Family offices can play a big role in ensuring family businesses handle their internal issues gracefully and successfully.
Greg Moore sees it all the time: A family business is in trouble because of intergenerational conflict. “This can be quite disruptive if not addressed early on,” says Moore, a partner with Richter Family Office in Toronto. “A lot of families collapse.”
It’s ironic, but all too often it’s the family itself that undoes the family business. A parent is not willing to cede control. Adult children – or even their children – are not aligned with the values of the founder. Or they want to inject new ways of thinking into the mix. The end result can be infighting and a lack of clear vision.
The stats aren’t encouraging: Just 40 per cent of family businesses are passed down successfully to the second generation, and only 13 per cent make it to the third generation.
But that doesn’t need to be the case, says Moira Somers, a psychologist and executive coach based in Winnipeg. Families can take steps to ensure their vision for the business – and their legacy – remain intact.
The first step is committing to a set of rules that everyone agrees to adhere to, says Somers. “They need to be willing to put in place the policies and procedures to almost force a review” with the family, she says. Then, the family should review these policies regularly.
Somers says that although every family situation is unique, many of the same approaches can help. Here are some common intergenerational issues that arise and how to deal with them.
A huge divide exists between the two generations.
Conflicts often arise between the first generation, or G1, and the younger generation, G2. Sibling rivalries can play a role, Moore says, with accusations of favoritism. In the course of business these conflicts can be compounded because there are fewer ways to sort them out while coping with the realities of running a business.
“In a family system there are a lot of emotions and baggage,” he says. “Bringing a human or emotional perspective to things is often where families don’t do a lot of work.”
Founders often have a sense of identity around the business, and giving up that identity can be emasculating.Greg Moore, Richter Family Office
A starting point is to adopt shared principles and values for the family, says Moore. “Set up those rules during a period of relative calm. Now there’s a set of principles on how to operate.”
That means sitting down and determining goals for the family business and ironing out any discrepancies in generational perspectives. “This cannot be something that is proscribed by the current generation – it should be something that’s arrived at in conversations between the first, second and third generations,” says Moore.
The next step is establishing a full-fledged “family constitution,” which incorporates those values and principles but includes such things as “how do we arrive at decision-making, who is able to vote on making decisions for the family business, who is a party to the process, how do we deal with conflicts – and what does conflict resolution look like,” he says. “This is the armour a family can build to protect themselves.”
The founder wants to retain control.
About one-third of family business owners have no plans to retire, ever. And that can be a huge issue for adult children who had hoped to take the reins.
What often happens is that instead of ceding control, a founder becomes more adamant about how things are done. “Founders often have a sense of identity around the business, and giving up that identity can be emasculating,” Moore says.
Authoritarian approaches don’t usually go well when it comes to running a family business, says Somers.
But that’s exactly what can happen when a founder senses there is no family buy-in or feels threatened by new voices at the boardroom table. At the same time, the younger generation may wonder what’s in it for them, Moore says.
Somers suggests older family members put aside their pride and ask: “’What do we need to keep and what do we need to change?’ Honest and direct communication is best,” she says. “And get outside help if you need it.”
Trusted advisors from a family office can offer an impartial, independent objective, Moore says. As well, they can help draft policies and procedures to determine how control will be determined and what succession will look like, preventing any disagreements or misunderstandings between generations.
The younger generation isn’t interested in participating in the family business.
Sometimes younger generations, especially family members in their 20s, simply don’t want to participate. Somers suggests they should be encouraged to pursue other jobs and gain experience, with the hope that one day they will return to the boardroom table with new insights and willingness to take up the mantle. “They should be meeting people with different ideas,” says Somers.
Founders should also meet frequently with younger family members to ensure the family business remains interesting and vital to them, she says. “What are they interested in? What are they not interested in?”
Also, older generations should recognize that people can change their minds, she says. Just because children weren’t interested in succession in the past doesn’t mean they won’t be in the future.
The younger generation wants to introduce new approaches.
Change can be good, though older generations might struggle with that concept. “An emerging generation typically is coming at it with a different perspective,” Moore says. They might advocate changes in structure, changes to technology, even a different appreciation of work-life balance, he says.
Older family members, for instance, sometimes feel the younger ones don’t take the business seriously enough – at a time when those younger members are raising families and have other commitments. “Their perspective on work-life balance is very different,” he says.
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Forging a happy middle ground is critical, Moore says. Both sides need to feel that some of their approaches are being validated and accepted. For example, a family may decide to adopt new technology to manage its investments but adhere to the old schedule of meeting monthly to discuss priorities.
In the end, every family has to be considered on its own, says Somers. But despite all the obstacles facing a family business – relationship discord, a lack of interest or an aversion to change – resolution of these issues is possible.
“The fact is, these things do get successfully dealt with all of the time,” she says.