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Is There A Vaccine For The Family Business Disease?

By December 2, 2015July 12th, 2023Management and Leadership3 min read

Collaboration is one of the most valuable remedies in the family enterprise medicine chest. Long-lived family businesses build their management system around multiple persons rather than one. This creates flexibility, greater awareness of risks and opportunities and superior leadership development.

You need not look far to find family businesses crippled by inability to move beyond rigidly controlling patriarchal leadership models. In such a case, the chances of ever smoothly ceding the reins to anyone in or out of the family are not good.

Communication and transparency share nearly equal billing with collaboration in this roster of family business fixer-uppers. Family business conflicts often arise because some members feel shut-out of the loop and kept in the dark about decisions and strategies. The remedy is to set up and employ robust channels for communicating with family business members through such tools as regular family meetings and briefings.

Without well-established channels for communication, the risk is that frustrated family members will resort to more divisive tactics in their effort to be informed. Once communication and transparency break down to this point, restoring trust and the free flow of information is very difficult.

In addition to working and talking among each other, family ventures who want to escape this curse must welcome outsiders into their corporate governance structure. This means selecting and installing substantial percentages of board members who are neither family members nor employees or paid professional advisors of the family firm. Outside directors add fresh perspectives and broad experience lacking in boards composed strictly of insiders. Their presence increases the chances a board will make wise strategy decisions that will keep the firm healthy and its family stakeholders happy. Family firms often resist bringing in outsiders, but it is usually a good move for the long-term prospects.

Many family businesses are sold in their entirety to outsiders because no provision has been made for one or more members of the family to buy out the interests of those who want to get out of the family venture. By structuring a fair and reasonable Shareholder Operating Agreement, many family businesses will face similar fates when a founder dies or the family wants to go in different directions. It is not easy for some family business leaders to envision the need for a way for future shareholders to have an easy way out of the business. Indeed, many have great difficulty conceding the possibility of their own passing.

The cocktail of collaboration, communication, outsiders and corporate governance documents does not confer perfect immunity from what might be called the family business disease, but, like a true vaccine, it does create a significant defense and can greatly improve the odds on family business longevity.

Neglecting sensible safeguards against well-known risks borders on the inexcusable. Family business leaders, members and other stakeholders would be well served by insisting as a basic requirement of sound management that the enterprises institute collaboration, communication and sound governance.

ReGENERATION Partners can help you implement defenses against the perils of long-entrenched conflicts and deeply personal resentments. In order to improve the chances of maintaining your family businesses, contact us today.