Family business readings: Soft preconditions for robust family trusts
While wealth consolidation, protection and transfer is the central and obvious agenda, many associated softer issues need attention.
Arising out of my consulting experience in helping family firms with family governance, charters and so on, I have a few learnings to share with Family Business Owners, Family Business Advisors and Trust professionals.
While wealth consolidation, protection and transfer is the central and obvious agenda, many associated "softer" issues need attention.
Creating a Family Trust and then "living" it, are both involved activities. The process of forming the Trust can influence the content of the Trust deeds. Many business families hasten to form Family and Business Trusts and begin this work prematurely, only to hit roadblocks of dysfunctionalities within the family.
The main learning is that family governance, the ownership culture and values must be reinforced or stabilised, before commencing the structuring of the Trusts.
Here are a few pointers and test questions, to determine "readiness" within the family:
1. Are relationships within the family trusting? Do family members have mutual respect and afford each other the 'benefit of doubt' in difficult situations?
2. Does the family have a history of conflicts and separations? What have they learnt from it? What traditions has it influenced?
3. Is the family contractual and litigious in character? Is the sense of "entitlement" pervasive in the family?
4. Is the family engaged and participative? Do they have a Family Council?
5. What is the level of transparency in the family?
6. Is the inter-generational "power distance" high or low?
7. Does the family have a "leader"?
8. Is the family sensitised to succession as a process?
9. What is the role of women in the family?
10. What are the views of non-owner spouses not working in the business?
11. Is family pride an important dimension of the family DNA?
1. Has the family resolved the "business first" or "family first" paradox? What is more important to the family?
2. Are the family promoters in operational roles, strategic roles or investor roles? What is the blended profile?
3. How participative is business decision making? Does the family have a Business Council?
4. Do the family directors have a process for presenting "one voice" decisions to the Board of Directors?
5. Does the family have an independent risk assessment process to support their decision making?
6. Is the family business on a growth trajectory? consolidation? turnaround?
7. Is the family committed to merit and professionalisation?
8. Are business ethics important to the family? Do they have a principle-centred leadership?
1. Have all the family members and owners been trained in "responsible ownership"?
2. Do the family owners see "ownership" as a responsibility to stakeholders or an entitlement?
3. Does the family operate an Owners Council?
4. Are family ownership issues wrapped in secrecy or reasonably open?
5. How emotionally charged are ownership issues likely to be?
6. Do family owners trust each other's competence and values?
7. Is the Trust being structured for clarity of family ownership only or governance also?
8. Is the family keen on building an entrepreneurial culture and pipeline of such talent within the family?
9. Do the family owners understand the responsibilities of "trusteeship" and "stewardship"?
It is my submission that a rigorous understanding of answers to these questions will prepare the family and Trust professionals in deeper ways.
It is also my view that composing a Family Charter will help answer these questions even whilst developing one. The principles that get enshrined in the Family Charter, can influence the structure and content of the Trusts.
Another significant advantage of doing this, is that the values, family alignment, synergy and trust that has been built in the process of creating the Charter will permeate the governance of the Family Trust as well, making it robust and effective in its implementation.
Just to clarify what I mean by a Family Charter (particularly to those yet uninitiated on this subject) a brief elaboration follows.
The Family Charter
The Family Charter is a participative and systematic process of open discussions amongst family members and owners. It enables an integration of the three dimensions of family, business and ownership. The involvement of an experienced and skilled family business advisor, facilitates discussion of difficult subjects. The outcome of these rigorous and persistent conversations will be a set of agreed principles and protocols for governance of a family business. This is often called a "Family Charter"
Let me close on a behavioural note:
Interpersonal trust before Legal Trusts
Transparency, trusting family relationships and synergistic values within the family ownership are fundamental to progress in any family business.
Stephen M.R. Covey in his excellent book 'The Speed of Trust' focuses on the overlooked and underestimated bedrock of democratic capitalism - trust. He calls it 'the one thing that changes everything'. Low trust causes friction, creates hidden agendas, politics, interpersonal conflict, win-lose thinking, defensive and protective communication. Low trust slows everything - every decision, every communication and every relationship. On the other hand, trust produces speed.
Transcendent values like trust and integrity underscore vibrant and effective family businesses and literally translate into revenue, profits and prosperity.
Prasad Kumar specialises in family business advisory