BY PROF. ENRIQUE SORIANO
AS I LEAVE New York after a week of governance work and board my flight to Michigan, I reflect on the global trends shaping the future of family-owned businesses. The introduction of a new generation into a family business often brings unforeseen challenges. Without established rules of entry, conflicts can arise, jeopardizing both the family dynamics and the business’s success. When faced with such challenges, families must navigate the complexities of enforcing their Family Constitution to maintain unity and foster growth.
In one case, a family business faced numerous issues after the children joined the company. Among these challenges were entitlement, sibling rivalry, nepotism, conflicts between the father and children, and a lack of accountability. Compounding these issues was the father’s management style, which centralized power and relegated the children to subordinate roles. Additionally, conflicts intensified due to the involvement of in-laws, who were brought into the business without appropriate qualifications, solely based on familial trust and as a source of inexpensive labor. The mother’s tendency to side with the entitled children further exacerbated tensions within the family.
Faced with escalating conflict, the family sought intervention. Through a comprehensive Family Diagnostic Plan, spanning several weeks, the family’s governance practices were assessed, and key best practices were explored. Just like a doctor requiring his patient to undergo a comprehensive health test to determine the cause of an unusual condition, the Family assessment revealed the need for formal family, business, and ownership agreements. However, the most challenging aspect was the enforcement phase, which focused on structuring the family and regulating behavior.
After almost three years and numerous formal sessions, the family successfully implemented these agreements. Today, they have matured, achieved unity, and are poised to scale the business.
Implementation is crucial and Non-Negotiable.
Just as nations rely on their constitutions to provide a framework for governance, families must enforce their Family Constitution to guide decision-making, resolve conflicts, and plan for succession.
However, enforcement poses significant challenges. First, ensuring that all family members are aware of the Family Constitution’s contents and committed to upholding its principles requires open communication, transparency, and shared understanding. Second, it is essential to apply the Family Constitution’s provisions consistently and fairly to all family members. Establishing a Family Council or similar governing body can help oversee compliance and resolve disputes.
Even with these mechanisms in place, enforcing the Family Constitution can be difficult, particularly during times of high emotion or disagreement. Therefore, families must have processes for mediation, arbitration, or alternative dispute resolution.
Ultimately, fostering a culture of mutual respect, trust, and cooperation within the family is essential for enforcing the Family Constitution. By prioritizing open communication, establishing clear mechanisms for compliance and dispute resolution, and promoting a culture of cooperation, families can ensure that their Family Constitution remains a meaningful and effective tool for guiding their actions and decisions for generations to come.
Promoting Family Unity and Growth: Key Steps for Effective Governance
In the final analysis, family leaders must consider three crucial steps to promote family unity and business growth:
Step 1: A Shared Purpose to Commit to the Family Governance Journey
When embarking on a governance plan, parent-owners must focus on building three key objectives: the Family Constitution, Code of Conduct and Ethical Behavior, and the Family Covenants.
Step 2: Enforcement of the Council
Activate the Family Council and establish a functional Board of Directors, not merely a paper board used for compliance purposes.
Step 3: Enforcement of the Owners Agreement
Establish governance, especially by structuring and enforcing a family-led (lawyer advised but not led) Shareholders Agreement. This will help parent-owners make difficult decisions while maintaining unity in the family business.
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