Emotions and familiarity: Navigating the tough constellations that are family businesses

BMW, Samsung, and Wal-Mart Stores, have one thing in common – they are all predominately family-owned business. Besides this, a study conducted by McKinsey confirms that the “250 largest companies in France and Germany are defined as family businesses, meaning that a family owns a significant share and can influence important decisions, particularly the election of the chairman and CEO”.

Although some may consider it great to spend their day kicking it with brothers and sisters, and together nurture a business, managing a family-owned company is no walk in the park. Indeed, less than 30 percent of family businesses survive into the third generation of family ownership. Those that do, however, tend to perform well over time compared with their corporate peers, according to recent McKinsey research.

Hitting the balance

From having to deal with different personalities and temperaments, to retaining a good rapport with family members you see around the Christmas table together with contrasting generational values and challenging a ‘doing it as it was always done’ mentality, family businesses are no easy feat. Throw emotions and familiarity into the mix, you’ve got a tough constellation to navigate.

While family businesses are run on a strong sense of purpose, it’s important to complement the family’s knowledge with the fresh strategic perspectives of qualified outsiders. Even when a family holds all the equity in a company, its board will benefit from having a proportion of outside directors.

The invaluable input of a Non-Executive Director (NED)

A family business may be reluctant to onboard a NED, especially when operating in a highly specialised industry which requires technical knowledge. The family board may believe it has it all figured out, however, utilising the latest principles in company governance, and building on the experience of working with a myriad of companies, a NED can provide that fresh insight. Challenges can be perceived through a different lens, enabling a company to question assumptions, whilst unravelling opportunities never thought possible.

KPMG cites that “there is often a correlation between the financial performance and the involvement of an independent director. With formal board evaluations to assess the performance of the board, significant improvements have been seen in business performance”.

How can a NED contribute:

• A NED has been there and done that, and with experience of navigating through several industries and building on lessons learnt, they can provide invaluable insight.  
• A NED is not involved in the daily operations of the company and through the art of questioning can elicit new ways of looking at and going about things.
• From a financial perspective, a NED can ensure that your house is in order.
• In an age of dwindling employee retention rates, a NED can understand industry standards and whether the skill set within your company is up to scratch with what is required by the market. Is your company too dependent on its people? Can any processes be automated, and will there be continuation if a member of staff decides to leave the company?
• Navigating through several companies, a NED can take a fresh look at your product and service offering and offer insight as to whether it is aligned to market expectations.
• In an age of heightened cyber threats, a NED can underline the reality and support you in ensuring your business is airtight when it comes to security.
• Strategically, a NED can help future proof your business, challenge operational costs and reduce the chasm between costs and profits.
• From a sales perspective, they can help you define and refine your selling proposition whilst supporting you build a sales pipeline to increase revenue.
• With an external eye, based on your company’s risk appetite, a NED can advise on the right investments to take, or to hold off from given changing economic conditions.
• Timing is everything and a NED can help you realise the right time to engage or hold off certain investments and projects.

Considerations before recruiting a NED

Prior to approaching a NED, it’s good to go through a thorough evaluation process to ensure that there is the right fit.

• Will a NED bring the skills and experience needed to fill the gaps to help the business (and family members) make the leap from good to great?
• Will they bring an impartial and objective viewpoint that family members do not/cannot provide?
• Will they be a safe custodian of your company’s values and wealth?
• Are they comfortable communicating with family members (including different generations)?
• What kind of personality/style would the NED require to interact with executive management?
• Will they proactively start potentially emotional conversations and assist with collaboration among the generations?
• Will they support both retiring family members and, crucially, the business for its evolution and succession?
• Will they ensure values and principles are passed to the next generation?
• Are we able to create the right environment for a non-family member to thrive?
• How ready are we as a company to open our perspective and listen and consider what a non-executive director has to say?