BY PROF. ENRIQUE SORIANO
HAPPY Chinese New Year! Managing family businesses is complex. In addition to managing the business, the family needs to govern itself.
This is Part 2 of a series of articles related to family enterprises going through a period of sweeping generational change and disruptive events primarily triggered by family conflict. Our subject matter solely deals with communication as it is one of the single biggest challenges in managing the family component.
In one of our internal W+B surveys, we discovered that 75 percent of the polled clients often assume they’re indeed communicating, but is it effective? Unfortunately not.
In that survey, family members have this “conditioned mindset” that since they’re family, they are naturally communicating when in reality, it is quite the exact opposite. Those regular Sunday lunches with the founder or daily chats with the clan leader make them assume the family is communicating. Again, it is not. So even when there is a conscious effort and desire among family members to talk and share notes, the method and actions employed to encourage regular contact should never be mistaken for genuine and honest structured communication.
Without communication, conflict is at your doorstep
As PWC’s Amin Nasser highlights in his article, “The two greatest threats to the successful continuity of family businesses are conflict and succession. And these two critical elements are caused by a failure to communicate!”
He further explains, “Conflicts in family businesses are rarely caused by poor business performance; most conflicts arise because the family owners perceive that their needs are not met. Conflicts also surface when situations are unclear or not properly understood. The management of these conflicts becomes the key to the survival of both the business and the family. Indeed, the main reason behind the emergence of conflict in family businesses is the lack of understanding and communication between the three family dimensions, namely the family, owners and management.”
The dimensions that Nasser was referring to is known as the three-circle model of the family business system developed at Harvard Business School by Professors Tagiuri and Davies in 1978.
The framework clarifies the complex method comprising each of these overlapping sub-systems in simple terms. Being mindful that there exist three separate, dynamic, interlocking circles is a significant accomplishment for a family business. Sadly, family members, especially the founders, may be in denial, or they may somewhat acknowledge the existence of these overlaps but refuse to embrace them. They may even be just plain oblivious that this emotional minefield is something that they can easily resolve.
The predictable conclusion can easily translate to poor communication, resentment, and a lack of commitment to the future – the very things the family business is trying to prevent. And what will happen if the leader is no longer around? Your guess is as good as mine, an actual conflict that can scar the family and its descendants for life!
Let me illustrate a typical mid-sized family business obsessed with growth and expansion with limited communication. To family members, the business is an extension of the family. Every family member is expected to be ‘all hands on deck,’ meaning everybody is expected to be part of the business.
In my work as a family advisor helping families operating in Asia, I would hear disheartening words from tense and edgy offspring, “Papa being the founder would always hound us that working in the business is like our sense of duty and obligation and that we must live up to his standards. In truth, we are not aligned. I am here because I still respect him. If he goes, I’ll be the first one to exit and sell my shares. It is just so frustrating.”
To create internal stability, families must establish structures and processes in place to help them govern themselves so that they can lead the business better./PN
