“We have always done things this way” are the famous words that set you on the path to self-destruction. Most enterprising families want to hold onto the past and preserve the family values, which constitute a legacy and honour the vision of the wealth creator(s). History is comforting. The same can be said for family governance. Often, families feel that once they have a platform in place, things will take care of themselves.

After a family has created a governance structure and a family constitution, too often they breathe a sigh of relief and feel they can now coast into the future. Not quite. While they have indeed reached a milestone, which they should be proud of, their cruise cannot last forever

Over time, a family begins to experience signs of stress and decline in their governance system. These strains are inevitable and indicate the need for a new intervention. This does not indicate that what the family business is doing is wrong or a mistake. Rather, it indicates a need to adapt to a more complex reality. Hereunder, we present a series of issues worth contemplating when considering changes in family business governance:

Early Warning Signs of Strain

After the pandemic and other global societal ripples, the warning signs are flashing for every long-term family business.

Stale leadership. A core group of people have taken on a great deal of the governance, and they are tired. The leaders don’t feel comfortable leaving because they don’t see a new group ready to take their place. They are stuck. At the same time, the rest of the family doesn’t see a way to step up and enter what they perceive as a closed system.

Loss of vision, energy and shared purpose. Family attendance at meetings and events declines. People do not ask questions. The family council seems to operate on autopilot, scheduling empty and stale events. Family members wonder why they are doing things together and do not feel connected to a wider purpose. They drift away to their own lives and communities. They lack a connection to the family legacy.

A large, dispersed family. The family business’s governance practices are designed for a smaller group. Cousins do not know each other well, and branches tend to be the focus rather than the family as a whole.

Unclear succession plans. The older generation get comfortable working together and hesitate to step down. There is little engagement across generations. There is no plan, process or timetable for succession, and the rising generation feels no invitation to participate or sees no path forward.

Inability to celebrate differences. The family believes that to stay devoted to the family legacy, they need to support old traditions. Diversity of thought is not welcomed. Family policies are too rigid and do not fit the emerging realities of the family.

Too often, the family ignores these warning signs or discusses them only in small groups, often with blame and resentment attached to them, or a feeling of helplessness.

But denial and avoidance do not make the underlying issues go away — they just build up over time. Sometimes, a crisis erupts, and the family goes into crisis mode, making an unsatisfactory fix to something that could have been attended to earlier with fewer costs and more time.

When energy begins to fade, the enterprise may enter a death spiral. This may not be a financial disaster, but it may end the shared vision and legacy and cause the family business to disband. Many families eventually sell their legacy business and decide to go their own separate ways. If there are major differences within the family, this may be the best outcome. However, defections from the family enterprise will dissolve the family’s emotional ties.

 

At the Family Business Office we can offer you assistance in dealing with family business succession planning issues through incentives supporting advisory and mediation services. Contact us today on familybusinessact@gov.mt.

(All factual and statistical information presented in this blog has been obtained from an extract of an article from the familybusinessmagazine.com) Follow us on our Facebook page and Family Business Office website at www.familybusiness.org.mt