Exceptional families are built on a foundation of mutual support, mentorship, and the effective transfer of knowledge across generations. These elements are essential for fostering a cohesive family unit that can navigate challenges together while ensuring the continued success and growth of the family business. The Family Council Canvas, a strategic tool designed for Family Offices and financial advisors, includes a category focused on how family members support one another. This article explores how these families create successful strategies by addressing key questions in this category and showcasing best practices for mutual support.
The Role of Mentorship in Family Success
One of the key questions in this category is, “Do you consider another family member to be a mentor, in the past, present, or future?” Mentorship within the family is a powerful way to pass on wisdom, experience, and values from one generation to the next. Exceptional families understand the importance of mentorship in developing future leaders and maintaining a strong family culture. By recognising and fostering mentorship relationships, these families create an environment where knowledge and experience are shared freely, ensuring that younger generations are well-prepared to take on leadership roles.
The research paper titled “From family successors to successful business leaders: A qualitative study of how high-quality relationships develop in family businesses” by Kandade, Samara, Parada, and Dawson (2019) highlights the importance of mentoring as a critical factor in developing high-quality relationships between next-generation family business leaders and other stakeholders.
The study identifies mentoring as one of the five key antecedents to building these relationships, alongside mutual respect, trust, early affiliation with the business, and mutual obligation. In the context of family businesses, mentoring plays a vital role in leadership development by facilitating the transfer of knowledge, values, and skills from experienced family members to the next generation. Mentoring does not necessarily need to only be restricted to family members. Salvato & Corbetta (2013) outline how external advisors can help mentoring family members.
Kandade et al’s study emphasises that successful mentoring relationships in family businesses are characterised by early and consistent engagement, where potential successors are gradually introduced to the business environment and mentored by experienced family members from a young age. This process is crucial in preparing successors to assume leadership roles and ensuring the continuity of the family business across generations.
Passing on Knowledge Across Generations
The question, “Have you passed on knowledge to another generation? If so, what and how?” emphasises the importance of knowledge transfer in sustaining a family’s legacy. Exceptional families are committed to passing on not just wealth, but also the knowledge and values that underpin their success. This transfer of knowledge can take many forms, from formal education and training to storytelling, mentoring and hands-on experience. By actively engaging in this process, families ensure that their legacy is preserved and that future generations are equipped with the tools they need to succeed.
The research paper “Study of factors influencing knowledge transfer in family firms” by Barroso Martínez, Sanguino Galván and Bañegil Palacios (2013) offers insights into the critical aspects of knowledge transfer within family businesses. They argue that family businesses have a competitive advantage in generating and sharing explicit and tacit knowledge through the familiness and long periods of knowledge exposure, especially with tacit knowledge. This advantage can be be more specified with:
Intergenerational Relationships
The quality of relationships between generations significantly impacts the ability to transfer knowledge. A strong, open, and honest relationship between the older and younger generations facilitates effective knowledge transfer, ensuring that essential skills and wisdom are passed down to support the family business’s continuity.
Commitment to the Family Business
Successors’ commitment, driven by an emotional bond with the business, plays a crucial role in their willingness to learn and engage with the knowledge being transferred. High levels of commitment from both the predecessor and successor lead to better knowledge retention and application.
Trust Between Family Members
Trust is fundamental to successful knowledge transfer. The study emphasises that a harmonious family environment, characterised by mutual trust, is more likely to foster effective knowledge exchange, particularly during informal interactions. This trust is essential for creating a supportive atmosphere where knowledge sharing is encouraged and valued.
Predecessor Involvement in Successor Training
The active involvement of predecessors in training their successors is critical for effective knowledge transfer. This involvement ensures that the successor is adequately prepared to take on leadership roles and sustain the family business’s legacy. A high-quality relationship based on respect and mutual trust further enhances this process.
Supporting Each Other Through Difficult Times
Another crucial question in this category is, “How would you support a Family Council member going through a difficult time?” Exceptional families recognise that mutual support is key to navigating challenges together. Whether it’s providing emotional support, offering practical assistance, or simply being there to listen, strong families stand by each other during difficult times. This mutual support not only strengthens the bonds between family members but also contributes to the overall resilience of the family unit.
Cohesive and Strong Business Families as a Resilience Resource
The paper “Business families in times of crises: The backbone of family firm resilience and continuity” by Calabrò et al. (2021) offers some relevant insights on this subject, emphasising that a cohesive and strong family acts as a critical resource during crises. The ability of the family to stay united, communicate effectively, and make joint decisions is crucial for navigating challenges and ensuring the business’s continuity. Families that maintain strong bonds and a high level of mutual support can leverage their resilience, which provides a cushion for the business during tough times. This resilience is particularly effective in managing internal and external crises.
Social and Emotional Capital
The paper discusses how strong relationships within the business family provide social and emotional capital, which is vital during crises. Family members who support each other, both emotionally and in practical terms, contribute to the overall resilience of the business. This support can include sharing the workload, offering advice, or simply being there to listen and provide emotional comfort. The study also highlights that this social and emotional capital helps the business family to endure and recover from crises more effectively (Calabrò et al., 2021).
Long-Term Commitment and Patient Capital
The commitment of family members to the long-term success of the business, often called “patient capital,” is another critical factor that enhances resilience during crises. Families that are willing to forego short-term gains for long-term stability and growth tend to navigate crises better. This long-term perspective allows them to make decisions that prioritise the business’s survival and future prosperity, rather than reacting impulsively to immediate challenges (Calabrò et al., 2021).
If difficult times prove too taxing and the desired profitability levels fall below a certain threshold, family businesses (or portfolio companies holding passive investments) need to be aware of the tendency to _increase_ risk to make-up the shortfall that way. This _may_ prove a winning formula, it may also lead to too much risk being taken on and making matters worse. As always, being aware of such tendencies can allow for the members of a family council to double-check their decisions against this known phenomenon playing out in underperforming family businesses.
Clarifying Roles Within the Family
The final question in this category, “Who has which role in the family?” highlights the importance of clarity and structure within the family business. Exceptional families ensure that roles and responsibilities are clearly defined, with each member understanding their position and contribution to the family’s success. This clarity not only prevents conflicts and misunderstandings but also ensures that the family operates as a cohesive and efficient unit.
The paper titled “Corporate governance and family business performance” by Brenes, Madrigal, and Requena (2009) provides valuable insights into how successful family businesses are likely to have established family councils and/or family business councils to improve the performance of the business. One factor that is missing, though, is using the council to establish wealth management goals (from, say, the dividends received and how these are put to use within the family).
The paper emphasises that successful family businesses often establish a formal governance structure, which includes the creation of a board of directors. This structure is crucial for improving strategy implementation, enhancing control mechanisms, and organising communication between family owners and business executives. By clearly defining roles within the governance framework, family businesses can ensure that each member understands their responsibilities and how they contribute to the business’s success.
The research findings indicate that companies with a well-defined governance structure, including a professional board of directors, tend to perform better than those without such structures. This improvement in performance is attributed to the clarity of roles and responsibilities, which prevents direct meddling in operational management and ensures transparent information flow between stakeholders.
The development of family protocols serves as a mechanism to prevent conflicts by setting policies regarding family member involvement in the business. These protocols also help in clearly defining the roles of family members, whether as shareholders, board members, or executives, thereby ensuring that family and business decisions are implemented effectively.
Conclusion
Exceptional families create successful strategies by fostering a culture of mutual support, mentorship, and clear roles within the family. By reflecting on these questions and implementing the best practices outlined in this article, families can strengthen their bonds, navigate challenges together, and ensure the continued success of their legacy. The Family Council Canvas provides a structured approach to these essential aspects, helping families create a strategy that is both resilient and cohesive.
References:
Barroso Martínez, A., Sanguino Galván, R., & Bañegil Palacios, T. (2013). Study of factors influencing knowledge transfer in family firms. Intangible Capital, 9(4), 1216-1238. https://doi.org/10.3926/ic.405
Brenes, E. R., Madrigal, K., & Requena, B. (2009). Corporate governance and family business performance. Journal of Business Research, 62(6), 924-933. https://doi.org/10.1016/j.jbusres.2009.11.013
Calabrò, A., Hermann, F., Minichilli, A., and Suess-Reyes, J., 2021. Business families in times of crises: The backbone of family firm resilience and continuity. Journal of Family Business Strategy, 12(2), p.100442. Available at: https://doi.org/10.1016/j.jfbs.2021.100442
Corbetta, Guido, and Carlo Salvato. “Transitional Leadership of Advisors as a Facilitator of Successors ’ Leadership Construction,” no. January 2014 (2013). Available at: https://doi.org/10.1177/0894486513490796
Kandade, K., Samara, G., Parada, M.J. and Dawson, A., 2019. From family successors to successful business leaders: A qualitative study of how high-quality relationships develop in family businesses. Journal of Family Business Strategy, [online] Available at: https://doi.org/10.1016/j.jfbs.2019.100334
