A pressing concern for most family businesses is the continuity of the business. The concern is not without merit. According to research only 3% family businesses worldwide survive past the third generation. In the owner led generation conflicts are minimal and the founder's vision dominates. As family members from subsequent generations join the business, each having their own interpretation of the future, conflicts may creep in.
Most issues that family businesses face are family based rather than business based. Discussions on succession, ownership etc. are postponed for fear of creating disharmony. The avoidance of which in fact just does the opposite. Although conversations on mortality are out of the question in Asian cultures, a conversation on the future of the business and expectations of individual family members should not be sidelined.
Family businesses aspiring unity and harmony must work consciously towards developing these. Left to the force of nature there is a greater likelihood that as a family grows in size family members begin to drift apart. Family businesses also need to address business demands of a healthy, growing and sustainable business.
Families can hope to ensure growth and sustainability by adopting the 3Gs of Family business.
1. Good Governance
2. Get Listed
3. Go Global
Much talked about after the 2007-8 financial crises. Governance has been a subject for both non family and family business. One key aspect of governance is the accountability of the management to shareholders. As ownership and management is often intermingled in family managed businesses the need for governance is often downplayed. Family members are only accountable to themselves. As each is an equal none can question the other without fear of causing offense.
If family businesses are to scale governance structures are a pre-requisite. An effective board of directors ensures that stewardship of the businesses is guaranteed. As stewards, family members not only review past performance but also engage in risk assessment and focus on future outlook of the business. Independent directors on the board bring in a fresh perspective, industry experience and diversity to the board a counterbalance to the inertia that is part of legacy family businesses.
Family businesses shy of debt or family members seeking an exit may choose either private equity or listing. In both cases there is an inhibition which, stems from a fear of losing control, disclosures and or an accountability to regulatory bodies.
Family businesses must look at the big picture. There is a tradeoff between scaling the business and maintaining family control. If family business is to sustain and be able to support subsequent generations, it has to grow at the same rate or near to same rate as the addition of new family members.
Listing followed by good governance benefits the family business by bringing in the necessary goodwill of visibility. Customers, vendors and business partners prefer publicly listed companies over privately held companies. A public listed company is better able to negotiate than a family business firm
Good governance and getting listed can serve as natural stepping stones to going global. With the right governance structure in place, replication of the business outside the parent company becomes easier. With increasing competition and reduced trade barriers, the world is a global market. Family businesses can achieve growth and sustainability by moving out of saturated local markets and tapping into international opportunities.
Family businesses can adopt 3Gs incrementally or independently. The route may differ from family to family however the goal of growth and sustainability of the family business remains the same.