family as being solely about their social events. Do they get together when the work is done? Do they go out for drinks, hold celebratory dinners, take the kids on vacation together?

But cohesion isn’t all about social time. There are a lot of facets of cohesion that can strengthen a family and a family business. You have to deliver all of them to build a truly cohesive family.

In a large and complex family, the best way to build strong relationships and create unity is to consistently offer multiple ways of building relationships—through shared work, through social events, through volunteering together in the community, and so on. But the single most important tactic if you desire real cohesion is to give everyone some meaningful work to do together. It’s through that meaningful work that people will begin to build meaningful relationships. That will foster a willingness to do things together unrelated to business, like group dinners or attending a family camp.

When you provide a lot of different avenues to building cohesion, you create a beneficial cycle. To get this cycle started, agree on your shared values as a group. You cannot build cohesion unless you’re operating under the principles of inclusiveness and transparency. In the business, being transparent to your family increases trust, and that trust will build goodwill, and that goodwill will generate more opportunities to get together socially, and those positive social experiences build more willingness to participate in meaningful work. Consistently offering opportunities for people to connect and feel part of the group across many different settings helps bridge the differences between the individuals in the family.

Trying to build cohesion only by creating more social events, or by organizing big gatherings like family camps, you’re going to get the people who already feel cohesion—but not those who feel like outsiders or who don’t do well in certain types of social settings. You have to create opportunities for people to build trust and build relationships in many different settings.

Every time you go through that cycle you’re picking up more and more people. Different people will jump into the cycle in different steps. For example, there may be somebody who is really good with relationships, a social extrovert, and they’ll go to any party. They’ll jump into the positive cycle through social opportunities. They’ll get hooked in by talking with different people over hors d’oeuvres, and as a result they’ll be willing to join a committee to plan the next social event. Little by little, they’ll be drawn into doing meaningful work.

The best way to open people’s minds is transparency and inclusiveness in the business setting. Let’s say in the past the management hasn’t operated with a value of inclusiveness and transparency, and hasn’t had real discussions about the business with the family. If the management or family leaders start operating with a more inclusive model, you’re going to pull in those individuals who may not have had an innate trust in the family in the past. Those individuals will start building trust with the company over time, and may be willing to get pulled into meaningful work in the form of a task force to look at competencies for family directors.

Social events are great—as a way to reach the more socially outgoing family members, and as a way to broaden the relationships that began over the board room table or on a task force. But social events alone will not give you a cohesive family. For that, you need to open as many channels as possible for your family to come together in work and in play.

3 ways Family Businesses Can Measure Return On Investment

Think about this for a second: Only 3% of family businesses make it to the fourth generation. That means 97% do not.

Meanwhile, 80% of the businesses in the United States are family-owned. Family businesses contribute 60% of the gross domestic product to the US economy. They employ 60% of the population.

What’s this magic 3%? What are they doing that’s different?

For a family to want their business to remain family-owned, they need to measure the return on their investment in three ways. If a family doesn’t have these three things, it makes it very difficult to have a compelling product that a family wants to continue to invest in.

1. You have to have a financial return.

There are easier ways to make money than to be a part-owner in a family business. If a family member didn’t see herself as a steward of something important, they could take their money and put it in a Vanguard fund or another investment, and it would be an emotionally neutral investment. You’re not going to get excited from reading the financial statements from Vanguard. Family members have the right to take their money elsewhere, so the financial return provided by the company acknowledges the assets that are allocated to the business, whether it’s an active investment or something that was inherited.

The financial return is also an acknowledgement that the value of this person’s assets is invested in something with a long-term return. If you’re invested in a publicly held company, the return horizon is usually less than 2 years on any investment. If a company makes an acquisition, they have to pay it off in 18 months.

You may get a greater immediate financial return if you invest in a publicly held company, but you aren’t getting the other benefits of investing in a company that makes long-term investments. That company can make values-based decisions. That company can invest in their employees. That company can invest in R&D. That company can invest in strategic acquisitions and organic growth that may not pay back in 18 months, but may pay back in 3-4 years. That’s a reasonable timeline, but it wouldn’t be acceptable to most investors in public companies.

The potential for a family business to grow for future generations is fairly high. You can afford to think about your future shareholders. In a publicly held company, your responsibility is to think about your current shareholders.

Enough about money. Let’s look at the other two ways that a family business offers a return on the shareholder’s investment.

2. You have to have an emotional return.

The emotional return is loving the business and its products, or loving how it treats its employees or the community. You get excited about its philanthropy. There has to be something that is compelling about the business itself or what it does.

3. A family has to have a relationship return.

Getting together with the family can’t always be hostile or conflict-ridden. The family has to invest enough in each other for there to be some reward to being co-owners of this business. Being together is part of the reward of remaining family-owned.

The way I look at it is that the family and the business are competing for the family’s time and money. You have to have a compelling product. The compelling product is the combination of these three things. It’s not just one. It has to be all.

Communicating Across Generations in a Geographically Diverse Family

Many people think communication differences are mostly generational. But even within generations, people have different preferences when it comes to communication.

Different Communication Styles

Most people fall somewhere in between the two extremes, introverted and extroverted. Extroverts tend to be super engaged. They want to participate in all the meetings and all the social events. They’re quick to speak up during in-person meetings, even in large groups. In the same generation, you may have other family members who are introverted or who have experienced too much family conflict to want to engage at that extroverted level.

It’s easy to cater to the extroverts who enjoy group interaction, but you also have to provide opportunities and access to the more introverted family members. You have to pull them into the group in whatever way they’re comfortable. During in-person meetings, some people might be more comfortable working in break-out sessions or in small groups. Groups can be divided by generation, or formed inter-generationally. Introducing the material in a webinar in advance of the meeting allows more deliberate thinkers to mull things over before they’re asked to share their opinion in a large meeting.

Geographic and Employment Diversity

In addition to communication styles, many families face the challenge of geographic diversity, or have members whose work schedules are very different from one another. Some people may have strict jobs with long hours, while others don’t need to work at all. You need to accommodate those with restrictive schedules with off-hours phone calls, webinars, and meetings on weekends to maximize participation for people who have less flexibility.

In some families, the older generations believe the only productive conversations one has are in person. As your family gets into its third, fourth, fifth or even sixth generation, it’s more difficult to have every conversation in person. The first and second generation may have conducted all their important conversations in the board room or at the dinner table. That becomes more and more unrealistic as the next generations rise into leadership roles. They may not have the same flexibility or geographic proximity to accommodate so many in-person conversations. Today, technology can create that proximity and intimacy without asking everyone to fly in for a four-hour conversation.

Maximizing the Value of In-person Meetings

When a family needs to have a conversation, leaders need to ask themselves–How important is the topic? How many people need to be involved? How can we accommodate the stakeholders’ communication preferences, their geographic locations, and their time restrictions? in order to determine the urgency of the situation. For the most urgent matter, is it worth having everyone drop everything and come together, or is it something that can be done over the phone or with a video conference?

If something is very important but not urgent, it’s best to wait before meeting in person. Take time to prepare the family for a productive conversation at an in-person meeting. You can prepare the family by sharing information in emails, and by holding webinars or conference calls in advance of the meetings. These preliminary steps allow you to communicate the background and the history necessary to understand the topic at hand. The family understands why this decision is important, and then you can move forward. When you gather for an in-person meeting, the family is prepared for the conversation, and you’re maximizing that precious time together.

Case Study

One of the large geographically dispersed families I work with has the following communication plan. It includes a mix of communication strategies–online, in-person meetings, webinars, and conference calls. The family was careful to set this up so that the whole plan aligned with their values of inclusiveness, stewardship, transparency, empowerment (education), engagement, and relationships.

  • Annual family assembly meeting in person (3 days.)
  • Quarterly in-person family council meetings
    • Held on weekends to accommodate those who work.
    • Open to all family, but council members are expected.
    • One is held at a different manufacturing location each year.
    • Family council members who have kids bring them. Babysitters are provided for the children.
    • One social night during the meeting
  • Monthly conference calls for family council.
    • All are invited, family council is expected
  • Quarterly corporate communication (written newsletter.)
  • Quarterly board packets (sent out to family on company-purchased iPads.)
  • Quarterly board debrief webinars with CEO/COB and whole family.
  • Quarterly postcards with upcoming important dates.
  • Monthly email blast, including high-level overview of family council activities, and links to further details on the family portal.
  • Bi-Annual next generation program with outdoor educator (for relationship-building, teambuilding and development of leadership skills in the youngest population)
  • Task forces – as needed
  • Additional Webinars – as needed

In this format, there are in-person meetings, online communication, conference calls and webinars. This system allows all generations and levels of interest to engage in a way that is technologically comfortable to them and offers ways to stretch themselves.

Family Business is a Lonely Business

One of the biggest challenges in family business is that you don’t have a natural peer network. You don’t often run into neighbors, friends at the gym, parents of your kids’ friends who own family businesses. In your daily life, you don’t get a chance to talk shop

If you do talk about it with your friends who don’t own family businesses, they probably think you’re being ungrateful if you express frustration about it. After all, you’ve been given an amazing gift. Why would you complain about it? And why aren’t you working there? Why aren’t you working as hard as you can to make the business better? It can be awkward, too, talking with your friends about dividends, which a lot of families give out to their family members. Many people never talk with their non-family business-owning friends about any of these things, and it can feel very isolating.

It may be even more isolating if your family business is a very large employer, or even the single largest employer, in the town in which you live. Then you have no peers at all, and you really shouldn’t talk about the challenges of being a business owner with friends in your community.

All family businesses deal with the same challenges and opportunities, and yet without building a deliberate network, it can feel like their problems are unique. Realizing that your family isn’t the only one facing a similar set of problems, or maybe even that your family’s problems aren’t as bad as someone else’s, can be a great relief.

What can you do to build a network where you can actually talk with somebody?

As a fourth generation family member of my family’s business, I moved away from the small town where my family’s business was the single largest employer. Once I had moved to a large city in another region, I didn’t feel the same kind of pressure and visibility as I experienced in that small town. But I still didn’t have anyone who understood what it was like being part owner in a family business.

Then I went to the Loyola University Chicago Family Business Center’s Stewardship Institute. That was the first time that I had a chance to talk very openly and frankly about my experiences. I was able to discuss the challenges that come with being part of a family-owned business, and even discuss the nitty-gritty of family business dividend policies–things that in the past I would only talk about with my husband.

The experience also helped me realize that my family didn’t have the worst problems on the planet. When you start talking with other families, two really good things that happen.

One is you don’t feel so alone. The other is that you walk away with a greater sense of gratitude after realizing that you don’t have the worst problems. Perhaps your family has done a lot of work compared with other families. Perhaps you now realize that you wouldn’t trade your problems for another family’s problems because at least you know how to deal with them.

The best way to build a network of other family businesses is to go to events at a local family business center. To overcome your feeling of isolation, make a commitment to go to every event and sit by somebody new every time. If you go with family members, agree that you’re not going to stick together in a clump but really branch out.

It’s also useful to go to family business conferences, such as  Family Business Magazine’s Transitions conferences and Family Business Network conferences. If you are in the Philadelphia area you may attend the various seminars offered through the Haub School of Business at their Initiative for Family Business and Entrepreneurship at Saint Joseph’s University. If you live in the US, family business conferences are so plentiful that you could go to once almost once a month. Again, if you attend conferences with other family members, don’t stick too close together. Spread out and focus on building relationships with people outside your family.

I suggest that you walk into a conference with a question that you want answered. Every time I go, I walk in deciding, for example, that I want to know how other people handle board meeting attendance. I’ll ask every single person I talk to how they’ve dealt with that challenge. I walk away with deeper knowledge, but I also have a list of people I can call later on.

Bring a big stack of business cards and follow up with every single person. From every conference I’ve been to, I have a list of people I’ll check in with once or twice a year and see how things are going, what they’re working on, what their challenges are. It’s a nice way to keep in touch and share experiences.

The only person who can make you feel less alone is you. There are resources out there designed to help family businesses develop a network of trusted advisors and even friends. All you have to do is take advantage of them.

The Family and the Business—Best Possible Partners

 

diagramMany experts talk about the Venn diagram with three circles—family, business, and ownership. These diagrams describe the different roles and perspectives an individual can have in a family business. Thinking about these different circles helps one understand why being part of a family business can be so difficult.

I like to think of the three circles in a different way. The family, board and management each has a responsibility to ensure that the business has all of the tools that is needs for high performance. There is a perfect balance in a good working system between board, management and family. All are growing and changing as the business grows and changes, but because they are each adapting, the system stays in balance. I call this the “Best Possible Partnership.”

Any one of these entities could positively or negatively impact the performance of the business. First, let’s think about the positive:

Family

The family, through their family governance, is working hard to be a good steward of the business. The family has managed relationships well; they are appropriately managing the intersection between the business and family through policies and processes for raising questions and concerns about the business through the family representatives on the board. The family has made a clear and believable statement to the board and management that they want to remain family owned and has a dividend policy that supports this long term, patient capital perspective. The family is working on engaging the youngest generation at an appropriate level to ensure that each interaction that they have with the business and family is exciting and fun. This lays a solid foundation for the next generation to be actively engaged in the family business. The family sees themselves as a partner with the board and management.

Management

The management shares the stewardship and patient capital perspective of the family. They are working on implementing a long term strategy that will ensure that the business can remain family owned through the next generation. They are open and transparent with the family on the business objectives, financials, risk, challenges and opportunities. Management actively works through the family council to educate the family about the business. Management sees themselves as a partner, not only with the board, but also with the family.

Board

The board thinks strategically about the long term opportunities and challenges in the business. They embrace the patient capital perspective of the family, and think about returns, not only on an annual basis, but returns for the next generation. They think about investments that can be made today to ensure the sustained future of the business for the long term. They are actively working on succession plans, not only for the business, but are also engaged in succession planning at a high level for the family. Outside board members act as mentors to junior family directors. The board sees the family and management as a partner to ensure successful implementation of the business strategy.

There are many war stories about the negative side of family business: lawsuits, in-fighting, fire sale of the business due to poor planning, sale of the business due to lack of interest, etc. This happens when some combination of the board, management or family forgets that this is a partnership, and when one fails in some way, the business is compromised. This often happens when the family gets out of alignment with the board and management.

This causes the board and management to focus on the family, in order to try to correct the imbalance, not the business. When a family is out of alignment with this balanced system, one can see a breakdown of communication, fighting, family issues coming up in the board room, family members calling management, fighting at the office, etc. You can also see the areas in an unbalanced system, where the family is not acting as a good partner with the business, in terms of the dividend policy that doesn’t provide for long term investment, preferential treatment to family employees, lack of trust, breakdown in communication, using information as power, reducing access to decision making, etc. The list truly is endless.

Getting the family to a point where it can act as the best possible partner is hard work. It requires a fully functioning family council, a repeatable change management process, inclusive decision making, a conflict management process and strong working relationships with the family. If a family also has a clearly-defined family strategy, the family isn’t caught off guard when the business and board become more complex and sophisticated as the business grows. A family strategy helps ensure a long-lasting partnership between family, management and board of directors.

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.