Beyond the Boardroom: A Family Governance and Succession Strategy
San Diego, California. Thirty years ago, a modest grocery business was founded by John Woods. Throughout the years, his tireless effort turned a small company into a strong organization led by John and his wife. For the past ten years, their offspring Tony, Maria, and Bill have been running the company from different management positions, employing more than two hundred people with twelve stores across the city. It was a natural step for the Woods children to come to work in their father's store after they graduated. Even in their late fifties, they look back at their choice to join the business with no regret.
From the beginning, the siblings agreed that they didn't want to repeat their parents’ mistakes: a blind devotion to the business and nothing but the company. That's why the second generation decided not to discuss work at home and instead let their children enjoy their family by keeping their private lives separate from the business and letting them look after their own lives. This arrangement worked well for many years.
But a year ago, Tony began to talk seriously to his siblings about the company's succession after recovering from a heart attack. However, there was an issue that they wanted to avoid bringing up: not a single one of their children (ages around twenty years old) had ever shown any interest in the family business. The third generation had yet to do much for their professional life. Some were finding it challenging to continue their college studies; or had never faced real responsibilities. As it turned out, many members of the third generation had been living their lives thinking that their parents' company would ensure their financial security with no plans on the horizon.
This case is based on real-life situations (names, locations, and business sectors have been disguised) that try to illustrate a typical situation where the lack of communication between family members often further inflames their conflicts. Attempts to create moments of coherent conversations about the shared heritage usually end up in heated discussions between parents and children, who have a different perspective of the same reality. Sometimes, when discussing the kind of future we want to share, we are more concerned with expressing what we think and feel ourselves rather than hearing what others say.
One of the main objectives when working with or in a family business is to help create conditions that allow effective communication between generations. It is imperative to help them discuss, analyze, and propose different scenarios to address the future of the legacy they want to share. The initial conversation should determine if the family wants to indeed continue with this heritage in the future. That approach will lay out the plans, strategies, and projects to be undertaken by the family to achieve their goal: should they go on together or separately? Suppose the family wants to follow through together? In that case, they must first build spaces, conditions, and rules to enable effective conversation between generations for balance and harmony.
After evaluating some offers, an external consultant promised to help the Woods create conditions that allow effective communication between the second and third generations through a system of "family governance structures." The center of decision-making would be a Family Council: a body of governance where the three siblings would meet to settle their interests related to the preservation, growth, and transfer of their collective family wealth- several important assets generated over the last few decades, apart from the shares of the family business.
To regulate these decisions and provide a framework of agreements that would allow them to function correctly, the Family Council decided to create a set of rules named the "Family Constitution," whereby the siblings agreed to regulate the most important decisions about the assets of the family, the succession planning to the next generation, rules for entering to the company, agreements on economic benefits and wages for family members, the family culture and values recognition, and in so doing, provide for:
Development opportunities for members of the family.
Ensuring the quality of communication and family harmony.
Guiding the actions of family philanthropy.
Through their Family Council, the Woods siblings managed to shape a forum adding and separating the functions of the family and the company leadership. This in turn helped strengthen the role of the Board of Directors of the family business, focusing it efficiently on their responsibilities as administrator of the company strategy. Based on the creation of a dedicated space for conversation about family and heritage issues, through effective communication, along with mutual respect and recognition came the awareness among the second generation that the founder's inherited leadership was now divided between the three of them.
This work set the plans, strategies, and projects to be undertaken by the family to achieve their goals, following the rules and the governance structures they've created, letting the effective conversations between generations be a natural part of their lives for the sake of balance and harmony of their heritage preservation and transmission. Due to the family governance structures, the next generation would soon, under the direction of the Family Council, have its own space for development, preparation, and dialogue.
Published in the Board Governance Blog from the Private Directors Association®
Guillermo Salazar is a family business member and an expert on corporate governance and family legacy succession. He has served as an advisor for numerous business families on their protocols, generational transition, family vision and values for decision-making, and conflict resolution. Author of several books, including “A Road to Triumph in Family Business”. Lecturer and educator in the field of the family business in Latin America. Fellow member of the Family Firm Institute (FFI) in Boston, USA. He has degrees in Architecture, a Master's in Family Business Management, and a diploma in Systemic Family Therapy. He is the recipient of the 2015 International Achievement Award of the Family Firm Institute.
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