Best Practices for Families in Business: Part 1

In the Aspen Family Business Group’s September 2020 Current Thinking column, I revisited the seven Principles for Success that the Aspen Group partners lay out in the concluding section of their book, the Keys to Family Business Success. In that same concluding section the authors offer eleven Best Practices for Families in Business. Associate Jonathan Magidovitch and I will revisit these Best Practices in a three-part series to welcome us into 2021.

As mentioned in that previous column, now is a great time to rely on the tried and true:

During times of stress, upheaval and uncertainty it is beneficial to focus on our values and guiding principles. When we provide ourselves with a strong foundation in various aspects of our lives – in our family, in our community, in our work, in family business and business partnerships – we are better able to withstand and overcome obstacles and challenges.

In this first installment of our series we will focus on five of the Best Practices: having a shared vision, embracing shared values, engaging in productive dialogue, understanding the roles and responsibilities of owners, and building trust. These first five Best Practices address aspects of family business that are foundational; they form the basis of a solid well-functioning enterprise.

The next two columns will address the practices that are critical for working in the here and now, and those that are necessary for future success. In this column we list these Best Practices as they appear in the book and discuss their relevance to both families in business and to others in these uncertain times.

SHARED VISION. Do you and the other members of the family have a written vision for the future of the family and the business?

Your vision statement assures that everyone in the family is headed in the same direction and forms the basis of plans, policies, and roles.

There’s a scene in Scent of a Woman where a blind Al Pacino is driving a Ferrari. That scene nicely captures what it’s like trying to manage a family business without a shared vision. When we don’t see where we’re going, we don’t see the right business activities to get us to a good future.

Vision is a detailed image of what your business will look like at some point in the future. It might include what your business provides your customers and your family, or other stakeholders. For example:

Our company provides leading edge products with excellent customer service and good value. We maintain positive relationships with our suppliers and service providers. We create a work atmosphere that promotes trust and communication. We build a company where we like working and we hope our children and grandchildren will, too.

Shared vision is a higher order thing. Take a look at that blind driver scene again. Notably, they don’t crash. And, that’s because even though the driver is blind (physically) he and his passenger share a deeply held, specific vision of their future, i.e. not being dead in a car crash. And so, driver and passenger communicate well; as if their lives depend on it. That’s what a shared vision does for your family business;it can encompass everything from day-to-day decision making to longer term strategic planning.

On a typical day, vision is crucial to achieving goals. But, these days are not typical, with Covid, protests and politics all amplifying competing visions and voices. Imagine that scene of Pacino driving blind, but instead of it being on a cleared-of-traffic street, it’s on a racecourse where all the drivers are blind.

That’s our New Normal and conditions are ripe for crashing. Our landmarks are obscure; our methods, outmoded.

For example, our fast casual restaurant chain lost its happy hour business. They have always been customer centric. Now their customers are primarily working from home. So overnight, the business transitioned to a delivery/take-away service model. They realized the need to pivot, but without vision, pivoting is like a wind-sock in a hurricane; not really providing useful direction. As we redirect we still have to keep an eye on who we are, and where and how to meet and serve our customers.

Vision, re-envisioning, ourselves allows us to meet new needs; it can keep us connected to “old” customers, and as a silver living, it can bring us to new customers, as well. Today, we’re being swept up in a storm surge of change, yet vision gives us focus. With vision, we’re swimming towards something and not just flailing around. Admittedly, sometimes even with vision, events can overtake us. However, the odds with vision are reliably better.

Wise King Solomon cautioned us, “ Where there is no vision, the people perish.” Where there is vision, family business thrives.

SHARED VALUES. Have you documented the values most important to your family and business?

Identifying and discussing the values that are important to individuals, families and the businesses they own and operate is a critical piece of the work we do with families. The shared values that a family embraces are an important ingredient in creating their shared vision. We need to have a shared understanding, and to know which way our compass is pointing, in order to know what direction to turn. Our values form the foundation for this.

It is not always easy to identify and define what our values are. I often ask family members questions to help them explore what values guide them; you can ask yourself these questions too. What is meaningful to you? What do you enjoy doing? What makes those activities meaningful or enjoyable? What do you spend the most time on? What do you spend the most money on? What influences the decisions you make on a daily basis? The answers to these questions will help you identify your core values.

Shared values are important in other contexts beyond the family business. In order to have a productive and fulfilling life, your values, your behavior and the values of others in your environment need to be aligned. Happiness at work has been found to have a positive influence on various aspects of our lives such as health, productivity, social relationships, and general well-being. Working in an environment where you can live your values is an important element of this happiness.

Conversely, we’ve all heard examples of, or maybe experienced ourselves, situations where the values of an individual and those of a business, organization, or even another person are misaligned. This can lead to frustration, stress and unhappiness. Two recent high profile cases of a toxic culture in well-known brands eBay and Away luggage highlight the toll that a values disconnect can have on employees. In the latter case, leadership’s (or the CEO’s) view of productivity and commitment created a dysfunctional culture. The culture was hard-driving; taking any time off was discouraged, even planned vacations. The CEO and other leaders regularly criticized employees and their work through public communication channels. This public humiliation, intimidation and bullying through open communication channels was purportedly the norm.

The CEO believed that her behavior simply followed the stated company values: thoughtful, customer-obsessed, iterative, empowered, accessible, in it together. The leader used these as a rationale to create an overbearing, demeaning culture. While productivity may have been high, burnout and frustration were also high; the work environment took its toll on people’s personal lives and emotional health. Although certain customer service team members wanted to continue to believe in the mission of the company, they were miserable all the time and could not sustain the pace.

Just as having a clear vision helps us find our way, especially in difficult times, understanding and being true to our values can also be reinforcing: we know how we want to behave as individuals and operate as a company. In the midst of uncertainty our values inform our decisions and can give us confidence that we are following the right path.

FAMILY COUNCIL AND DISCUSSING THE UNDISCUSSABLES. Have you created a family council?

Have you held a series of family meetings to explore your vision and values and to develop a set of family policies (and/or a constitution)? Have you created a forum (like the council) to talk about the difficult subjects that must be addressed in families that own business, and have you developed the skills to do so?

Communication. It is so important for everyone to have the same information. In order to make informed decisions and to have a common understanding to move forward, we need to have a conversation about the work required, possible outcomes, and the associated risks and benefits. Family meetings, or a family council, provide an intentional opportunity away from the day-to-day of work and other commitments to discuss topics relevant to the business-owning family.

The family council is where the family can have discussions around values and goals and craft their shared vision. But there are many other questions that can be addressed: Can all family members get a job in the business? What is our responsibility to our employees, our vendors, the community? What is my connection to the business if I don’t work there? Who can I sell my shares to? How much information about the business should I have access to?

Discussing the undiscussables. Our society and our communities (especially in the United States) have reached a point where it is increasingly difficult to have civil discourse on contentious and potentially divisive topics. In our work with families, we establish ground rules to make sure everyone feels safe and has the opportunity to speak and to be heard. It is not only the loudest voice, the senior member, or the “boss” who controls the dialogue. How can we transfer that approach to conversations around politics or religion or systemic racism?

Wouldn’t it be great if we all operated with “ground rules”? Some examples of ground rules that families have established over the years: no finger pointing; no name calling; listen to understand; put away your phone; wait until the speaker has finished before talking; be mindful of your body language; be mindful of your tone of voice; be open to other points of view.

Maybe if we start small, and all of us model the behavior we want to see, it can have a ripple effect. I recently read in our local media about two families on opposite sides of the political spectrum who are neighbors. Although the families had yard signs for competing candidates, they are in the same bubble and regularly get together for meals. The parents and families respect each other and their differences. They like each other and they recognize that even though they might not always agree, they can find common ground.

OWNERSHIP. Do you have documents describing the ownership of the company with clear descriptions of owners’ roles, rights, and responsibilities?

Do shareholders have a regular time and place to learn about what is happening in the business and to share their goals and concerns?

An owners’ council or a family meeting is a great setting to have conversations about ownership. These conversations will be different depending on the size of the family, the complexity of the business and the ownership structure. An owners’ council is appropriate if owners form a small subset of the larger family group; or an owners council can be established as a representative body if the ownership group is so large that a collaborative meeting process is unwieldy. A family meeting works well when the family and the owners overlap to a large extent. In all cases there needs to be a process to share information, have a dialogue, develop policies and engage in learning.

Family members working in the business often have a good understanding of who owns shares, what their relative percentages are, and what the mechanisms are for gifting or selling shares. Operating owners can be reluctant to share business financials with younger family members or with those not working in the business. Owners who are not involved in the day to day operations can feel out of the loop. Similarly, rising generations may not have been exposed to or have regular access to this information. Sharing all of this information, being open and transparent and available to answer questions, builds trust and offers accountability.

The rising generation needs to learn about and understand their roles, rights and responsibilities as owners. They need to understand the role of the board and how family owners interface with the board. In a larger, multigenerational business future and next generation owners need to develop the relationships and trust that will carry them through as co-owners of the business. The senior generation can educate their younger family members by exposing them to the board and how it functions, establishing learning or shadowing opportunities, and providing tools and information so they learn how to assess how their “investment” is performing.

Family businesses facing a generational transition often focus their energy on leadership succession. But ownership succession requires attention as well. As one 3rd generation family business leader said about their 4th generation: We’re not sure who will ultimately work in the business; while we want family working in the business, we need educated family members on the board of directors. There will be 4th generation owners, but there may not be a 4th generation leader.

Estate planning is another important piece of ownership that can be overlooked. People don’t like to talk about death or think about their own disability or incapacity. Just as owners should understand the mechanisms for transferring shares, and there shouldn’t be any secrets or surprise about a family member’s plans for her shares after she dies. Aside from what has been memorialized in “life documents” such as wills, living wills and health care proxies, do you know what your loved one’s wishes are? Have you shared your wishes with others? Especially during this time of illness and uncertainty, we should be open and honest with each other. To take it one step further, are there conversations that you need to have with someone that you will regret not having if you lose the opportunity? Even if the topic is emotional or difficult to address, you don’t want to miss the chance.

BUILDING TRUST. Have you identified points of distrust and explored what is contributing to the distrust?

What can be done to repair those relationships? Are you working to keep trust by honoring each other?

Building trust starts with our being trustworthy. Trustworthiness is the cornerstone of working relationships. Yet, it is so easy to run afoul of what trust really is and is not. This took me to a favorite resource, the Oxford English Dictionary (OED), albeit the online version rather than the massive 30-ish volume edition I first fell in love with. Yes, I admit falling in love with a dictionary and will recommend the book, “Caught in the Web of Words,” about James Murray and his process of creating the OED. There is so much in what he does that speaks to the building of trust upon foundations of meticulous effort, applied correctly.

Here is a link to the Oxford English Dictionary ‘s definitions of Trust .. and there are many. Going through these, it feels like each and every meaning of “trust” has importance in our Family Business relationships. Please take a look through this material.

Beyond those definitions are many professional or wise statements about what trust is. Among them, from Dr. Phil of Oprah fame:

Trust is not about the other person. How much you trust someone else is a function of how much you trust yourself and your ability to handle whatever they do.

Taking Dr. Phil a step deeper, that other person’s words and actions do very much matter. However, if we don’t trust ourself that’s personally destabilizing. People we interact with will pick up on our instability and it puts them on alert which we then read as concerning. This becomes a descending spiral of mistrust.

In family business, there are a variety of written agreements, policy statements and governing arrangements that reinforce and support our family business relationships. The value of these artifacts derives directly from the quality of the process we engage in to produce them.

Which brings me to my lawyer friend who always says, “Write great contracts and then you can put them in a drawer and never need to pull them out.” That is where we want to be in our family business. Writing a great contract is an interactive process in which we come to know ourselves and other stakeholders better. Indeed, the process is arguably more important than the specifics of an agreement.

It bears mentioning that putting in writing agreements among family business stakeholders can be awkward at first. It’s important, though, to get over that barrier. Putting our agreements down on paper actually lowers the chance of miscommunication. Remember, the process of creating those agreements itself, when done with care, deepens mutual understanding and so makes future understanding more likely. Doing this process together is the gem here.

When we are honest, self-aware and sensitive to others; and when we are skilled in communication, then we are building trust. And, that trust is the bedrock upon which we grow our family business.

In this blog, we have discussed five foundational Best Practices for families in business. In upcoming blogs, we will address the Aspen Partners’ remaining items that support well functioning family businesses in their current operations and as they look to the future. We hope you find these reminders valuable and we look forward to hearing from you about what tools and information might best further your family business goals. We’re in this New Normal together with you.