Author: The Lodis Forum

Ten years is half a generation—a long enough time frame that a ten-year vision will help guide families through major transitions, but a short enough time frame that still allows for planning and accountability.

A lot of families think about their vision in terms of a much longer or shorter horizon—100 years or 3 years, for example. If you’re trying to achieve a vision that’s 100 years away, who is going to hold you accountable? A shorter-term vision is also not very useful. You’re not going to get your family to do anything of significance in only a few years, because it’s too hard to make changes. A short-term vision won’t help you anticipate or plan for any big transitions or changes in leadership.

When you project where you’re going to be in 10 years, you need to look at it through three lenses at the same time—what the business is going to be doing, what the family is going to be doing, and what the board is going to look like as it pertains to family director development.

If the business is going to double in size in the next 10 years, and your family will need to put a new family chairman in place or hire someone from the outside—those are really big transitions.

Big transitions will go more smoothly if you have a plan. How do you need to grow your family’s capabilities in order to be good stewards of a changing business 10 years from now? And how can you position your family to be good stewards of their own relationships as the family itself becomes more complex over time? How do you prepare family directors so that they can be active participants on the board of a much more complex business?

If the family, the board, and the business are likely to become more complex over time, the family needs to have the tools to understand that.

There are three elements to consider when creating a family vision: family, business, and board. Each of these entities will be in a different place in 10 years. The business may be double in size, the family may have quite a few more active members, the board will have more complex duties and perhaps different members in order to provide guidance to a company and family of increased complexity.

I’ve found that a 10-year time frame is just right. It gives you enough scope to think about what’s happening both with the family, the business, and the board.

Family
With the family, you need to look at the generation currently in leadership, the generation that’s getting ready to rise into leadership roles, and the youngest generation. Where will each of these groups be in the next ten years? Some may be retired, some may be ready to come into the business or family governance. Each of these groups will need a plan. In the case of retirement, succession planning is needed. In the case of aging into the family council or family assembly, there will need to be a program in place in the next few years to get them ready for “active duty”. And then there is that middle group – those who need to prepare for succession. You will need to put in a leadership and development program for these individuals so that they can be prepared.

If your family’s youngest generation is between the ages of 5 and 13, you’re probably not even thinking about them right now. But in 10 years they’re almost all going to be eligible to be part of your family governance structure. You need to anticipate that transition now and think about what needs to be in place to make it a smooth one.

Business
Understanding where the business will be in 10 years allows the family to prepare family members to understand and be good stewards of that business. If the business is going to grow in complexity, the family needs to have a plan to grow in capabilities along with it. This statement in the family vision will provide guidance to the family governance to implement a development and education program, for example. This may also provide new and exciting employment opportunities for the next generation. Ensuring that the next generation is exposed to these exciting opportunities could be a way of ensuring continued family employment in the business.

Board
In 10 years, the board will likely be very different from what it is today. The business will be much more complex and the directors will be required to make a very different contribution, including family directors. As the business grows, so must the board. The family vision may include a statement about the performance and readiness of next-generation family directors. This will then direct the family governance to implement a director readiness program.

The ten-year vision helps the family grow to be ready for what’s ahead and to develop a deep bench of qualified leaders within the family. It sets the context for all the things that will happen over the next 10 years and tells you what you need to plan for.

I worked with a family a few years ago who had decided they wanted to do an analysis of the dividend policy. The family had had some significant conflict in the past and were making great strides in addressing some of the pinch points in their policies and practices. They had already, through the use of task forces, doing a review and light revision of the share transfer restriction agreement and the stock redemption policy. Reviewing the dividend policy seemed like a logical next step.

The dividend policy task force addressed the historical reasons for having dividends, then conducted an analysis of future projections of dividends as compared to company growth. They also surveyed best practices, looking at what other comparable family companies have done. The question they were trying to answer was whether or not the dividend policy was at an appropriate level to recognize and reward the family for their reinvestment in the business, without stifling the growth of the company by taking out too much capital. The most brilliant study they did was to also discuss and try to measure the other returns that the family experienced by being part of a family-owned business.

Especially if there is interpersonal conflict, the passion that a family has for the business, along with an adequate dividend policy, can buy the family time to resolve the family conflict. Without this, family unrest and conflict can overpower the desire to remain family-owned.

The returns that family experiences are threefold:
Financial – through dividend policies and other perks
Family – close personal relationships, or at least good working relationships with extended family members
Business – connection with the business, pride in products, pride in good employee relationships, taking care of the employees and their community

If a family only has financial returns, it isn’t really enough to keep the family reinvesting in the business. Especially if there is family conflict, staying in the business without a financial return and pride in family ownership of the company can feel like an exercise in masochistic behavior. In that same light, having family emotional and business emotional returns without financial, may also not feel like “enough”. However, if a family has a successful track record in at least two of the three areas, it will buy the family time to address whatever is lacking in the third.

In this family’s example, measuring business returns made the family council realize something. They had spent untold hours trying to appease a small minority of individuals, rather than focusing on the majority of the family who was happy with the direction of the family council, was passionate about the business and experienced an overall positive experience in the three domains.

It can feel quite natural to try to make everyone happy, but actually measuring overall happiness in terms of the three areas of returns can make a substantial difference in a family’s approach to solving a problem. Measuring more than just financial returns allows the family council to focus on the happy majority while still trying to address the challenges that the minority experience.

Family values are a statement about the fundamental agreements of a family. This provides a framework, based on an agreement that helps a family set priorities.

Of course, every individual and smaller family unit will have their own values, ideas that determine how they treat people and the impact they want to have on the world. Individual sets of values shape the group’s agreed-upon values, but it’s important for the family as a whole to find the values with which they’re going to measure all their decisions.

Many families want to prioritize the values of inclusiveness, transparency, integrity, stewardship, education, engagement, relationships—the possibilities are endless.

Once you have clearly defined your family values, everything you do moving forward has to speak to all or any of those values. All decisions will be made in alignment with your values. Each decision is evaluated based on how it’s going to help achieve your vision, and how it’s going to help you carry out your values. Your values become a road map.

Values explain our actions as a family. For example, the value of stewardship explains why the family might decide not to gut the business for personal gain. It explains why we might decide not to spend lavishly on ourselves instead of reinvesting in the business for the good of future generations. It may also explain why the family is no longer e-mailing confidential corporate information and is now implementing a secure portal for all private information.

It’s easier to implement change when you base decisions on something you already agree on–your values.

A family’s mission statement documents who you are today, what your priorities are, and how you agree to interact with one another. It spells out your commitments—to the family, to the business, to the board, and to the community.

I’ve helped several families define their missions. In many cases, families want to be the best possible partner with the board of management. They want to do everything they can to avoid distracting the business leaders with lawsuits or other conflicts. They want to manage the family’s relationship with the business so that nobody in the family is trying to influence management, or calling the directors before meetings to make sure their voice is going to be heard. They also want to have fun, enjoy each other, share their wealth and knowledge with others, and be good stewards of the business and community.

Your mission may not be more complicated than this—you may want your business to remain family-owned. You want to live your values, and you want this to be a really positive thing for your community and your family.

Although the mission may be simple, it has a big impact on the tone of the interactions between the family and the business, and between individual members of the family. If a family ever has a big conflict, they can always come back to the mission and ask themselves if the mission statement is still true.
– Do we still want to remain family-owned?
– Do we want to be a good partner with the board and management?
– Do we want to have a deep bench of qualified family leaders and directors?
– Do we want to live our values?

If the answer is, yes, then it makes the conflict a little easier to address because everyone knows that they agree fundamentally on the same things. If a family has an agreement on the big things, the other things seem more manageable

Often, people think of closeness and unity with a family as being solely about their social events. Do they get together when the work is done? Do they go out for drinks, hold celebratory dinners, take the kids on vacation together?

But cohesion isn’t all about social time. There are a lot of facets of cohesion that can strengthen a family and a family business. You have to deliver all of them to build a truly cohesive family.

In a large and complex family, the best way to build strong relationships and create unity is to consistently offer multiple ways of building relationships—through shared work, through social events, through volunteering together in the community, and so on. But the single most important tactic if you desire real cohesion is to give everyone some meaningful work to do together. It’s through that meaningful work that people will begin to build meaningful relationships. That will foster a willingness to do things together unrelated to business, like group dinners or attending a family camp.

When you provide a lot of different avenues to building cohesion, you create a beneficial cycle. To get this cycle started, agree on your shared values as a group. You cannot build cohesion unless you’re operating under the principles of inclusiveness and transparency. In the business, being transparent to your family increases trust, and that trust will build goodwill, and that goodwill will generate more opportunities to get together socially, and those positive social experiences build more willingness to participate in meaningful work. Consistently offering opportunities for people to connect and feel part of the group across many different settings helps bridge the differences between the individuals in the family.

Trying to build cohesion only by creating more social events, or by organizing big gatherings like family camps, you’re going to get the people who already feel cohesion—but not those who feel like outsiders or who don’t do well in certain types of social settings. You have to create opportunities for people to build trust and build relationships in many different settings.

Every time you go through that cycle you’re picking up more and more people. Different people will jump into the cycle in different steps. For example, there may be somebody who is really good with relationships, a social extrovert, and they’ll go to any party. They’ll jump into the positive cycle through social opportunities. They’ll get hooked in by talking with different people over hors d’oeuvres, and as a result, they’ll be willing to join a committee to plan the next social event. Little by little, they’ll be drawn into doing meaningful work.

The best way to open people’s minds is transparency and inclusiveness in the business setting. Let’s say in the past the management hasn’t operated with a value of inclusiveness and transparency and hasn’t had real discussions about the business with the family. If the management or family leaders start operating with a more inclusive model, you’re going to pull in those individuals who may not have had an innate trust in the family in the past. Those individuals will start building trust with the company over time and may be willing to get pulled into meaningful work in the form of a task force to look at competencies for family directors.

Social events are great—as a way to reach the more socially outgoing family members, and as a way to broaden the relationships that began over the board room table or on a task force. But social events alone will not give you a cohesive family. For that, you need to open as many channels as possible for your family to come together in work and in play.

When people think about what kind of legacy they’ll leave after they die, they usually think about financial legacies—property, a family business or trust funds. They think about leaving an estate.

Most people aren’t thinking about the other legacies they will leave.

For example, everyone leaves a philosophical legacy of one kind or another. A philosophical legacy is an imprint their values have made on their children and grandchildren, and on anyone whose lives they’ve touched. The values passed down along with a financial legacy help govern what the family does with the money. Your heirs will still think about how you would want the financial legacy to be managed.

When a family business is passed down, the values that were passed down along with the business will still be applied to decisions even after the founder is gone. The values-based family culture is the legacy you’re leaving along with your business.

In addition to financial and philosophical legacies, you will also leave an emotional legacy when you’re gone. You’re creating an emotional legacy right now in the relationships you have with other people. Those relationships will be passed down to your children. If you have a really good relationship with all your siblings, chances are your children will be close to their siblings, as well as their cousins. The next generation naturally models their own relationships after the older generation’s family relationships.

A lot of successful business people are masters at leaving financial legacies, but they don’t see the value or impact in the emotional legacy they’re leaving. They’re not managing their relationships or acting as stewards of family in the same way they are acting as stewards of their financial legacy or even their values.

If you have a strained relationship with your in-laws or a strained relationship with your sister’s husband, and that may divide those two branches of the family for generations to come. Those relationships get passed down in a negative way just as they do in a positive way.

There are many components to legacy. If you just think about leaving a large financial legacy or a good business culture, you can really fall short in terms of your responsibility to your family. Your actions now will help future generations to maximize and make the best use of the financial and philosophical legacies you’re leaving them. Your legacy will enrich your family much more if you take great care of your personal relationships and treat them as an important part of your legacy.

Many families think that a 4th or 5th generation business-owning family should act and feel like a 1st generation family. That leads to strain and conflict or a feeling of inadequacy. Trying to have a sibling or cousin relationship with a second or third cousin just feels strange, and yet I have spoken with many families who believe they should act more like a family with the people with whom they co-own a business.

My response to them is to ask them if they have stayed in close contact with 4 or 5 generations on the side of the family that doesn’t own a business. Family in a family business is an artificial construct when you get to 4 or 5 generations. Don’t get me wrong, many excellent relationships can develop within a family-owned business, but expecting close connected relationships with all 40 or 140 of your fellow family members is impossible.

Many families enjoy many commonalities, like shared values and similar upbringing. But there are also vast differences as a family business grows – differences in dividends and other income, growing up in different environments, having parents who worked in the family business or parents who never even went to meetings, parents who felt loved and accepted by the family and those who felt misunderstood or rejected. That creates unique individuals with very different perspectives.

It’s far better to strive to build and maintain good working relationships than try to build family feelings amongst many disparate family business members. The feelings of a family can be generated through working together and building context for your relationship. Some families volunteer together for Habitat for Humanity or other charitable organizations. Others work together on specific task forces or projects for the family council. It doesn’t matter what you do, just so long as you are working consistently for a common goal, and provide some time for socializing around the event. This will create the opportunity to get to know one another without the pressure and expectation of feeling like you should feel like family.

In family business literature, I have read with alarm that it’s fine to have family branch representation on the board or on the family council. There are several reasons why families should move away from family branchism. The most powerful examples are found in family disagreements and lawsuits. Take the Demoulas Market Basket family, for example. They had branch representation and their disputes ran along branch lines even on the board.

The challenges of defining a branch
Families define a branch in many ways. Usually, branches are determined by breaking the family into units defined by a certain generation, such as G2s and their descendants or G3s and theirs. The further down the family tree that you start defining the family branch, the more branches you have to make room for.

Creating a branch policy for membership on the board or family council may create a more harmonious environment in the short term because a family doesn’t have to have the difficult discussions around qualifications and expectations, but it also creates a huge downside: entitlement, underqualified directors or council members, a missed opportunity to encourage all representatives to speak and get to know all family members (rather than just their branch), and the family loses on development opportunity to meet the qualifications of the role.

Family branch mentality breeds entitlement
I have heard tales of families who select their next CEO based on which branch’s turn it is to serve. Unless each branch has an equally highly qualified candidate for CEO, the company is in for some rough times. Not only is the family missing the opportunity to pick the best person for the job, it also tells the employees that merit doesn’t matter – having the right last name is enough. That sets up the family member for an even more challenging task as they take on their leadership role. The same is true for family directors and family council members when families elect branch representatives. They may be selecting the most qualified family members in those branches, but without established expectations, and the willingness to elect no one to the role unless there is someone who can meet the expectations, then a branch focus will lead to entitled and under-qualified executives, family directors or council members.

Avoiding entitlement and family branchism
Those who are most qualified should serve on the board, or lead the family in other ways, regardless of which branch of the family they belong to. Along with the hard skills like business acumen and a strong financial background, family director qualifications should also include those softer, more elusive, skills like trustworthiness, involvement in family governance, as well as the requirement that the family director represents the whole family at all times. If a person does not meet all of the soft and hard skill requirements, then the person is not qualified to serve

Representing the whole, not the branch
It may seem harder to represent the whole family’s interests, rather than just the branch; but it makes things easier in the long run. The family avoids dividing along branch lines on any given subject. The key to representing the whole, rather than just a part, is to have a consistent and transparent communication plan, a clear and repeatable change process, and inclusive decision-making. It also helps to promote family interaction with all directors and family council members. All of these practices promote trust and build engagement in the whole family, and the need to focus on the family branch falls by the wayside. Branch representation is an easy way to avoid some difficult conversations now, but it can lead to huge downsides in the long run.

I had a conversation a few years ago with a family member of a large family business who told me she didn’t see the point of talking about family values. I have to admit that at that time I didn’t either. But now I’m a convert, having gone through the process with my own family.

Talking about shared family values gives you focus. If you don’t define and measure your actions against those values, you don’t know if you’re upholding the best parts of your family’s spirit. Values are the yardstick with which you can measure the work of the family council.

Here’s another way to look at it. In all kinds of relationships, it’s easier to begin a challenging conversation by talking about what you agree on first.

In a family, too, it’s helpful to start difficult conversations by figuring out what you agree on. Families who are in business together may agree that they want to be good stewards of their family relationships, or that they want to be transparent in their communication. The conversation begins with this agreement, and then you can move on to talking about what changes need to be made for the business and the family to function better. But if you started by talking about changes or adjustments that need to be made, you’d get a lot of resistance. People don’t want to change the way they’ve done things. If you dive into talking about the areas you disagree about before establishing your common ground, most people will have a more reactionary approach.

Values act as the foundation agreements of a family. You can use them to make it easier to make decisions or to implement change in a family.

For example, in one family I worked with, a concern was raised because the family had been sharing information over email for the last 10 years. Early on, it made sense because everybody had a computer at home and computers wasn’t very portable. Over time, people started getting a lot more mobile with email—using iPads or smartphones and taking portable computers out of the house. The family’s way of sharing information began to be less secure. When they started measuring their actions against their values, they realized that by sending company information over emails they weren’t being good stewards of that information. There was a risk that somebody would lose their phone or have information stolen in some way.

In order to be good stewards, they could have stopped sharing so much sensitive information, but they had other values that required them to share information. A commitment to inclusiveness meant they had to find a platform that worked for everybody, one that fit all different communication styles and preferences. And transparency meant they couldn’t stop sending that information out. They had to find a more secure communication tool that offered immediate access. They couldn’t as stewards stop sending out that information just because it was of the security risk. They had to find another way to get that information to the family.

The family decided to put the information on a secure portal. They provided iPads to everyone in the family, so each individual had secure access to crucial shared information. They upheld their core value of stewardship by safeguarding the information that was being sent out to the family. They were inclusive in that it was easy to read and accessible, and they offered training so everyone was able to use the new tools. And they were transparent in that they made it as easy to access the information as it had been before.

If the family had had this discussion without first talking about the values, if they had just said they needed to change how they share information by announcing that they were going to put the information in a portal, they would have gotten a lot of pushback and resistance. People liked using email. It was very easy for them. But because they had that conversation, reminding the group that they all shared a desire to be good stewards, it became obvious that they needed to change their approach. The values-based conversation helped them all remember that they needed to find something that fulfilled their other values so they could be good stewards while also being inclusive and transparent with their information.