AUSTRIAN neurologist and psychoanalysis founder Sigmund Freud is famous for saying that the secret to a full life revolved in the three-word phrase “Lieben und arbiten (To love and to work).
For most people, the two most important things in their lives are their families and their work. It is easy to understand the compelling power of organizations that combine both.
This, in a nutshell, is the message of a book given to me by Andrew Hier, the CEO, senior adviser and partner at Cambridge Advisors during my visit to their Massachusetts headquarters last week to pursue collaboration between W+B and Cambridge Advisory. It was a wonderful opportunity to exchange notes related to family business dynamics in Asia.
Cambridge Advisors is the world’s foremost authority on family enterprise advisory. It was founded in 1989 by Harvard professor John Davis and has offices in Brazil, Beijing, London, Montreal and Zurich.
The book Generation to Generation: Life Cycles of the Family Business is a great source of information. Authored by colleagues from the academe John Davis, Marion Hampton, Ivan Lansberg and Keilin Gersick, it postulates that the form of family control varies across nations and cultures, but family firms hold dominant positions in all of the most developed economies.
Some common scenarios that the book highlighted reflects on the intrinsic and natural “closeness or specialness” within the family business.
From my personal experience coaching family businesses all over the world, I can enumerate more scenarios that make family businesses challenging and different from other organizations where the “closeness” can also work against the longevity of the family business.
Case of share ownership
Over time, the number of shareholders increases, share ownership becomes fragmented, which makes it harder for the family to make business decisions. As the share ownership becomes fragmented, the shareholders also start to lose emotional commitment to the family business.
Another case in point is when the ownership structure is equal or practically the same among working family members and non working shareholders.
Below are some examples or pain points where the “closeness” can work against the family business.
a. Your role as a finance or accounting manager trying to figure out a way on how to compensate siblings and cousins who rarely report for work.
b. Your role as the biggest shareholder in the firm but struggling to come to terms on how to discipline your son or daughter for spending money as if money grows on trees
c. The role of a president recommending a dividend policy that should be balanced with the need to reinvest funds for expansion. In short, making outside shareholders happy and on the other hand keeping the business afloat and out of harm’s way.
d. Your role as GM in deciding to accept or decline a sibling, cousin or a nephew who is unqualified for the position in the family business.
As the book correctly intimated, it has both positive and negative consequences.
To quote the authors, “Family businesses draw special strength due to the shared history, identity and common language of families. When key managers are relatives, their traditions, values and priorities spring from a common source. Most importantly, commitment, even to the point of self-sacrifice, can be asked for in the name of the general family welfare.”
But it is also fair to say that “closeness” is a double edged sword and can be the source of many internal conflicts.