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Family business: Belling the CAT

Thursday, February 17, 2011

In an Aesop’s fable, a council of mice was convened to talk about evading the cat. A suggestion emerged that if a bell were tied around the neck of the cat, then the mice would detect its advance and take appropriate action. The question became “who will bell the cat?”  How to ensure feasibility of any plan? It is appropriate to talk about and implement the governance structures that I referenced in the previous article. If the mechanisms of an effective board of directors, an empowered management team and a functioning family council exist in a family business (FB), the bell will send a strong signal as soon as the cat stirs. This will alert participants to possible pitfalls and, consequently, the business would more likely avoid being captured and killed off by any number of situations. But first, we must place the bell around the cat’s neck. There are some standards to which FBs need to commit if they hope to execute defined structures and roles within the business and the family.

In my experience, the CAT in family businesses is communication, accountability and transparency. These are first principles upon which FBs must build and, at the same time, are notable outcomes of implementation of the governance structures.  This is not the straight line cause and effect of hard science. It is more akin to the cyclical nature of social sciences in which the reality of interrelations and interdependence is celebrated. An effective, non rubber stamp board of directors will not only offer guidance re strategy and policy in the business but will act as monitor to which managers must answer. The more accountable managers become, the easier it is for the board to ensure accountability.
If passive shareholders know how compensation is set and dividends determined, they are less likely to cast aspersions on family members working in the business. Transparency reduces speculation and conflict. None of this is truly achievable, however, if there is no commitment to communication. If the three rules of real estate are location, location and location; I offer the three rules of FB: communication, communication and communication.

Surely families talk extensively among themselves and more so, talk about the business? Would that were so! I am no longer surprised when I encounter families who own a business together and even work side by side but manage, at best, a semblance of contact and, at worst, avoidance of each other.
Meetings are practically nonexistent for some and when they occur, they either skim the surface of the issues or degenerate into shouting matches or walk-outs. Non FBs may also fall prey to poor communication practices but the effect is magnified when the three systems of family, business and ownership overlap. Old behaviour patterns surface; judgments are made not on merit but on the basis of childhood experiences that have absolutely nothing to do with the issue at hand. Triangles abound with mother as the apex through whom siblings speak. Family members fear the results of speaking their truth: the stakes are high for both the family and the business. People may feel hurt; someone may decide to take up their marbles and leave the game and then what do we do?  It is daunting at times to envisage direct and open contact. The consequences of poor communication though are far more damaging.

Yet, FB leaders often scoff at the suggestion that time and energy be devoted to furthering good communication practices. “Business is business,” they say. “We have no space here for any mushy touchy feely stuff; time for my brother to just grow up.” And the business flounders on with no shared vision, no strategic plan, conflict upon conflict, constant blaming, and ad-hoc policies. Often the business and family may do more than lurch from crisis to crisis: it actually produces good financial results until, of course, the proverbial snow melts and the dirty underbelly shows. Good, open and honest communication is a must in FBs. The good news is that communication is a skill and can be learnt. The better news is that developing communication within a family takes commitment and hard work and FBs are no strangers to those characteristics. The best news is that communication engenders trust, which cannot be taught, inherited or imposed.

Trust is a key foundational element in families and FBs and it can be nurtured via good communication and conflict resolution habits. A family council will not deliver its full potential if participants are reluctant to broach difficult conversations and the existence of the council provides more opportunity for conversation. A FB board where directors know that they are not getting at the real issues is a frustrating experience and it may be the only safe and neutral space in which those issues may be addressed. My easiest engagements are those in which the family already holds frequent meetings and honest discussions. My most gratifying engagements are those where family leaders and members buy into the development of better communication skills. Businesses thrive, or so they believe, on nailing down the hard issues of strategy and finance. FBs will not achieve the success for which they work so hard unless they are prepared to venture onto the soft side. Communication is a cornerstone of FBs and one of the clappers of the bell that sounds for good governance.


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