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Silence Can't Save the Family Business

The board of directors sat quietly at the end of the presentation. The division manager, son of a senior member of the board, had just completed the annual update on his division's strategic plan. The division' s performance in the past year was not satisfactory and the updated plan did little to address the problems. But the board was quiet.

For three generations, and more than a century, various branches of the family basically ran their own fiefdoms within the business. We won't criticize you if you don't criticize us was the powerful, unspoken, operating standard within the family.

Indeed, some of the family's business units operated very profitably and the business as a whole usually performed well. But the recently weak economy slammed the business as a whole. Suddenly strong divisions no longer covered for weak ones. Debt piled up and dividends had to be cut. Scores of stockholders who for years had paid little attention to their family's enterprise, were very interested indeed. They complained mightily. Some offered advice to sell one division or close another. Others spoke of selling their shares or even selling the entire business.

The chairman/CEO, a fourth generation family member felt very alone. Had the division manager not been his cousin, he would have known what to do---and he would have done it.

But the shareholders were as noisy as the board was quiet. Something needed to be done, but what?

Successfully dealing with situations generations in the making can be very difficult. Typically, solutions begin when things get bad enough for consensus to develop around the need for systematic change. Even when it is generally agreed that change is necessary, achieving change will cause conflict and pain.

The family business described here has survived despite never having adequately addressed boundaries between business and family. The board's silence in the face of inadequate performance and insufficient managerial action indicates just how deep the problems have become. Rather than holding management responsible for building the shareholder value, this board insulates management from accountability for strategy and performance.

This business can survive if:

 

  • Consensus can be developed around the need for change and recognition that the business success is more important than the feelings or career of any particular family member.
  • The board can be transformed into a mechanism that demands and facilitates managerial accountability. Such transformations typically require introduction of strong, independent directors to introduce necessary changes in board dynamics.
  • Management can articulate a compelling vision of the future based both on business performance and family legacy.
  • The family can organize itself in a way through which family members can find meaning as owners and stewards of their family's legacy.

The task of transformation is challenging, but the rewards are great. The ensuing conflict may be noisy and uncomfortable---but the alternative is worse. The quiet of the board would ultimately result in the silence of a sacrificed family business legacy.

 

 

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