Success is a System – The Secrets of Fruitful Family Business Governance

Success is a System – The Secrets of Fruitful Family Business Governance

Our word for today is Muditā – that’s Sanskrit, I’ll have you know, and it means the feeling of joy one experiences over another person’s success.

When considering the foibles of family-run businesses, it’s that popular German concept that usually pops into mind: schadenfreude. Glee at those spoiled snobs’ infighting, their primal trauma roiling into bottom-line turmoil and finally, the can’t-look-away crash. Oh, it’s a dark joy.

What a show-of-shows – hard not to savor. Yet the better angels of our consciences tug at our sleeves; surely, we want our brothers and sisters to prosper. It’s a wonder families get through a Thanksgiving meal, we consider, so how the heck do they work in tandem, day on long day? It’s hard enough when no emotions are invested.

Yet some families manage; they work long and prosper. What is their trick? Is there a system? Let’s consider it and put it into practice if appropriate, for family business success can bring joy that spreads to many, particularly at bonus time.

There is no single system that works in all cases; families are too peculiar and particular, as you’ve likely cottoned. Yet there is a best practice. Glad experience reveals the four bodies to convene: the family assembly, a family council, and a family advisory board, along with a sound board of directors.

The idea isn’t to drown family life in committees or rules; rather, it’s to organize regular meetings, guided by principles all have accepted, and then present a unified front to all stakeholders.

Sound family-business governance begins with formal routine. All members must gather for regular discussions of the business: that’s the family assembly. Topping the agenda are company developments: performance, markets, competitors, future plans – the works. The key matter is to include all family members in the information loop, regardless of role or importance. Keeping a sibling or auntie in the dark not uncommonly leads to resentment, followed by plotting and long days in court.

Opinions aren’t equal, but everyone must get a chance to talk. For one thing, as I commonly note in self-interest, the Fool can sweep scales from the eyes of his betters. You’ll also avoid conflict by open discussion. Perhaps Uncle Jed ain’t so much a hayseed; he just needs to hear why buyout insurance, to take a favorite example, is so vital. Go around the table, hear every voice. ‘No one listens to me’ is a family biz-killer.

Families by nature prefer stasis: it keeps a lid on the emotional cauldron. Yet companies only flourish if they’re open to new ideas. Take ESG – Environmental, Social and Governance, which sounds like a connivance of some sort, yet makes such good sense. What started as an eye-roller is sweeping the world, and family members should seek common ground on philanthropy, community involvement, sustainable work practices for the firm – the whole shebang is up for grabs, and it’s the future.

Heartfelt discussions between kin can identify common interests – clean water, green tech, better salaries for workers. Common purpose can sustain family and corporate camaraderie through all manner of stresses. All this idea-swapping should benefit the business: observers expect turmoil at family firms, so a consistent voice on the firm’s mission boosts its good name with clients and investors.

These scheduled family meetings allow elders to spot talent among the young generation. Not everyone is able or willing to manage a business, yet all can play a role, assuming relative sobriety and no penchant for ruin. I’m thinking of a president’s son right now, but I won’t embarrass by naming names, as no formal charges have been announced.

What about cases where a family business includes non-family owners? A formalized family council is the answer. After the family gathering, the counsel, comprising core family members, the firm’s day-to-day leaders, can bring agreed ideas and decisions to nonfamily executives or the board of directors, and then apprise the family of developments beyond its borders.

Non-family actors complain about the opaqueness of ‘insider’ family dealings, making the formal family council structure a good way to boost transparency and trust between parties.

Next up, enlist a family advisory board, an external team of non-family experts. The advisory board provides invaluable fact checking of the family’s strategy, operations, and goals. Family members should get ready for an occasional body-slam from the seemingly cold-hearted – read objective – advisory board. This honesty is good, but friendly relations are crucial. Families must choose advisors they trust and admire, so when uncomfortable truths start roaming the halls, they’ll pause to listen and learn – and not fire back.

The final structure is a board of directors. Boards are sometimes perceived as arenas of conflict, but by law and intent, their true brief is to balance the interests of all shareholders and keep the firm on course in its charted direction.

This means the board must be structured with fairness as its primary directive. Decisions are rarely unanimous, in families or out, yet if minority voices know their interests are still taken seriously, experience suggests they’ll work with the majority and not try to burn down the barn.

I know an example of a successful family business, an agricultural concern that’s been lively for decades. Not everyone in the family is equally abled, yet they find useful roles and the gold is shared equitably. I’ll tell you about it.

In 1997, I was sharing a Moscow apartment with Rebecca, my editor – and that’s all I’m sharing. Miss R grew up in the tiniest of Indiana farm towns. There’s no point in naming it, for there’s nothing to see there.

Rebecca has a friend there named Glinda, a gray little mote who has traveled the world with her rich farmer parents. “I’ve been to 13 countries in Europe, but I couldn’t tell you which ones,” she once said, the wee gem. We invited her to Moscow; she’d never come, tra-la, so what could go haywire?

Yet she did come, along with Glynis her Ma and Glengarry her Pa. They flew over first-class, and as they toddled through customs, I won’t say they looked like potatoes; kiwis are closer, yet those don’t take to Midwestern soil. Well, they were squat. Lest this sound mocking, I can only say this: the Michelin tire company owes me a marketing fee. As I live and breathe, I’m the spitting image of their mascot.

They were flummoxed by leaden Moscow, but open to glorious St. Petersburg, with its palaces and gardens, big skies, and white nights. On the Admiralty Wharf, we watched Arctic terns diving the fabled Gulf of Finland, winnowing out minnows. Ma Glynis tottered over, wobbly as a worn stool. “Now what is that yonder – is that the Adriatic Sea?” I went rickety myself and nearly toppled from the dock to join those fishes. ‘No, ma’am’, I managed, ‘that’s a tick further south’. Bless her pudgy soul.

I don’t think their hearts, to say nothing of minds, were fully cut out for cold agribusiness. Yet Glenny pushed papers and Glynis did something or other, and I know they had family meetings, because they rushed back to attend one. Say what you will about families, but some of them stick fast together and learn how to thrive. It just takes a system, and a heart to make it tick.

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