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Governance Family Business

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Governance and Family Businesses

All over the world, many of the most renowned businesses started off as a business built by one man/woman who starts off the business and over many generations have become a household name in the business world.

Research has shown that family businesses have the capacity most times to outperform their non-family competitors, but at the same time are at a risk of family hazards that could overspill and engulf their continuity in business.

Based on all this, the question arises why people outside the secretive world of family businesses care about them. There are three major reasons why they should and these are;

  1. Family businesses are the backbone of the economy of just about every country in the world and the wealth of nations depend on them.
  2. Most of the corporations in the world today had family business origins.
  3. An understanding of family businesses can help unlock one of the greatest and most elusive challenges in the business world. Some of these challenges include;
  • What it takes to make a large company feel like a small one?
  • What is the secret to building a truly admirable and sustainable culture?

It is my belief that non-family businesses have a lot to learn from family businesses, because all organizations retain elements of familiness in every layer of their operations and capitalizing on their better qualities, whilst avoiding the worst can be the key to building a competitive advantage through culture.

Evidence to back these theories on the success of family business includes;

  • Recent studies of S&P 500 firms showed that those with family ownership out performed those without it.
  • Some of the world’s oldest companies are those that have stayed in family ownership – Japanese temple-builder Kongo Gumi has been in the family since 578 (kongogumi.co.jp), Italian vintner founded in 1141 (Barone Ricasoli winery – www.ricasoli.it), the French paper maker founded in 1326 (Richard de Bas –www.richarddebas.fr) and the fabrics company founded in 1541 (The company, founded by John Brooke, has provided fabrics for British troops (Battle of Trafalgar, World War II), French troops and Russian military personnel – www.yorkspark.co.uk)
  • Finally a look at many of the world’s largest and most successful companies retain a strong family identity; Cargill in the USA, Samsung in Korea, LVMH in France, BMW in Germany, Clark Shoes in the UK and H&M in Sweden.

The primary focus of this write up is on family businesses and for those who run them, are born into them, advise them and for those who find it interesting on why family business thrive so much and all of a sudden become extinct.

In as much as has been said about the benefits of family businesses to the economy of a country and the world as a whole, it is important that those behind the businesses set up effective and efficient governance structures, which will help the business remain a going concern many generations after the founders have passed on.

To enable family businesses appreciate the need for good governance structures, we will provide an insight into some of the major areas that could lead to warfare in such businesses which could result in the eminent collapse of such businesses. This is called “the root of family warfare”

In order to understand and resolve the issues for any particular family warfare, we need an array of information. These are ideas that will aid us in understanding the dynamics in order to infer how conflicts have been avoided and neutralized in successful family business. This will be outlined under five headings;

  • What is the nature of the warfare, and how does it come to afflict family firms? (Families at War)
  • How does conflict arise and grow in many life situations, and how susceptible are family firms? (The root of conflicts)
  • What has blood got to do with it? What are the special sources of conflicts and cohesion in families as a function of how people are related? – (gene politics)
  • What are the key dynamics of families and what impact do these have when translated into a business environment? (Family dynamics)
  • How does culture affect the key themes we have identified? What role does personality play in the inception and control of conflicts?

Families at war

The causes of war in a family range from the following;

  • Where one group believes that another is trying to invade it for its resources or space
  • Where one group seeks to subordinate the other either politically or economically or both
  • Where simple disputes escalate into a tit-for-tat cycle of attack and retaliation
  • Where a third party is seen to be in alliance with one of the parties at war

One of the contributors to this sort of family wars is the presence of emotions. Where family branches vying for succession or otherwise promote their interest through conflicts steered by feelings rather than by reasoning

Finally a key to understanding and managing family wars is to note that the wars are not so much problems to be solved as risks to be prevented. The aftermath of the war is a sad business of cleaning up, swallowing regrets and trying to build new aspirations on a firm footing. For a family business it is much better to have sound policies, principles and practices that make such wars unlikely.

The root of conflicts

There are two aspects to conflicts; issues of content and issues of process. These are the basis for the creation of conflicts and what the conflicts are all about.

  • The issue of content arises when basically people wanting incompatible things, or people competing for the same thing. That is one person’s loss is the other’s gain.
  • For many families, there would be no conflicts where people are able to accept tradeoffs, or find alternatives, however this is dependent on what really the bone of contention is or what interest are at stake.
  • It is easier to avoid conflicts where they are material or financial in nature. This is because warring parties can be settled. This is however not the case where the issues are based on ethics, values and principles.
  • People would go to any length to pursue what they believe is right. They will go even further where this is tied in with relationship – envy, desire and self-esteem.
  • A lot of conflicts have to do with identity. Where people believe that they or their reputations are being diminished or damaged. This can be evident where people perceive that others have a far less value than they think they are worth.
  • In the issue of process in a conflict, it has to do with how people perceive that things are being done.
  • Many people often think that the most common cause of conflicts is personality. Personality is not a key element; however it is more of a cause.
  • Though personality adds a lot of color to family conflicts, the main killer in a conflict is the issue of trust or the lack of trust.
  • This lack of trust results from situations where one party believes that the other party is unreliable, inconsistent, devious or two-faced.
  • Another major aspect is where people have the perception that they are being treated unfairly or being cheated

Gene politics and family businesses

Gene politics is the shorthand for the root logic of conflicts and cooperation amongst kinfolks. The content and the process aspect to conflict have a common source in families – biological forces that bind and separate family members.

  • The evolvement of families is biological and it’s the deepest underlying force in family chronology. This is because families exist in the world for a single purpose to nurture their young and continue the existence of the bloodline
  • As a family what binds us together is our shared biological inheritance. These shared genes are the ones that make us love each other and fight for each other, especially against the competing claims of unrelated people and other families. This is what is referred to as “as the selfish gene”
  • Also prominent is the bonding brought about by marriage. This pair of bonding between genetically unrelated individuals, is the weakest link and one of the frequent break points in family dynamics
  • Another aspect is that of parenting. Research tells us that inconsistency, conflict indeed, is endemic to the relationship in parenting. This increases as the child grows older, especially where the parent desire is to manage the destiny of the child, which could become increasingly unacceptable to the child thereby leading to a rebellion by the child.
  • One of the most potent areas of genetic conflicts is that of siblings (many a time referred to as sibling rivalry). This sometimes reaches level of conflicts where they kill each other and this has existed from as far back as the days of Cain and Abel in the bible.
  • Other factors include – gender of the children, the age spacing of the children, the size of the family, the biological mother of the children etc. all these are factors that contribute to family wars which could lead to the termination of the business.

Family dynamics

  • Parenting style is one of the factors that could lead to family conflicts. The most obvious variations are around love and authority. This is because parents differ in how they nurture their children. Below is a diagrammatic representation

 

 

Top-down power

Attention & support for Children

High

Low

High

Authoritative

Indulgent

Low

Authoritarian

Neglectful

 

  • The relationship between parents is another contributing factor to family conflicts. Where there is warfare, there could be battles for allies among the children.
  • Another factor is the issue of triangulation” where two parties in conflict deflect their negative energy on to a third party. E.g. parents at war taking it out on the children

 

 

Culture and personality

  • As a family, many a times we are influenced by the people around us. As such we tend to emulate many of the habitual practices of our parents, without much thought. Sometimes these influences are negative.
  • A major source of uniqueness that above all other works its way into the fabrics of the family and any business is personality. This is considered to be a person’s enduring disposition; qualities of thought, feeling and actions that remain with us for most of our adult lives. This could be a major contributor to setting off a feud within the family
  • Another area is the person’s ability and aptitude. People could feel that their level of intelligence, logical reasoning and memory capability are being challenged and could lead to a personality feud between both parties.
  • Another area is our values and belief system. This comes from various parties however personality plays a big part
  • The last area is what is called the self-concept. This is how each person views ourselves – it is the judgment we make when we look in the mirror or the idea about ourselves that we wish others to have of us.

Having looked at all these factors that could set off family conflicts or even escalate already existing family conflicts, it is important to note that our personality – the way we think and feel – colors all aspects of our experiences.

It has been said by psychologist that the building blocks of personality are five dimensional and it is the combinations of highs and lows on these dimensions that define much of individuality. These five dimensions are;

  1. Emotions – how sensitive, anxious, pessimistic or liable we are too mood swings, versus unchanging, untroubled and thick skinned.
  2. Extraversion – how sociable, dominant and in need of external stimulation we are, versus solitary, quiet-seeking and self-sufficient.
  3. Openness – how radical, change seeking, creative and adaptive we are versus conservative, traditional and structured.
  4. Agreeableness – how nurturing, forgiving and tender-minded we are versus tough, justice-oriented and self-seeking.
  5. Conscientiousness – how dedicated, controlled and obsessive we are versus easy-going, disorganized and laid back.

Finally, the question we must really pay attention to is how well our personalities match the situations we are in, the challenges we face, the relationships and groups we attach to including our families.

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