FAMILY ENTERPRISES – WHAT MAKES THEM SUCCESSFUL?
What makes some family enterprises so successful? Building financial wealth, creating harmony and preserving a family’s legacy across generations doesn’t come easy. Especially when you consider that a family enterprise is so much more than just a family business. It is the family business; but it also includes other financial assets, real estate assets and heirloom assets, life insurance and the family’s philanthropic endeavours.
When asked what successful family enterprises have in common that make family harmony and wealth creation across generations possible, a common answer is “have a Family Business and Succession Plan”. It may surprise you that this answer is wrong. Studies have found there is no correlation between having a plan and having a successful transition to the next generation.
So how do successful family enterprises build wealth, create harmony and protect their legacy across generations if a succession plan is not the answer? The answer lies in three fundamental building blocks that successful family enterprises almost always share.
The first building block is to invite outside advisors into the family business. Often this involves a Board of Directors that includes independent directors or the participation in a Personal Advisory Group. The independent directors and PAG’s provide fresh perspectives and hold the family business accountable for their decisions.
A second building block is to create a Family Constitution. A Family Constitution is a foundational document that lays out the vision, values and policies of a family. It informs all members of the family about where they have come from, what they stand for and how they want to conduct themselves, in and outside of the family. A family constitution supports all the decision-making processes in the family, ownership and business structures.
The third building block is having clear, open and honest communication, usually in regular family meetings. The purpose of family meetings is to hone decision making skills, conflict resolution and to bond and build trust amongst family members. Regular meetings reaffirm a family’s values and long term vision.
There are numerous other common traits that most successful family enterprises share. However, it is the three building blocks referred to above, that provide the basis for a firm foundation for family success.
Simple? Or does it sound simply overwhelming or unrealistic? Families have a remarkable resilience and ability to overcome most challenges they face. Developing a Family Constitution, creating an environment where opposing views can be discussed with independent directors or within the family can be a difficult process. It is a challenge that requires a shared vision, open and honest communication, professional advisors and a workable plan.
As with any project, having an experienced project team is essential. Family enterprises ready to create their own building blocks of success are advised to contact the Family Enterprise Exchange and consider using the services of experienced family enterprise advisors to help the family. Being a successful family enterprise doesn’t come easy but it can be easier with thoughtful solutions from those fluent in the language of family enterprises.
For more information on Family Enterprises and how to create foundations for success, please contact Ian Burroughs, Lawyer & Family Enterprise Advisor at Kerfoot Burroughs LLP. We would be pleased to be of assistance.