BUSINESS AND FAMILY

INTERFACE BETWEEN BUSINESS AND FAMILY


Family businesses are characterised by very close interactions between the company and the family over generations. Unlike other corporate configurations, the family factor in the circle of leadership and ownership is the defining feature. In younger family businesses, securing operative succession is often the focus, whereas in multi-generation family businesses, integrating non-operative shareholders into the family business is the central issue. Shareholder groups that grow strongly, sometimes organising themselves into multiple ‘tribes’ and large dynastic family associations, seek ways of providing meaning and inclusion for the association of shareholders. This involves a defined family strategy, clear regulations as part of family governance, and the legal implementation of these aspects.

FAMILY BUSINESS GOVERNANCE & FAMILY STRATEGY


Individualism and freedom come at a cost. In the past, there may have been ‘clear’ ideas and conventions about family relationships, forms of married life and the regulation of succession in the company, whereas today’s business families are, as is the general trend in society, very free in how they define and shape their ‘family associations’. If the family business is to survive over several generations, it is important to set up a canon of rules for orientation and behaviour within the family. That is why the first task is to discuss and address an actual family strategy, which is often only implicit.

The difference between an implicit family strategy and what is actually practiced in the everyday lives of a business family eventually becomes clear – if not before, then when expectations and ideas within the family cease to align at a change of generations or between parts of the family, or if ideas held by new bearers of responsibility from the family are no longer compatible. A set of ‘business family guidelines’ jointly developed in dialogue creates a kind of morally binding set of rules for the family members which documents the ‘will of the family’.

The now widespread term ‘family business governance’ refers to paying equal attention to the treatment of family and business issues. Family business governance brings together family governance and business governance. Family governance aims to create rules that ensure that the family remains able to make decisions and deal with the company. Generally speaking, a family strategy and its formulation in a family constitution (charter, code, statutes) are considered a key part of family business governance.

 

(Video available in German)

The Witten family strategy model

The aim is to develop a (self) management system for the business family. This helps it to avoid internal conflicts and to resolve them efficiently, to establish decision-making processes, to develop successors who can take on responsibility, to build up the expertise needed within the shareholder group, and much more. This kind of family management ensures firstly that the family remains capable of acting, and that they discuss critical themes with each other, and secondly it creates a common point of reference and a shared way of understanding values in the family business. Family management helps to implement structures that counter imbalances within the family.

SHAREHOLDER COMPETENCE


Shareholders in a family business are – unlike the owners of publicly owned companies – faced with the challenge of actively helping to shape the future of that business. It is their job to provide management with long-term objectives, to advise them strategically on equal terms, and to monitor them appropriately. As members of business families, they need not only the technical qualifications to do this, they also need to be familiar with the functional logic and system dynamics of families and family businesses. In short, they need specialised knowledge called shareholder expertise.

Shareholder expertise encompasses all of the abilities and skills belonging to current and potential shareholders in a (family) business which they need to actively exercise their owner’s interests as well as their rights and duties within the owning family. It is also about the ability to deal successfully with previously unknown situations.

WITTEN THINKING

Shareholder expertise development is a key success factor in ensuring that the family in a family business remains able to speak and act. We can derive the following concrete guidance for business and owning families:

 

(Video available in German)

Recommended guidance
  • Assess the form in which you systematically practice shareholder competence development, and which aspects of it tend to happen more opportunistically (take stock). If you do not yet have shareholder competence development, initiate a discussion about it in your owning family and establish activities accordingly. It is important to include all of the shareholders and family members in the decision-making and implementation process. Ideally, you should discuss these themes and how they actually manifest as part of family strategy considerations.
  • If shareholder competence development is already practiced, assess who benefits from the qualification activities and who has not been considered (yet). Ensure that the shareholder competence development on offer is made accessible to as many of the owning family as possible, especially the following generation and family members who do not hold shares (yet).
  • Ensure that development includes not only conventional management and finance topics, but more general ones such as legal and psychological knowledge and the specifics of your family business, as well as family businesses in general.
  • Differentiate development programmes for future generations in terms of what their prospective roles will be in the shareholder group or business. The demands on the abilities and skills of a non-active shareholder are very different from those of a manager in the business. They can, however, become much broader if, in their role as shareholders, they take up a position in a consultative body, or even a leading position on a board (chairman of the supervisory board or similar).
  • Ensure that shareholder competence development becomes a systematic component of your family management system and that it is therefore organised and structured. This involves carefully defining the content of what is learned as well as the conditions of participating in such a training and development process.

THE FAMILY OF THE FAMILY BUSINESS – THE BUSINESS FAMILY


Business families are families in which people who are related to each other are the owners of one or more businesses for which they carry economic responsibility which is handed down over generations. This brings together two types of systems which are usually separate in our society: private families and business organisations. That entails challenges and the risk of conflict for members of these families, old and young alike. The question of succeeding to the role of operative member of the business and/or responsible shareholder influences upbringing, education and socialisation in such families. Growing business families are therefore confronted with formally organising themselves and developing family strategies and family governance structures to fulfil the responsibilities they have relating to the business. In very large multi-generation business families, there is the question of how the family network, as it grows more complex, can be kept together for the purpose of sustaining the family business.

LITERATURE ON THE SUBJECT OF BUSINESS AND FAMILY (GERMAN SELECTION)


SHAREHOLDER EXPERTISE

THE BUSINESS FAMILY

  • Article: Kleve, H. (2018): Die Unternehmerfamilie der Gesellschaft. Überlegungen zur Systemtheorie einer besonderen Sozialform. In: Familiendynamik, Issue 03/2018, pp. 242-243.
  • Article: Kleve, H. (2018): Die Organisation des Familiennetzwerks. Management großer Unternehmerfamilien als Ermöglichung von Reziprozität – eine Theorieskizze. In: Zeitschrift für Familienunternehmen und Strategie (FuS), Issue 02/2018, pp. 44-49.
  • Article: Kleve, H. (2018): Wie Familien Konflikte lösen. In: Private Wealth, Issue 01/2018, pp. 106-107.
  • Article: Kleve, H. (2017): Verlust und Wiedergewinn des Möglichkeitssinns. Familienstrategische Pfadabhängigkeit aus systemtheoretischer Perspektive. In: Zeitschrift für Familienunternehmen und Strategie (FuS), Issue 05/2017, pp. 170-174.
  • Article: Kleve H. (2017): Das Tetralemma der Unternehmerfamilie. Skizze eines systemischen Forschungsprogramms. In: Systeme, Issue 02/2017, pp. 224-243.
  • Article: Kleve, H. (2017): System Compliance in Unternehmerfamilien. Konfliktprävention durch Beachtung elementarer Systemregeln. In: Konfliktdynamik, Issue 04/2017, pp. 294-300.
  • Book: Simon, F.B. (2011): Die Familie des Familienunternehmens. Carl-Auer Verlag.

RESEARCH PROJECTS AND EVENTS CONCERNING BUSINESS AND FAMILY


RESEARCH PROJECTS

  • Family strategies over generations
  • Shareholder competence in family businesses
  • System theory of the business family
  • Sociology of the business family
  • The ‘tripled family’ – large business families as families, organisations and networks
  • Systemic consulting, in particular systemic structures as a method of reflection and support for business families

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