- October 26, 2018
How to Make Decisions as a ‘Family Enterprise’
With a successful business enterprise, how decisions are made is typically well established and clear. After all, it’s unlikely the business would have achieved any level of success without having firm objectives, carefully constructed strategies to achieve those objectives, and well-defined roles and responsibilities from the CEO on down. In short, all employees know where the business is headed and their role in getting there.
But what happens when a business enterprise is (or becomes) a “family enterprise”?
To start, it is helpful to define what a family enterprise is. It can be an operating business owned by family members, a family office managing a family’s liquid wealth, a family philanthropic vehicle like a foundation, or a family bank that provides funds so family members can pursue their entrepreneurial or personal dreams. A family enterprise is when a family organizes their time, talents and/or treasure to achieve a shared vision.
Sounds great, right? Family harmony for the greater good! The problem is … families are complicated. Creating a successful family enterprise can take as much planning, collaboration and buy-in as any business enterprise (sometimes more so!)
It is important to first establish what the family’s vision is. Why put in the extensive time and energy to engage in a family enterprise? It can be exhausting. But research tells us that if not done thoughtfully, family enterprises can and do fail. Only 3 percent of family enterprises last past the third generation1. To avoid that fate, getting clear on the family vision – the driving values – the shared “why” – is a critical initial step for any family enterprise and should be the first exercise in shared decision making.
Then what? Even when a family is on board with a shared vision of what they want to accomplish with their wealth, how do you bring them together to make the decisions needed to get there? The following are six additional steps for successful family enterprise decision making:
- Establish a governance structure. Governance is a popular term in the family enterprise field and can feel heavy and complex. It’s not. In essence it simply means having a structure for making decisions together. When decisions are made by one individual or a couple it can be fairly easy. Decisions can be made on the fly or over dinner. But as families expand both in numbers and geography, decision making becomes more complex and requires more structure. Involve your extended family in determining what that structure should be. Who takes a leadership role? Why? Is everyone at the table who should be? These are all important considerations.
- Schedule family meetings. Getting the extended family together for regular meetings is another essential part of the family decision-making process. Some families meet once every other year. Some meet quarterly. The frequency depends on the number and importance of decisions that need to be made, information to be shared and the evolving needs of rising generations.
- Strive for consensus. Wouldn’t it be nice if all decisions could be made unanimously? Alas, the reality is it’s difficult to reach 100 percent agreement, especially among family members. Think of the concept of “building consensus” as a decision-making framework where not everyone may be in full agreement, but as long as everyone can “live with the decision” consensus is reached. As the saying goes, don’t let “perfect” be the enemy of the “good”. And for family businesses that are still operating, don’t forget about family shareholders who aren’t actively involved in running the business. Their voices matter, too.
- Create a plan. This is critical. As a family, you need to have a detailed, shared understanding about how specific decisions will be made BEFORE they need to be made. Start by considering what types of shared decisions the family or family enterprise may face and then assess what decision-making framework will be used for each. For example, what are the family’s thoughts about prenuptial agreements? Are they recommended? Required? Do spouses or significant others attend family meetings? What about members of the next generation? And who needs to agree to sell the business? Have a policy that defines how these types of decisions will be made when they arise.
- Put the good of the family first. It is normal to think first of how a decision impacts us personally. But remember, when making decisions about a family enterprise the implications can affect more than just you. There can be an impact on generations not even born yet. Try to put the good of your family first when making decisions.
- Make decisions using logic rather than emotion. Families often carry emotional baggage that can get in the way of making the best decisions for the family. I have seen families having a calm discussion about whether to sell a family vacation property when one sibling shares a special memory about their mother and suddenly her brother explodes out of nowhere, “See, I knew mom always loved you more!” Again, family relationships are complicated. So be positive – enter the discussion assuming others have positive intention, and leave baggage and past history at the door … as well as your ego.
A final tip – do not be afraid to get help. Having an objective (ideally trained) facilitator can make all the difference in developing a shared decision-making structure. For one, we are often on our best behavior when a non-family member is in the room. Also, having someone to keep you on track, make sure all voices are heard (not just the loudest or ones with the most ownership) and who can steer you away from potential pitfalls can be invaluable.
Decision making is complicated and there is typically not an absolute right or wrong answer. The key is to decide how you will decide as a family before you need to. By rooting your decision-making in inclusion, transparency and consensus, you will be much better positioned for success as a family enterprise.
Jill Shipley is the senior managing director of Family Culture, Impact and Governance for Cresset Family Office. She has nearly 20 years of experience working with ultra-high-net-worth families and family enterprises to achieve multigenerational wealth sustainability and the successful impact of wealth.