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As we continue to confront the COVID-19 crisis, family business owners are being called on to guide their businesses through the crisis. Family members who work directly in the business will feel this imperative most strongly, though, in reality, it is the responsibility of all shareholder stewards to provide strategic guidance.
I believe that allowing family members to have their careers outside the business is fundamental to the successful transition of many family businesses. Not everyone needs to or should be involved in the business’ day-to-day operations. However, it can be difficult to ensure that shareholder stewards, whose careers are outside the business, still have a deep understanding of the family business’s strategic challenges.
In addition to a lack of exposure, some of this difficulty lies in the nature of the continuing education offered for family business owners. Most literature and programming – conferences, networks, consulting – emphasizes the family element of the family business, as if the business itself will carry on and be successful indefinitely. At the same time, the family business’ management team can attend conferences, read books, or receive coaching geared specifically towards operating the business, without regard for the unique characteristics or needs of a multigenerational family business.
In order for a family business to become multigenerational, shareholder stewards must have an early understanding that they are not entitled to the business, nor will the business enterprise continue to be successful without shareholder guidance. It is a major responsibility of family shareholder stewards to ensure that certain business processes are in place that will enable the business to outlast them.
I wrote my book, A Vibrant Vision, to bridge the gap between family business and business management literature and help shareholder stewards understand their unique responsibilities not just to their families but also to the business.
For the family business to be multigenerational, certain choices need to be made early on that safeguard the business from either becoming a lifestyle business or being forced to an early exit. I detail the business processes that help support a long-term, multigenerational outlook in my book:
- An adaptable, innovative culture that acts on opportunities and responds to the inevitable risks and roadblocks caused by our ever-changing economic environment
- A strong human resource function and human capital process that is designed for the business’ growth
- A robust strategic planning process
- A focus on customer satisfaction and product excellence
- The ability to continually reinvest capital to upgrade the business’ technologies and capabilities
- A governance structure with roles clearly defined for the family, the Board, and business management
- A comprehensive education plan for future generations of shareholder stewards
Shareholder stewards are responsible for ensuring that their Board is electing leaders who build these processes into the business. They must also continually evaluate whether the business is being run in accordance with the family’s long-term outlook and values.
An excellent litmus test for whether or not steward shareholders firmly understand the strategic challenges the business faces are the “economic tsunamis” that predictably come along every decade or so. While shareholder stewards must always remain aware of the strategic direction of the business enterprise, times of crisis can provide clarity for how adequately they fulfill this responsibility, in addition to shedding light on how well the governance and leadership processes in place are able to respond to unexpected economic challenges.
As an example, the COVID-19 pandemic is one of those inevitable economic tsunamis. Shareholder stewards must, in this moment, hold the Board accountable to the family’s mission and values while also ensuring the management team is sharing with the board how COVID-19 is affecting the business. How are associates being kept safe day-to-day? How is management adapting to strategic challenges on a near-term tactical level? Most importantly, what will the business enterprise look like post-COVID-19?
This kind of active stewardship requires that all family members have a good understanding of the strategic challenges required to keep the family business sustainable. The development of family business ownership and the development of strategic business growth must occur together. If you focus only on the family ownership challenges or only on the business challenges, you will not achieve sustainable multigenerational success.