The unique role of communication in the family enterprise24th January, 2020
Securing capital, managing risk, maintaining cashflow, recruiting talent — these challenges are familiar to all business owners. However, only one business niche faces the challenge of protecting a legacy for future generations while maintaining a cohesive family.
Most family enterprise owners want their businesses to outlive themselves and go on to ensure a sustainable future for their loved ones, a surprisingly small number actually have a succession plan in place. According to RBC’s Wealth Transfer Report 2017, 39% of business owners have a comprehensive plan in place for the future of their business or their family wealth, while 22 per cent of business owners have yet to start even minimal transition planning.
For some, the reason is discomfort; even if one’s family is open to discussing what will happen to your business when you die, the family business leader may be resistant to such conversations. For others, it’s simply a lack of knowing who to turn to for sound advice. In either case, the barrier between having and not having a plan in place is communication.
Effective communication supports an effective governance framework.
Your governance framework forms the foundation of your business, and the stronger that foundation, the better your business will withstand its inevitable transition.
The central organizing framework for governance comprises three interdependent and overlapping systems: family, ownership and business. As the enterprise owner, you stand at the centre of this framework of three circles, where they overlap. If you were to ask family members into which circle or circles they are located, would their answers be consistent with yours?
For example, does the child who is in intersection of the family circle and the business circle, incorrectly assume they are owners too, at least in how they behave? Does your child’s ex-spouse, employed by the business, still stand where family and business overlap, or are they now only in the business circle?
In order for individuals to understand which decisions are theirs to make and how to support one another while promoting the long-term success of your family enterprise, they need clarity around their roles, responsibilities, and position within your framework – and the only way to deliver clear boundaries is through communication.
Communication shines a light on potentially detrimental assumptions.
Each and every day, you make assumptions, like your office elevator working, employees showing up for work, service providers delivering the services you’ve paid for. Such assumptions simplify your day-to-day life. If and when they fail to materialize, you can then take the appropriate action. This, however, isn’t the case when you make assumptions about the next generation – because you won’t be here to manage damage control.
As you consider the future of your business, it’s essential to bring to the surface and explore any and all assumptions, some of which may be based on wishful thinking, and some of which may be based on biases you’re unaware of.
Particularly in North America, it’s not uncommon for business owners to put age and gender before knowledge and experience. If you’re a male middle child and you inherited the family business from your father, you may be lining up your own male middle child as your successor, and he may be expecting it. But what if he’s not the best-qualified sibling, and more importantly, what if he actually has no desire to take the reins?
In fact, what if none of your children share your passion for the family enterprise? Who should it go to – or will you leave it to them to decide? Before you say yes, consider, for example, what may unfold if one of your children is childless and wants to sell, while another has aspirations of their own son or daughter eventually picking up where you left off?
Families are, at the best of times, complex. Family enterprises, even more so, and we have only just scratched the surface of the complexities associated with succession. Marriage, divorce, addiction, favouritism, nepotism, sibling rivalry and blended families are just a few other factors influencing the unique role communication plays in a business like yours.
Effective succession planning begins with honest conversations.
Easier said than done, you may think – and yes, there is truth to that. Honesty and conflict often go hand in hand, but there is a way around this. Engage an accredited Family Enterprise Advisor (FEA). Based on an analysis of findings from open, honest and confidential discussions with members of all generations, an FEA can help you establish boundaries and responsibilities, understand where your business is in its life cycle, and make informed decisions about how it should be transitioned.
If you’re ready to start those conversations or want to learn more about how an FEA could benefit your family enterprise, contact Foundation Wealth Partners.