30 FAMILY BUSINESS TRUTHS
By Barbara Spector
Thirty key insights gleaned from 30 years of working with family businesses.
Each business family has its own culture, strengths, idiosyncrasies, points of contention and shared
history. That’s why each family must do its own work to develop policies and processes — a structure
built on the foundation of someone else’s family values probably won’t work for your family.
Even so, there are certain essential principles that generally apply to multigenerational business families
who aspire to be conscientious stewards of their entrepreneurial legacy.
Understanding these principles can help clarify several aspects of family business governance — why it’s
needed and what practices tend to work well.
1. It’s easier to handle sticky situations in a high-trust culture. High trust — both within the family
and between family stakeholders and non-family executives — increases the likelihood that business
decisions will be made in the best interests of all shareholders. While some families are naturally trusting,
others must work to build trust.
2. Family governance is hard work — but you need to do it. Few people look forward to discussing
tough topics, but those issues must be put on the table at family meetings. If they aren’t, there’s little
chance that they will be resolved. Many families have found professional facilitators to be helpful in
starting these conversations and keeping them on track. Ultimately, however, it’s the family members
who must work together to achieve a resolution. If the family doesn’t participate collectively, the results
of the process are likely to be ignored.
3. “Best practices” may not be the best options for your family. Some structures or processes
implemented by other families may not work well for yours. You might be able to modify a strategy to
make it work within the context of your family culture. But sometimes your family might need to invent
its own solution from scratch.
4. The process of working through issues is as important as the result. Merely sitting down together
to discuss potential solutions is significant progress in itself. The shared experience of working together
builds trust. Even if an issue is settled in a way that’s not to everyone’s liking, people will feel better
about the result if they feel their voices were heard and the decision-making process was fair.
5. A good place to start is by focusing on what family members have in common. Many families
begin their governance journey by creating a list of shared family values and family mission and vision
statements. This exercise emphasizes unity and reinforces positive feelings about family membership.
When disagreements bubble up in the future or questions arise about the right thing to do, reviewing the
family values often provides clarity. Some families begin every family meeting by reviewing their family
values.
6. Investing in governance and family member development pays long-term dividends. There are
costs associated with governance. Expenses can include consultants’ fees, family members’ travel
reimbursement, facilities rental for family gatherings, admission to educational programs and
compensation for board members. Wise families consider their governance budget as an essential
investment in their business — especially after weighing it against the cost of not doing this work.
7. Several family business challenges can be predicted. It’s best to get out in front of them. Family
business disagreements generally are sparked by growth or change in the family or the business (for
example, the increased number of stakeholders in later generations or the need to invest profits to expand
or diversify the family firm). Proactive families anticipate such changes and create strategies to manage
the associated challenges before they arise.
8. A consultant can help you resolve your issues — but make sure you hire the right one. Check
references to determine how many family business clients at your generational stage the consultant has
helped, and how familiar the person is with family business systems, governance structures and
documents. It’s also important to assess whether the consultant understands your family values and is able
to create an atmosphere where all family members feel comfortable speaking about difficult issues. Can
the consultant relate well to all members of the family, regardless of age, gender, marital status, etc.? Is
the consulting firm trying to sell you a product — and, if so, is it a product that can actually help you?
9. The third generation is generally a pivotal one in the evolution of a business family. In Generation
3, most family trees have sprouted branches. The households may be geographically dispersed, likely
with different numbers of children and different income levels. They may not share the same political or
religious beliefs. Since the family no longer sits at the same dinner table, those outside the family firm
don’t get news about it on a nightly basis. At this stage, conscious effort may be required to unite family
members in support of the family business — or even just to make sure the cousins, who are or will be
business partners, get to know each other.
10. Unwritten rules and unenforced policies put pressure on the family. Many families first realize
they need governance when their rising-generation members begin to come of age and express interest in
entering the business. Creating a family employment policy will manage expectations about qualifications
for joining the family firm and clarify that family members are not guaranteed jobs in the company. This
tends to spark the family’s realization that other documented agreements are needed, as well.
11. Family governance documents should not just sit on a shelf. A family constitution (usually
encompassing values and mission statements, policies and procedures, charters for family governance
bodies, and job descriptions for key governance positions) should be considered a living document. In
order to fulfill its purpose in guiding the family, the constitution should be referred to frequently.
Although a family constitution is not legally binding, the goal is for family members to consider
themselves morally bound to its provisions. The constitution and other key family documents, such as the
shareholder agreement, should be reviewed periodically to see if they require alteration because of
changes in family circumstances. During this review period, the family should also determine whether
additional policies are needed.
12. Communication and transparency are essential in multigenerational business families. Putting a
priority on “investor relations” builds trust between the family shareholders and the business leaders.
Shareholders who are denied access to information about financial results or key business developments
tend to be less committed than informed owners. There should, however, be an understanding that certain
information must remain confidential. It’s also important for family members to feel free to express their
concerns. Lines of communication should be established so that family members go through a liaison,
such as the family council chair, rather than contacting management directly. Larger families also need a
way to communicate family news, like a newsletter or family internet portal. That keeps family members
connected and united.
13. Family members must be educated about the family’s business legacy. Educated family members
become committed stewards of the family enterprise. Family education programs can be created by the
family council or developed with the help of a consultant. The most comprehensive programs include
curricula for children of all ages, young adults, and married-ins or significant others. Topics include a
history of the family in business, the family values, philanthropy, financial basics such as how to read a
balance sheet, and information related to the family business and its industry. Educational programming
has another benefit, too — it brings cousins together in a business context.
14. There are many ways for family members to contribute and lead. Family business leadership
opportunities aren’t limited to the C suite. Roles beyond the business could include family council
members, meeting planners, newsletter writers, family education curriculum developers and organizers of
philanthropic activities. Those who excel in such roles might be interested in a development path that
could culminate in taking on a key position such as family council chair or family business board -
member.
15. The “benevolent dictator” model doesn’t work well in large families. In the founder and second
generations, the founding patriarch or matriarch makes all the decisions. When family business ownership
is spread among multiple households, family members generally begin to clamor for a more inclusive
approach to decision making. Also at this stage, more work is required to keep family members educated
and informed about the business. At this point, families often form a family council to coordinate tasks
and give more people an opportunity to participate. In the fourth generation and beyond (depending on
the size of the family), it might be expedient to create an additional governance body, often called an
owners council, to deal exclusively with issues pertaining to shareholders of the business.
16. Income disparity among households is a reality in multigenerational families. At some point in
the life cycle of a family firm — often at the outset, but sometimes not until the third generation —
business leaders will realize that welcoming every family member into the business and paying them all
the same salary isn’t practical. Families need to understand the difference between what is “fair” and what
is “equal” and engage in frank discussions on this topic, if necessary. Establishing a dividend policy can
provide needed liquidity for shareholders while preventing excessive strain on the business.
17. “Professionalizing the family business” doesn’t mean separating the family from the
business. While it may be wise to hire non-family executives to manage the business and independent
directors to provide strategic oversight, the family must not remove itself entirely from the business.
Family members must be developed as engaged, responsible owners and stewards of the business who
serve as partners with the board and management. If the family does not step up to assume its role, the
business will suffer.
18. The best way to find out what family members are thinking is to ask them. Consider surveying
the family to identify areas of concern or get their views on recent programs or activities. Invite dissenters
to comment before final decisions are made; better yet, welcome them into the group that makes the
decision. Include next-generation family members on the committee developing NextGen educational
programs and social activities.
19. The need for formal succession planning should be obvious, but many family businesses neglect
it. A succession plan should be documented — including a timeframe for developing the future leader and
an emergency plan in case disaster strikes before the successor is ready. It’s important for the plan to be
communicated in advance to the family and other key stakeholders. Multiple studies have found a
significant percentage of family firms falling short in this area. Succession is a multi-stage process, so
ample lead time must be built into the plan. An effective independent board will hold the CEO
accountable for succession planning and make sure the process is on track.
20. The leadership needs of the business in the future will be different from its leadership needs
today. In the next generation, the business will likely have grown. Technological advancements and
changes in the competitive marketplace will have sparked new customer expectations. The family will
also have expanded, with a different set of family dynamics. The next CEO must have the right skills and
the right leadership style to guide the business in this future landscape. Succession planning should
involve an assessment of future needs, not a search for someone whose strengths mirror those of the
current leader.
21. The family must reach agreement on risk tolerance. Family business owners tend to have a
conservative attitude toward debt, but borrowing can help a business capitalize on opportunities. The
family must work together to determine how much risk they’re willing to assume and how they feel about
taking on a partner (for example, a private equity investor or a family office investing directly in the
company).
22. Solid family and business governance are essential prerequisites to hiring a non-family
CEO. Talented executives seek assurance that they’ll be given the freedom and support they need to do
the job. Family firms with an independent board, a high-functioning family council and strong family
policies are more attractive to top candidates than family companies without this infrastructure in place.
The family should be able to speak with one voice when communicating to the non-family executive, and
boundaries must be respected.
23. Long-term continuity of a family enterprise often requires divestitures and creation of new
businesses. Most families who have been in business together for 100 years or more have sold or closed
underperforming business units and started new businesses. Research has found that the key to family
enterprise sustainability is the family, not the business. The hallmarks of long-term viability are the ability
to innovate, to adapt to changing markets and to make tough decisions in the best interest of the
enterprise. Many family enterprises have been sustained long after the closure or sale of the legacy
business.
24. An independent board with the right members is a tremendous asset to a family
business. Independent members of a company’s board of directors or board of advisers bring an
objective, third-party perspective and proven business experience to a family firm. They can take the heat
off the CEO in family compensation decisions, assure the family that management is being held
accountable and provide crucial feedback on strategy. The most effective independent board members are
truly independent — not the CEO’s cronies or people who provide professional services to the company.
They should have the right skills to provide strategic oversight and help the family business reach the next
level of growth. And, importantly, they must understand and fit in with the family culture.
25. “Pruning the family tree” is a wise strategic move in some cases. Family shareholders who want to
redeem their shares and exit the business should feel free to do so. Family governance will not function
smoothly if a faction of the family doesn’t want to participate. An exit may result in fewer family
disagreements and a smoother path to business growth. Having a buy-sell agreement that establishes a
mechanism for the sale and purchase of shares will reduce the likelihood of conflict over the valuation.
26. Family dynamics play just as much of a role in philanthropy as they do in the family
business. People often say it’s more fun to give money away than it is to earn it, but in reality, it can be
just as challenging. Philosophical differences in a diverse multigenerational family can lead to heated
discussions over which causes to support. Family members who aspire to jobs in the family foundation or
seats on the foundation board must be qualified for those roles; problems will arise if the family views its
foundation as a place to employ underperformers.
27. Family meetings must include opportunities for fun and bonding. If your family gatherings focus
entirely on business and education, interest in attending will decline. Fun activities — a family softball or
soccer game, group tours, trips to the lake — will enable cousins to get to know each other and create the
“glue” that keeps the family together. Many families hold family assembly meetings (gatherings of the
whole family) in fun locations. Some also build in time for the extended family to participate in a
charitable activity together.
28. Some problems may need to be left for the next generation to resolve. Some controlling senior-
generation members insist so strongly on maintaining the status quo (or continuing their family feud) that
contentious issues must be tabled until the next generation takes the reins. Many families have had
breakthroughs when a NextGen steps up with a strategy to escape from the dysfunctional dynamic.
29. Sharing your stories with other family business owners can be revelatory. Owners of private
family companies are understandably reluctant to discuss family issues in public. While that strategy may
keep their name out of the newspapers, it also leads to a feeling of isolation. It’s very likely that another
family has confronted an issue similar to yours and found a resolution that might also work for you,
perhaps with modifications. There are many opportunities for family business owners to get together in a
confidential setting. Taking a risk may have a high payoff.
30. It’s possible to have a family business without any family members working in the business. If
the next generation isn’t interested in spending their careers in the family firm but feel strongly connected
to the business and are willing to put in the work to create solid family and business governance, the
business could continue as a family-owned, professionally run enterprise.
Family Council
A family council provides a mechanism to engage and educate family members in a setting that includes
positive social bonding time. Councils are a mechanism to define and address the “business of the
family,” reduce conflict and promote positive social experiences associated with the business. They also
encourage family interaction across branches and generations.. Council leaders must ensure meetings are
regarded as a good use of time and productive in order to retain buy-in from family members with busy
lives.
The need for a family council evolved as the family moved out of employment/management positions to
mostly shareholder positions. The family council represents an effort to keep this large, geographically
dispersed group connected and educated about the business.
Each family has its own process to address the “business of the family.” Like creating a family charter
may be a starting point. This document establishes the family council and requires the family to engage in
a process of collaboratively defining its mission and values. To facilitate the needs of the family council:
helping to plan social events and family events (such as the annual meeting, summits and family council
meetings) and developing educational events for the family the family may use the advice of consultants.
The Family council documents may include:
1. Family charter/constitution
The family charter or constitution is often one of the first documents a council creates. It defines the
mission and values of the family who are in business together. While not a legal document, the charter
can provide official guidance for a number of family meetings and activities. Subjects to address include:
Requirements for participation on the family council (e.g., age, shareholder status, blood relative vs.
married-in).
Duties of a family council member (e.g., participation in meetings or conference calls, further
education, attendance at family meetings).
Leadership roles in the family council (e.g., president, vice president, secretary).
Family meetings (e.g., frequency, who may attend).
Specifics of how the council is funded.
Specifics of how this document may be amended.
This is a living document. Create a process to review and revise the charter on a regular basis.
Attend to the language used. General language allows for flexibility and avoids the need for frequent
amendments to the document. Specific language communicates unchanging certainties of a family.
2. Job descriptions
Many family councils consist of family volunteers. Other families choose to pay a family member for
investing his or her time to support the council. Prior to creating a paid role, a council should develop
a job description detailing general traits required for the job and specific job functions. In addition to
defining the tasks that are needed to facilitate the family council, consider the following elements
when writing a job description: educational requirements, sliding scale of compensation etc
3. Self Evaluation
Self-evaluations can be more effective if they are accompanied by a list of the council’s
recent accomplishments. Self-evaluations can provide helpful feedback on which accomplishments have
best moved the family forward and can help the council set future goals. The process also provides family
members with an opportunity to state their concerns about such matters as reimbursement for their time or
the setting and structure of meetings.
Decide whether the feedback should be anonymous. Anonymous feedback can encourage openness.
On the other hand, including names with the feedback can facilitate a better understanding of specific
family members’ concerns.
Use an online survey tool. Make it easy for family members to complete the surveys by using a free
online tool.
4. Strategic plan
The “business of the family” needs a strategic plan as much as the “business of the business” does.
Creating a one- to five-year plan is one of the most effective ways to build purpose and intentionality into
a family meeting.
Your family council strategic plan should include tasks that are accomplished at regular intervals and new
council goals. Strategic plan items might include planning for a family retreat or meeting, discussing
educational opportunities for the family, reviewing the council charter, creating a task force to plan a
social event, and planning programs for members of the youngest generation. Use feedback from the self-
evaluation to bolster a strategic plan. When family council members see their feedback incorporated into
the council agenda, buy-in is often increased and the purpose is reinforced.
Include your family mission and values. Your family spent a long time discussing the family mission
and values. Make sure this guidance is incorporated into the task-oriented work of the council. Consider
including these at the top of the strategic plan to ensure the tasks of the council are consistent with the
already-defined goals of the family.
5. Budget
A budget provides a process for a family council to better define specific activities, how they are funded
and how much the family is willing to invest in a council. A budget may include:
Travel costs for family council members.
Family council honorarium.
Funding to attend outside conferences.
Funding for family social events associated with the business (e.g., a family meeting or retreat).
Decide who funds the council. A starting point of the budget is the decision about how the council will
be funded. Will the funds come from the business, will the money be subtracted from dividends or will
family members be assessed?
Include the business in the process. Developing and maintaining a budget often requires family
collaboration with the business. Decide who will track receipts and enter updated numbers for the budget.
Policies
The idea of developing policies may seem too formal for a family business. However, as the business
extends beyond the founding generation and family members begin to spread out geographically, policies
can help minimize conflict. The process of creating family policies allows the council to discuss areas of
disagreement before an issue becomes personal.
One of the most common family policies is a family employment policy (covering whether family
members should be required to work outside the family business before joining and procedures for
evaluating their performance and determining their salaries). Another example of a policy that addresses
an area of potential conflict is one covering eligibility and nominating procedures for family members
who wish to serve on the board of directors.
Benefits of the process
While family council objectives stem from each family’s unique culture, the process of developing family
documents adds purpose to family council meetings. Collaboratively considering mission and values,
working out resolutions to situations that can create discord and creating a self-review process can
strengthen relationships and center the focus of discussions on “the business of the family.”
