HOW TO AVOID FAILURE IN THE FAMILY BUSINESS?
“If everyone is moving forward together, then success takes care of itself”
“No company can be successful without being properly organized”
“Business is not run from a subjective perspective. Not those who seek success."
As in all relationships, family members involved in a company require clear rules.
In Africa, family businesses are born with a limited life expectancy. The problems that surround them have a common origin: lack of professionalism. The first step to correct it is the development of corporate best practices focused on a familiar protocol.
The African economies cannot be understood without family businesses. Everything goes, comes, and moves from these. Statistics confirm that 9 out of 10 companies in the country have this origin, but the numbers also reveal a poor life expectancy: 76 percent of companies die before reaching 25 years of age 1.
Grandparents and parents start up and maintain a business, but the deficiencies of the companies end up blowing up the project in the transition to the third generation.
What happens along the way? Where are the obstacles? There are weaknesses that they share with the rest of the companies: lack of financing, and loss of competitiveness in a globalized environment, among others. But, above all, the main enemy is brewing in family conflicts.
The emotional factor that characterizes this class of companies is exacerbated in situations such as succession in senior management positions, the hiring and remuneration of family members, the distribution of dividends, the value of the company, and in the face of exit schemes of shareholders.
WHAT IS THE BEST POLICY TO REGULATE SUCH RISKS?
The fundamental thing is the implementation of the professionalization and institutionalization of the company. This means the development of instruments and structures that offer business rigor to the business. Going from the entrepreneurial ideal to the business culture. From the business between relatives to the business family.
The key: family protocol
As in all relationships, family members involved in a company require clear rules, and a protocol. An internal contract that serves to deal with the circumstances of the business world and that, if mishandled, ends up in the conflicts that we have already analyzed.
The protocol’s main objective is to balance the objectives of the family and the future development of the company with cohesion and professionalism. With this vision, the social interest and the creation of long-term wealth are prioritized for the different parties interested in the company: shareholders, other family members, workers, society, customers, and suppliers.
The process of preparing the family protocol begins with interviews with family members and the management team. Then the different chapters are outlined, it ends with the approval of the document and if it is considered convenient, it is concluded before a public notary.
The fundamental point of the protocol is to establish content agreed upon by the members.
This is understood as a legitimate instrument and gives it the guarantee of being respected. Better yet, to acknowledge it with a sense of belonging.
What is the best time to develop the protocol?
Ideally, it should be born together with the company. However, an advantage of working with a path traveled is that the members can also contribute to the experiences they have overcome.
When there are only a few years left for the incorporation of the next generation, it is advisable to implement the protocol as soon as possible.
Elements that the protocol must contain
The basic elements that the protocol must contain are:
Family business values
This includes the definition of the mission and vision of the business, in addition to establishing what are the long-term objectives that are sought, beyond the profitability itself.
It means detailing how decisions will be made, what are the company’s main policies, and what mechanisms for conflict resolution will be in place.
Succession planning in managerial positions
Before “passing the baton”, selection and preparation criteria must be established for the new generation that will be in charge of leading the company, to favor a climate of certainty.
Regulation of posts
In order to professionalize the company, it is convenient that the relatives who intend to incorporate meet several conditions, the minimum being: that there is a vacant position, academic degree, and previous experience.
The family protocol must also specify the formation of corporate governance for the company. What does this structure refer to? The corporate governance of family businesses is comparable to that of democratic countries where there is an executive, legislative and judicial power, which works independently but under the same State project.
It is a set of bodies with a particular function for the business, which underpins it and gives it the required institutionalism so that decisions transcend its members.
The main ones are:
Board of Directors: Its primary function is to make the most relevant decisions for the company.
Family Council: Ensures that there is maximum coherence between the interests of the family and the optimal management of the company.
Evaluation and compensation committee: Proposes the hiring and compensation of family members. Their proposals are sent to the Family Council, which is the one that decides.
Family Office: It is responsible for managing the assets and finances of family members.
Protocolizing the management in the family business means, after all, capitalizing on the benefits of working among relatives. Change the perspective and, far from identifying this particularity as a disadvantage, take advantage of proximity, closeness, and shared values.