New Report On Ownership And Professional Management Of Family Enterprises
Father and son businessmen wearing eyeglasses and reading newspapers on sofa. -GETTY
The Family Firm Institute has published a new report on the research on ownership of the family enterprise, which you can read at the link below.
A family enterprise is a system by which the management of the personal and financial resources of an extended family are sustained, as well as the dynamic of how individuals interact with family owned operating businesses, art collections, agricultural, commercial or residential real estate holdings.
Family enterprises are initially successful when managed by the founder and other family members who are also owners of the enterprise. They essentially “grow up” in the business, both teaching and learning by example. Families are frequently advised that, in order sustain family control of a successful family enterprise, the management must be professionalized. The authors of this report note that this usually entails having advisors promoting formal processes and procedures of professionalization and governance, treating all business families the same–regardless of their needs, goals, or family dynamics. They point out that these processes and procedures are by no means effective, and may even be detrimental to sustaining family control over the family enterprise in some circumstances. These generic governance solutions and professionalization strategies ignore family dynamics, and the systems, that exist between the family and the business. The result is that the family, especially in the second and third generation, lacks the cohesion and effectiveness to sustain family ownership into the next generation.
The authors’ goal for this paper is to prompt critical but honest conversations among business families, as well as their advisors and other stakeholders, and to challenge beliefs in the effectiveness of formal professionalization and governance. The authors’ outline the six pillars of professional ownership, namely:
How relationships trump process and processes trump structure,
The need for prioritizing communication conflict and cohesion,
The weakness and potential harm of off-the-shelf solutions,
How to leverage the process of professionalization,
The evaluation of “competency portfolios” of the management of the family enterprise, and
To be competent, management requires resources, advocates and strategy.
At ninety-five pages, this report is a long but worthwhile read for the more academically inclined families and advisors out there. There is, however, a great deal of value in this report, especially for estate planning advice for both present and future owners of family enterprises. The authors end with a call for a critical discussion on how advisors go about helping family enterprises to professionalize their management. When having this conversation consider this: estate planning is all about strategy, advocacy and marshalling both financial resources and competent management resources.