Will the business end when the cousins take over? (Part 3)

THIS is the third article in a four-part series related to the cousin consortium stage. The SME Toolkit and the Business Families Foundation defines the cousin consortium as a stage where at least two cousins or more share ownership of a joint enterprise, generally those belonging to the third generation members of a family in business.

Unlike other stages, this particular phase carries with it more challenges due to the presence of many nuclear families (branches) and numerous family owners, some of which are majority shareholders, others minority owners, some actively involved, and others inactive or passive shareholders.

As the number of family members multiply, there is a pressing need to formalize agreements in all fronts, including the alignment of the family and business visions.

Instituting changes should be a top priority by the senior and next generation leaders

Passing the responsibility to the cousins solely to address governance issues is never a good option. Senior generation members must provide the inspiration and must be present in all governance-initiated programs. These policies do not just guide decisions inside the business, but guide decisions about the relationship between the family and the business.

Below is a list of my recommendations for family members to immediately put in place:

a. Engage qualified professional/non-family members (refer to my last article).

b. Create a communication and conflict resolution mechanism (refer to my last article). Policy development on how best to communicate and manage conflict cannot be put off forever. Family members must formalize and set down on paper the structure and guidelines under which the family will own and operate their business.

My best advice is for the family members to meet and set up a sound governance structure early starting with the formation of the family council and the business council.

c. Set up a family council. Among the many functions of the family council is the setting up of an adequate grievance committee that intervenes against an erring family member. This council must be proactive and unbiased and must be able to manage and temper misunderstandings and irrational behavior among cousins before it escalates into a major disagreement where all parties become emotional. Examples of some questions that will be tackled by the family council are:

  1. How do we go about fixing a petty argument amongst siblings or cousins who are also shareholders?
  2. When will our parents empower us to make decisions? We have been in the business for more than 10 years!
  3. Who has the final say in accommodating cousins interested to work in the business?
  4. What is the protocol in filing a complaint against a disrespectful cousin or senior generation member?

d. Set up a business council. This governance structure, when done with the family member’s/shareholders interest in mind, will be the company’s best bet against unnecessary confusion in the way the company is managed by the cousin consortium. Addressing business related issues like conflict of interest and allowing only qualified family members to join the business will make it easier to maintain peace and harmony as well as cohesion amongst owners. Common questions that the business council usually take up and resolve:

  1. Can we seek your help in pushing for our company vision and values? There is disagreement as to what and where the direction of the business is.
  2. There are many bosses in the company. We do not know whom to follow. Succession is unclear.
  3. Can we review the current compensation policy? The next generation family members have growing needs and we do not know if the senior generation members are aware.
  4. Is there a mechanism to gauge the performance of siblings/cousins? I sometimes feel it is unfair. I work more than my other siblings/cousins and yet we receive the same pay.
  5. Can we regulate the entry of in-laws and relatives?
  6. If and when I decide to pursue my MBA, will the family business pay for my tuition? Will it be the entire amount?
  7. I am a non-active shareholder but would want my son to join the business, is that possible?
  8. There has been no dividend policy for a long time and it has affected my family’s cash flow. I am based overseas. What and how can I air my complaint without being tagged as a greedy cousin?

e. Have the discipline and commitment to abide by the rules. To spur growth in the family business under the cousin consortium stage, a major factor would be to strongly push for the approval of the governance rules and the subsequent implementation by the different governance councils. The key is to impose discipline against family members found violating the agreement. Having agreed policies in place and abiding by them reduces the chances that family conflicts will haunt and destroy the family enterprise.

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