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Back to the Basics: The Role of Values in Family Enterprise

By Christopher J. Eckrich, Ph.D.

 

Here we go again! Family business makes the news, but it is a sad story of how the family contributed to toxic governance and wrongdoing. The Rupert Murdoch story has brought, with it generalizations by both popular press and respected business journals that family businesses are too often self-serving and do not have consideration for other stakeholders beyond those at the dinner table. These are easy generalizations to make, as breaking stories capture big headlines demonstrating family wrongdoings. But there is more to the picture when it comes to family enterprise, and the time seems right to revisit one of the most basic concepts in family business-the driving force of the owning family's values on the enterprise.

While it is true that for many businesses, values are written down during an afternoon planning session, put on a plaque and largely ignored in the day-to-day running of the business, there are excellent examples of business-owning families who strive to integrate their positive values deep into the organizations they own and operate. Long-time readers of this newsletter have seen their stories and recognize the weight that The Family Business Advisor gives to values-driven family enterprises. This is not simply because we think that represents a "good story"-but rather because we see so much evidence of the benefits to the family, the business and their communities when families successfully put their values at the center of their organizations. Still, a reminder of the basic ways that values traverse from the owning family to the functioning of the business is in order. Here are a few examples:

After the "James family" (names have been changed to protect the innocent) spent the better part of a day meeting as a family and clarifying their values, they became aware that they particularly valued integrity in decision making. As one family member put it, "When faced with a decision where we can benefit by cutting corners, we do the right thing." This led to a dialogue between owners and management about how the enterprise could measure whether managers, employees and customers perceived the organization as acting with integrity. The net result included training about what it means to act with integrity for all employees as part of ongoing employee training, annual surveys performed by an independent firm to evaluate how well the enterprise performs with integrity (along other key values held by the family), and built-in expectations that promotions and even compensation will be impacted by the presence of integrity in that person's area of responsibility. This approach took a deep passion and core value of the family and institutionalized it in the family enterprise.
 
Another value is lived out by the "Daronis family," who identified a deep value of pursuing excellent governance in their enterprise after experiencing a difficult transition with the founder of the enterprise. When the owning family became aware of this value, it began studying how it could build a governance system in which each part added value to the stakeholders (owners, directors, employees, customers, community, etc.). This awareness resulted in an excellent discussion about the nature of its board and the roles it would play in overseeing owners' interests and building a successful enterprise. These discussions subsequently lead to the addition of several independent directors whose expertise and experience would give shareholders confidence that management was being overseen properly and without bias, and the eventual creation of a governance committee to assure board excellence. Through their self-analysis, and feedback received from both directors and key executives, the owners also became aware that some of their family behavior patterns were acting as detriments to governance instead of adding value. Rather than having these dysfunctions play out in the enterprise, the family used this insight as an opportunity to strengthen itself and become a more cohesive group. This became critical over time, as the challenging business climate caused by the recession forced the company to make difficult decisions. When the board sought out the family's support to engage in an action that would impact both employees and dividends until conditions improved, the family had developed the skills to process the decision without fear and distrust of each other, and were able to reach consensus on a recommendation of support for the decision, leading to a foundation of greater trust between the family owners, the board and management.

In addition to these specific examples, we find that many enterprising families adhere to the value of giving backto their communities. While these stories seldom make the national news, the impact is enormous for the communities they support. The number of family businesses contributing to community foundations is long, though generally only recognized through brief mentions in foundation newsletters. Other families create their own foundations and support causes consistent with their other values, be they education, the arts, the environment, poverty, health, etc. We have seen a family and its employees co-establish a fund to support the hardship-needs of local citizens, while another family celebrates community involvement to such an extent that family involvement in community outreach is publicly recognized during annual family meetings as a way to reinforce the value. This support has resulted in near 100-percent involvement in supporting community initiatives, which strengthens the reputation of the family and creates good will.

While there are an almost indefinite number of examples of real family values creating a positive impact on their organizations and stakeholders to explore and illustrate, instead it may be more fruitful to close with a question. In reflecting on these issues, ask yourself: "If we were featured in a tell-all news story, what values about our family would be discovered?" The answer to that question will provide a rich source for discussion among owners about the nature of the business in their lives, and the impact they have as a family ownership group on the enterprise. My closing thought would be if you don't like the answer, what better time address the issue than now?

 

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