"They are companies with souls, since the heart of the families is in them" The problems faced by the Family Business are exactly the same as those of corporate companies, only the family problems are added to the former.
It is very normal that in a company someone's attention is called for not achieving the objectives, promoting an employee to a higher position and that former colleagues must subordinate themselves, fire another for not meeting the requirements of the position, or not be aligned with the objectives of the company. But when this happens in a Family Business and that someone is a father, a son, a brother or a cousin, the problem takes on enormous dimensions, because it also affects the family.
Many families, due to structure, culture, etc., face these processes without major crises, because they can speak about it and decide to avoid conflicts, that is, to agree among all interests. Others live in constant discussion and even separate. And the others do not argue, avoid conflict and, in these cases, the company suffers.
There is only one way to lessen the impact of these problems: to establish a form of government.
In order to define the form of government it is necessary to understand how the company-family-property system works.
The form of representation is that of the three circles of Davis - Tagiuri
Thus there are members who belong to and live in the three systems (owner, works in the company and is part of the family), others who only do so in two (owner is part of the family and does not work in the company or family member who does not have ownership interest), and some that only participate in one (the employees, the mother of the family, a shareholder who is not part of the family and does not work in the company).
The first problem is that each subsystem has its own reason for being, therefore it has different needs.
The other drawback is that each one evolves through time in a very different way, so the interactions between them must change.
There is not much to clarify as to the raison d'être of this subsystem. It must contain "affectively" all its members, prioritize coexistence, pay attention to the training and development of each of its members. The base must be love and harmony.
The family naturally evolves over time, new members appear, others die, age, marry and, above all, expectations change.
Professor John Davis raises "Four Natural Laws of Family Businesses"
- Families grow faster than companies. The family's economic expectations grow over time. We teach our children to live like us or better. For the first two, families become increasingly dependent on the company Family companies, normally, "put all the eggs in the same basket"
All this causes economic conflicts to appear between the needs of the company and those of the family.
The raison d'être of the shareholders or investors is “profitability”.
As a consequence of the changes already explained in the family and the needs of the company, ownership also evolves. Due to the death of owners, sale of shares, needs to sell to third parties to finance growth, etc., the company changes hands and each of these owners has different economic expectations.
The raison d'être is to satisfy the needs and expectations of the shareholders and clients in the long term. The basis of support are efficiency, meeting objectives, leadership, ultimately the results.
The company also evolves, changes its needs according to the stage of growth it is in.
Managing a new venture is not the same as managing a medium or large company.
As you can see, the needs of each subsystem change constantly and, frequently, in opposite directions.
It is not at all easy to reconcile and balance all the forces and conflicts of interest that are generated.
The best way to stay out of the danger zone is to regulate expectations, say what is possible and what is not, and define guidelines and decision limits.
The method consists of generating a government agency for each subsystem. Each government has clear objectives and is the one that regulates the decision parameters of the others.
It is the governing body that regulates the family's relations with the other two sub-systems.
It is made up of all family members who have a relationship with the company, whether or not they work in it.
He is the one who draws up the document that regulates all the activities and relationships of the Family business The Family Protocol.
This protocol includes:
- Objective of the protocol Values to be maintained in the direction of the company Business philosophy Vision Defines how the other governing bodies operate: the shareholders' meeting and the board of directors Management systems: evaluation, remuneration, planning and control Regulation for the transfer of actions Criterion for the entry of family members (what positions they can occupy, requirements of academic preparation, degree of kinship, etc.)
And all those regulations that the family considers pertinent.
It is the founding letter of the company. There is no single model of Family Protocol, each family decides what is to be regulated and what is not.
In this way, all family members know what to expect, how they can and should join the company and what to expect from it in terms of financial decisions. In turn, those who are managing must follow and respect the guidelines set forth in this document.
I dare to suggest that one can work without the Protocol during the first generation and in the second, as long as it comes from a single founder and those who continue to be its children.
In the rest of the cases, third generation and the successors are cousins, it is essential to ensure the continuity of the company.
It is the governing body of The Property.
It is made up of all those who have to do with the ownership of the company (the shareholders).
The way of acting is governed by the Family Protocol (who presides, periodicity of meetings, voting criteria, etc.)
They are your decisions:
- Dividend policy Board design and election Director evaluation Business profitability objectives
It is the governing body of the company. It is made up of all those who make decisions for its management, may or may not be family members.
The way of acting is regulated by the Family Protocol.
Here the decisions are made, and the positions are occupied by the most capable.
The essential objective is "Results".
Long-term profitability, prioritizing the life and growth of the company.
Their decisions are:
- Analysis of the business progress Formulation and approval of the strategic plans Review of the fulfillment of objectives Approval of management management Recruitment of staff Business management Information to the Shareholders' Meeting
Conclusions
It is clear that each of these governing bodies will change and evolve in needs and members, but they must always follow the line outlined by the founding document The Family Protocol.
As additional information we can add that in Spain, a country very advanced in the development and control of Family Businesses, the possibility of publishing this document was approved, which gives it legal force before all the members and successors.
There are no recipes for running companies, each one is a unique and unrepeatable entity, but there are tools to drive conflicts as far as possible, and try to ensure that family businesses, which hardly reach the third generation, can survive and grow.
