This week Niall Glynn, a partner with Deloitte in Ireland, considers the challenges of encouraging engagement in multi-generational family businesses as the family expands.
I was recently at a client meeting where we were discussing the future evolution of Board membership across the second and third generations of a family business. Over the course of the meeting, it became apparent how little the third generation (the future directors) really knew each other, or had much of a connection with the business. The only shared memories they had revolved around distant interactions as children, and more recent ad-hoc interactions at family weddings as adults.
In contrast, I have worked with another family that is so keen to encourage close relationships that they have established a fourth generation family crèche, which provides after-school care for older children in order to drive greater connectivity among the future owners. Fortunately, in that case, most of the family are still geographically local.
Both of these cases made me think; what is the ‘family glue’ once ownership of a business goes beyond the second generation, as the number of family members increase, and those heavily involved in the business become the minority?
Contrasts as families expand through generations
Siblings typically grow up in the same household, have the same parents and are brought up with the same (or similar) values. They tend to look out for one another. They have common life experiences and in some cases experience rivalry for their parents’ attention and recognition. The relative competitiveness can foster a closeness that will not necessarily exist between cousins.
Conversely, cousins grow up in different homes, have less rivalry but also share fewer common experiences. Due to lack of closeness, they may feel less responsibility towards each other. In addition, as a business transitions through multiple generations, the likelihood is that family live further away from each other.
In the early intergenerational stages of a business, family members are more likely to be involved in the business as employees, as board members and in leadership positions. As the family moves through generations and grows in numbers, family representation in the business may diminish, and shareholdings may become diluted and the relative size of shareholdings between different cousins or groups of families can be extremely diverse.
What is the glue as the family expands?
What does this change mean in terms of family relationships? And how does the business generate the voluntary commitment needed from a diverse shareholder group to retain an interest and to hold the business for future generations? In our experience, it requires that extra family effort, in terms of education, purposeful communication, shareholder choice and meritocracy. Measures could include:
- Articulating a shared family vision and fostering a joint sense of purpose
- Formal and informal forums to drive constructive relationships (often revolving around deliberate social and business events)
- The education of future generations to be effective owners (teaching them the importance of shared time together and close relationships)
- Having frameworks that manage expectations and allow exits so that disinterested parties can ‘go their own way’
- Considering philanthropic activities as a family unifier and way for non-working family members to be involved
- Dynamic, inclusive family governance measures that help with information flow and communication (such as a family council)
These tools can help ensure that, even in multi-generational family businesses, family members can still have a level of engagement with the business, either as employees, directors, or shareholders, or perhaps ‘simply’ as engaged and supportive family members.