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The Essential Element Required

It can sometimes be difficult to explain the work I do to those who don’t happen to belong to a family that runs a business or owns assets together.

There are at least three interdependent sub-systems at work, between the family, the enterprise (businesses/wealth/assets), and the ownership group.

Just about every enterprise is in constant contact with outside experts for a variety of services from the outset.

But the family and the ownership typically take on more of a “behind-the-scenes” role and get much less attention.

The family circle happens to be where I do most of my work, and I’ve been developing a bigger appreciation for its overlap with the ownership group lately.

Focusing on “family ownership” and how important it is for the future of the enterprise is the focus of this week’s post.

For those in the know, you won’t be surprised that we’ll be talking about the essential role of a family champion.


Their Nebulous and Misunderstood Role

I first wrote about the concept of family champions back in 2019, in The Unsung Role of Family Champions.

Recently, I had the wonderful occasion of spending a day with a number of people who play such a role in their families, even if they weren’t all sure that they “qualified” for such status.

I led the opening discussion, where I shared the origin of the term and just how essential having at least one such family member has been for all of the families featured in Dennis Jaffe’s study of 100 family enterprises that had endured for at least 100 years

See Jaffe’s book Borrowed from Our Grandchildren

But just because Jaffe and Joshua Nacht, one of his researchers, came up with the term, that doesn’t mean it’s well understood, even by those who play this role in their enterprising family.


Will Every Family Eventually Reach Its Limit?

While certain family members often play a starring role as the CEO and perhaps others are some kind of rainmaker, the family champion is typically much more low-key, and out of the limelight.

Few families are able to maintain family ownership over generations, often because they lack someone motivated and interested in doing the work of keeping the family focused and organized ahead of important transitions.

Eventually the family often grows bigger than the enterprises that are meant to support the people, and choices need to be made.

While these choices occur infrequently, the idea of discussing whether or not continued ownership by the whole family still makes sense is usually a scary notion that is not easily put on the table.

But when it is raised, you can bet that the family champion played an important role in setting the stage for it.


Forever Asking the Key Question

A family that owns an enterprise together will likely assume that it can and will and should remain that way, and for a certain period of time, which may be measured in decades and even generations, it’s often true.

At some point, though, most families need to ask themselves if that is still going to be the case after the next generational transition.

Hopefully, once they get to the point where hard choices need to be made, they’ll be able to figure out how to make the necessary changes in a way that leaves the family intact.

The result could be to prune the family tree or maybe sell the enterprise and have a liquidity event. See Pruning the FamBiz Ownership Tree and Huge Liquidity Events – Great News, Right?

For someone like me, who considers himself a family specialist, my thoughts are always “family first”, and many families I know also adopt this attitude. 

There are exceptions, those who put the success of their business first, which sometimes has me shaking my head. I typically do not work with such families.


Who Is Looking Out for the Family?

So much focus is put on the business that the family owns, so it’s not that surprising that the family and the ownership areas sometimes get lost in the shuffle.

The business stuff happens at a much faster pace (see Varying Time Factors in Each of the Three Circles) and those who work in that area are put on the spot on a daily basis.

Meanwhile, though, there needs to be someone who is thinking about and talking about the family’s role in all of this, and who makes sure that the family and its ownership of the enterprise also get the attention they deserve.

Entering Uncharted Territory

This week we’re entering some new territory, in a number of ways. First off, I took up this topic based on a suggestion from a reader I’ve never met.

I received a LinkedIn message a while back asking me to talk about addiction and the role it plays, and was intrigued.

I also realized that this potentially huge topic can be a pretty big deal for some families who are trying to create and pass down a legacy, and yet I’ve yet to discuss it here, despite having written over 400 posts.

That all changes now, as I want to share my thoughts on what is also “uncharted territory” for many families, who are often unprepared for how they should respond when a family member has an addiction.

I decided to revisit a version of the “5 Things” blogs I’ve done over the years, much to the dismay of my wife, who wonders aloud why it’s always five things, and never four or six…


1.  You Cannot Change Someone Else

As much as we’d all like this to be different, you cannot change someone else. You can try, and many do, but true change really only occurs when the “changee” does the work.

This can be the most difficult realisation of your life, especially as a parent. 

When they have young children, parents can and do manage to create many of the changes they hope to with their offspring. 

Unfortunately, at some point, this ends. Then, the more a parent wants something, the less likely their children are to acquiesce.

If your instinct is to simply insist more forcefully, you’re barking up the wrong tree.

2. Look to Provide Help, Not to Punish

An initial reaction to a family member’s addiction might be to use some form of punishment to try to curb the unwanted behaviour.

Punishment, whether simply threatened or actually enacted, will often backfire and make matters more difficult to fix.

Nobody sets out to become addicted to anything. 

Yes, there’s often some behaviour involved that’s less than desirable, but by the time they reach the stage of addiction, it’s no longer an easily-solvable problem.

Offering help, in the form of support and understanding, will go much further, and hopefully get the addicted person to cooperate, as opposed to rebel, which is what punishment will often engender.

3. Set Realistic Expectations

There’s no magic wand that will make an addiction disappear overnight. 

These situations all vary, of course, based on what the addiction is, how long it’s been going on and how deeply affected the person is, and whether this is the first time or not.

Giving the whole situation the time required to be satisfactorily resolved is what I suggest, and it’s better to err on the side of planning for things to take more time (months/years) than less (days/weeks).

4. Work on Organizing the Rest of the Family

While the addicted family member seems to take up a lot of time and focus, you shouldn’t neglect the rest of the family.

In fact, I think it makes sense for most families to organize themselves to survive for the long term as if the addicted person will never get over whatever their particular affliction may be.

This is a variation on “plan for the worst” but also hope for the best.

If the addicted family member is putting the enterprise at risk, finding ways to minimize and eliminate those risks should quickly become the focus, and that means having different people assume certain key roles.

Making a plan that you can all work on together to get through this makes sense and should be a priority.

5. Bring in Outside Help to Manage It

Few families are well equipped to deal with such issues on their own.

Bringing in outside expertise makes sense for dealing with the addicted person, of course, but may also make lots of sense for the rest of the family as they deal with things in a new way.

I hold himself out as such a resource for families, so this suggestion shouldn’t come as a huge surprise to anyone reading this, of course.

But an addicted family member creates emotional reactions that need to be managed.

You need to reduce the “reactions” and instead focus on a constructive “response”.

Ignoring the issue and hoping it will disappear rarely works out well.

It’s Usually a Slow Journey to the Top

As the world returns to more in-person events, I’ve been playing catch up with occasions to be with like-minded colleagues. I’ve just returned from New York where I took part once again in the Institute for Family Governance’s annual conference.

I also got in some family time with my sister, my nephew, and my son, so that was a nice bonus.

Since family governance is about improving relationships among family stakeholders, this opportunity of combining the conference with personal family catch-ups was a big plus.

When thinking about a subject like family governance, I normally like to look at it from each individual family’s perspective, since no two families should approach it the same way.

However, meeting with colleagues who all work somewhere in this space allows me to also take the pulse of the professional community to see how the subject is understood and received in general, and I’m left with mixed feelings on that score.


Caring Enough to Understand

Some of those who showed up didn’t seem to care enough to try to understand the family relationship aspects that actually create most families’ governance challenges.

Perhaps I was jaded by some interactions at my lunch roundtable, but the subject of the families and their challenges in establishing some sort of governance seemed far from the radar of many colleagues.

Having self-selected to come to this conference and sign up for a table to discuss “Family Considerations when Designing your Family Office”, I had assumed that they’d care enough about it to try to understand better.

Or maybe they didn’t understand enough to care; maybe some of each (?).

Enough about the negative, because as usual, the presentations contained many positive nuggets worth remembering and sharing.

Some Random Nuggets to Share:

Josh Baron kicked off the morning discussing Owner Strategy for Family Enterprises, and he reminded us all how important the owners of any business are and the roles that they can and should play as owners.

The group of owners is much more than whatever it happens to say in their shareholder’s agreement, and he was encouraging them to work together with intentionality.


What Does the IRS Have to Do with This?

A panel after that shared a couple of nice take-aways, notably that it’s important not to let the IRS decide things for you. 

This underscores the need to make plans in advance of anyone’s death, although I suspect that for many, those plans are actually precisely about making decisions that are very much driven by the desire to deprive the IRS of any of the family’s dollars!

They also noted that there’s a serious lack of role models for generational stewardship for families to learn from. 

I think this is largely true, and hopefully changing for the better.

On Family Business Boards:

Brendan Wall then shared his lived experience in his eponymous family enterprise, discussing How to Design and Implement an Effective Family Business Board.

Keeping the Board fresh by rotating directors on and off was noted, as was the need to put the right people on the Board in the first place.

He also mentioned that the qualities of who should be on a Board differ widely when looking at outside independent directors versus family members who sit on the same Board.


A G5 Keynote to Remember

Matthew Fleming’s keynote on the Importance of Family Values was fantastic, as he shared stories from the heart about his family, who are now in G5 (the fifth generation of his family), and how their multi-family office maintains their family’s values at the center of the work they do with all the families they serve.

He shared their model of the Four Pillars of Capital, and also left us with an existential question:

        “Is your family office becoming a bigger problem than 

                      the problem it was designed to solve?”

Hmmmm, as any family office heading towards a generational transition knows, this is an important thing to consider, as a need to evolve to serve the rising generation will emerge at some point.

More Nuggets:

After lunch we were treated to some wonderful examples of families who Use their Family Fortune to Serve their Community, as well as trip down memory lane for sailing fans, featuring a member of a three-generation family who repeatedly won the America’s Cup.

Next years IFG Conference in NYC is set for May 3, 2023, and I’m looking forward to being there once again.

I hope we’ll all be a few steps closer to the top of the family governance mountain then.

Some New Ways to Look at Conflict in Families

Anyone who’s ever been involved in a family enterprise knows that the potential for conflict is never far away. 

Those of us who work in an advisory capacity for such families have seen every sort of denial and attempt to pretend that “our family is different”, yet those are actually quite rare.

There isn’t necessarily anything new under the sun for me to share here, but I did come across a couple of new angles on this question recently, and I thought they were worth writing about, if only to spur more discussion on the topic.


A Recent FFI Session on Conflict

The Family Firm Institute hosted a recent half-day webinar on the subject of conflict, and since two friends and colleagues of mine were among those presenting, I thought I’d check it out.

They did a nice job of covering the territory and the feedback was great. My take-away tidbit, though, came from a comment from another experienced practitioner in one of the break-out rooms.

She’s someone who not only works with business families, but has also lived the family business experience, having followed her father into this work.

She recalled a quote of his, which was the initial inspiration for this post:

           “We don’t run from conflict. We dance with conflict”

“Ooooh, I like that”, I thought, as I jotted it down. “This will turn into a blog post”.  (Thanks KSM)

Something Good from Social Media

The second different angle that came my way followed in short order, when I wasn’t expecting it, from social media.

I love LinkedIn and have found many treasures there, initiated plenty of relationships there, and swear that there’s nothing else like it for business.

But my go-to “regular” social media is Twitter, which I use mostly for news, sports, and politics, because I’m a bit of a junkie for those subjects.

But every once in a while, I get a great nugget there too, and this was once such case.

I follow Dan Rockwell, a.k.a. LeadershipFreak, and he shared a tweet about conflict that included this magic line:

                         “Conflict Is a Leadership Opportunity”

If you go to stevelegler.com and use the “search” function and type in “conflict”, you’ll find blogs, videos, podcasts, etc. that discuss conflict in various ways.

But I’ve never, ever, heard it put this way, and it struck me.


One Plus One Equals Five

So now we have a couple of elements to work with, and you may already see where I’m going.

We’re talking about dancing and leadership, and when people dance together, ideally, in most cases, someone takes the lead, and it helps when their partner is a good follower.

This metaphor actually has some legs, and the feet at the end of them are wearing their dancing shoes!

And we haven’t even brought in the dance teacher yet, who, if they’re any good at their job, will always play the appropriate level and speed of music so the dancers can succeed.


Willing Partners as a Starting Point

In order for any family to deal with their conflict, they need to acknowledge that it exists, and then someone needs to have the courage to take the lead and put it on the table and insist that it’s high time that the family face it and manage it.

Notice I did not say “make it go away”, because that’s usually not a very realistic expectation and can be a bridge too far.

It’s rare for conflict to completely disappear, but acknowledging it can usually allow people to discuss it in ways that they can learn to make some changes in order to be able to manage it.


Or Maybe You Need the Teacher First

It’s great when the participants are ready to discuss the conflict and try to dance with it by themselves, but sometimes there’s an unwillingness to engage from someone, usually caused by a fear of making things worse.

In such cases, it can help if you find yourself a “dance instructor”, who can then convince the other party that you can learn how to dance with conflict together.

Or even if the parties aren’t all ready for the dance lessons, the motivated party might begin searching for someone who can hopefully lead them to some agreement down the road. 

There are opportunities for leadership whenever there’s conflict. Who will step up in your family?

Family Business: Re-Calibrating (with) your Business Family

This week I’ve got lots of ground to cover, so I’ll just jump right in. I typically talk about my inspiration for each post, but I’m not sure I recall what prompted me to put this one on the calendar. 

What I do know is that it’s important for families who are managing things together.

Such families would do well to implement some sort of family governance, i.e. structures and procedures to make sure they stay on track with all of their decision making.

When families institute governance, there are a number of “speedbumps” that typically and predictably come up, as the family tries to find ways to “get on”, and “stay on”, the same page together.  

 

We’re All Good, For Now

Progress can come in fits and starts when creating family governance, and regular readers know that my favourite way to describe the process is with the word “evolution”.  

It starts somewhere, and then slowly but surely grows and morphs with the family, as they get used to things. (See The Evolution of Family Governance)

But of course while the “family” is evolving, the various members of the family will also each be evolving at their own pace.

The title of this post noted “re-calibrating”, which of course pre-supposes that things were ever initially “calibrated” in the first place. 

So one of the potential problem areas in the evolution of family governance is timing and pace.

A family can come to agreement on processes, and be “all good”, but that won’t last forever.

 

Questions that Start with “Why, What, and Who”

So we know that timing, or “When” questions, can be a huge factor with families, but there are obviously many others, including questions that start with “Why”, “What”, and “Who”.

Hey, nobody ever said this family governance thing was going to be easy, just that it’s really important. (Okay, not many people say that either, but I know I do!)

The “Why” questions typically need to be answered pretty early on, in order to get the family on the path to actually creating some governance to start with, so let’s assume that’s been done.

The “What” and “Who” questions might have answers like “let’s have quarterly family meetings, with these people in attendance, to talk about how the business affects the family, and vice versa”.

That would be a pretty good starting point, and could constitute the original “calibration” for the family.

 

Revisiting the Why, Re-Calibrating the When

After a few such meetings, some family members may be gung-ho and ready to move into fifth gear, while others may still be questioning why they’re having these meetings.

This uncertainty should be considered normal early on.  

Even a few years in, things may be getting murky, and the family may begin to suffer from “governance fatigue”.  Yes, it happens, probably to every family that travels this road, at one time or another.

That’s usually a good place to think about re-calibrating.  Getting family members to re-engage could mean either slowing down or speeding up, always with the goal of working at the same pace again.

 

What About the “With” Part?

This brings me to another key point, one that I’ve made before and will surely make again.

I don’t often have a word in parentheses in the middle of a blog title, but this week I do.  It is not an accident.

Here is how I am using my “editorial licence”: you should be able to read the phrase with or without that word in brackets.

That is, you can re-calibrate your family, or you can re-calibrate with your family.

I think you can guess which version I advocate most families choose.

 

FOR the Family, BY the Family

One of my “go to” expressions is that family governance should always be “FOR the family, BY the family”.

That means that whatever the family decides, they are better off deciding together, as a group.

The family is on a long journey together, and their fates rest in their collective hands. That being the case, they had better take the time and make the effort to slow down and take stock every once in a while.

The family system is constantly affected by changes in the lives of all of its members, so periodically taking the time to re-calibrate together is always worth it.

Same map? Same destination? Same schedule? YES?

Okay, let’s keep going!

Some regular readers may be getting a bit sick of reading my take on the subject of Family Governance.  Well this week I’m going to revisit this important subject, but with the help of someone who has decades more experience with the matter.

I always want to share more on Family Governance, but this time I’ve got the wisdom of Barbara Hauser on my side, so you can all benefit from her work with families on several continents.

The source of the background for this post is an article I saw online in March, from CampdenFB.com, written by Hauser.  It, in turn, is an excerpt from a chapter that she wrote in the recent book, Wealth of Wisdom, which I also highly recommend.

Making Decisions Together

What are the best ways for a family to make decisions together?

Great question, isn’t it?  I think so. It’s also the title that Hauser chose for her post, and Chapter 28 of Wealth of Wisdom, which was her contribution to the book.

My readers will hopefully recognize the aspect of decision-making that I typically cite as one of the three main components of Family Governance (along with communications, and problem-solving). See Family Governance – Do It Yourself?

Go Read It for Yourself

I will come right out and recommend not only that you read the CampdenFB.com story I linked above, as well as the entire Wealth of Wisdom book.  

But now I need to segue this post into the “three universal principles” of good governance that she outlines for families to follow that I teased in my blog title.

Let me list them here first, and then I’ll give you my take on them one-by-one.

Hauser states that three key elements you’ll want to ensure you have are:        

Transparency, Accountability, and Participation.

Transparency: Everything Above Board, Please

Family governance is all about how things are taken care of for the larger family group, and typically involves smaller groups of people doing much of the work and making many of the day-to-day decisions on their behalf.

These situations always result in what I like to call an “Information Asymmetry” i.e. a few people know A LOT about what’s going on, while many people know VERY LITTLE.

The most important thing to keep in mind is that this asymmetry can make those on the “I know very little” end of things uncomfortable and perhaps even suspicious.

As an antidote to suspicion, it behooves those on the “I know a lot” side to be overly transparent in everything they do.

Better to “overshare” to the point where they feel like you are bombarding them with detail, than to “undershare” and have them think you are hiding anything.

Accountability: Do What You Promised (Or Else!)

Being accountable to the group is the next key principle that follows on perfectly to transparency.  Not only do those who are taking care of things need to be upfront and above board with the things that they are doing on behalf of the other family members, they actually need to be held to account for the results.

If certain people are being trusted by others to represent them, there needs to be an occasional “accounting” of their performance.

If results are sub-optimal, explanations are warranted, and continued underperformance should naturally raise possible questions of fitness for the task.

As long as group members can see what those at the helm are doing, and that there are opportunities to discuss results, things typically run smoothly.

Participation: Hey, I Want in On That Too

Hauser’s third principle of Family Governance is Participation.  Again, it flows nicely from the previous one.

Imagine a scenario where performance is not up to expectations.  Other family members might rightly want to be able to be involved at a deeper level, if they feel that they have a contribution to make.

Of course this principle involves more than simply having a line form to take the place of those at the helm.

Simply being invited to take part in any discussions around transparency and accountability also count towards participation.

Start Small, Let Things Evolve

I really don’t like to scare people when I talk about the importance of Family Governance.  It doesn’t need to start out as a big deal. Put a few elements in place, and allow things to evolve slowly form there.

That reminds me, you may also want to read The Evolution of Family Governance!

Every so often, I hear a word that sounds kind of familiar to my ears, but that also gives me a bit of an uncomfortable feeling.

Usually, the feeling is one of guilt, because that newish, cool word sounds like something that I really should understand, but I’m not 100% sure that I do.

Alas, we cannot know all of the words, and even if we learned one new word every day as some might suggest we do, I’m not sure you could ever learn them all.

 

 

Audible Strikes Again

Over the past few months, I made a few trips to our cottage to work on my next book, and I’ve been taking advantage of my subscription to Audible, the audiobook division of Amazon.

When I listen to music while driving, it sometimes puts me to sleep, so audiobooks have been a godsend.

I recently listened to a couple of books about meditation and mindfulness, and it was in one of those that the latest “special” word struck me: Equanimity.

It sounded majestic and important.  But I didn’t feel like I knew enough about it, even though I was falling in love with the word.

 

 

Let’s Google It

As recently as a few years ago, I would have gone to the bookshelf with the dictionaries and thesaurus and looked it up, but like many people I just Google everything now.

Lo and behold, thanks to some dumb luck with timing, there was a news story out about the world’s most expensive yacht that also happened to have a cool name: Equanimity.

Like a little kid seeing a shiny object, of course, I had to read about this huge yacht that the Malaysian government had just seized that was said to be worth $250 Million.

I’d worry about the definition later.

I even watched a Youtube video of the scandalous Asian billionaire owner getting his first tour of the vessel a few years earlier.

 

Dressing store

Definitions and Meanings

But let’s get down to business here.  From Google, here are some definitions and meanings I liked:

mental calmness, composure, and evenness of temper,

especially in a difficult situation.

Also:

Equanimity is a state of psychological stability and composure which is undisturbed by experience

of or exposure to emotions, pain, or other

phenomena that may cause others to lose

 the balance of their mind.

 

Stable and Composed

Most people probably like to think of themselves as stable and composed, and I guess that most of the time they are correct.

The problem isn’t what happens “most of the time” though, the trouble is what happens “in a difficulty situation” or when “emotions and pain” are part of the equation.

And when you happen to work with other family members, you know that emotions and difficult situations come up all the time.

 

 

Be the Bigger Person

I always say that the only person you can control is yourself, and so the onus is on each and every one of us to strive for our own equanimity, and try to be the most stable and composed person that we can be, in every situation.

Can meditation help you become better at this?  I think it can and there is more and more research all the time that supports this view too.

But before we can get too far, we really have to make a personal decision that this is something that we really want to do, and that we are ready to make the efforts that will be required.

 

Finding Inner Peace

In July 2018, in Rest in Peace, While You’re Still Alive, I wrote about this as finding peace,

But whether we call it peace, calm, composure, or equanimity, it really doesn’t matter, because we all have different versions of it that resonate with us better.

The important thing is to work on getting better at self-awareness and self-control.

 

 

Good for Each Generation

Whether we’re talking about the “now generation” who are currently running the family business, or the “next gens” who are rising to eventually replace them, this is equally important.

It even helps if you have advisors or coaches who exhibit equanimity to help you along the way.

I’ve been in meetings with families where everyone was even tempered, and I’ve been in others with other families where tempers really flared.

Even a little bit of equanimity goes a long way.

 

Contracts versus Covenants in Family Business

 Comparing and contrasting words has always been something that I’ve enjoyed doing.

As I just wrote that sentence and looked at the title I chose for this post, I wondered how often I’ve used the word “versus” in a blog title.

I’ll save you the research, there are already eight, making this the ninth time.

 

Blog Post Inspired by a Blog Post

Something that I don’t do as often, is writing a post that was inspired by someone else’s post.

A few weeks ago I was looking at my LinkedIn feed and noticed a post from a colleague and acquaintance, Roy P. Kozupsky.

I like Roy and I know that we share many beliefs about the kind of work we do with families, so I began reading his piece “Random thoughts while travelling”.

 

A Lawyer and a Rabbi Walk into a Bar 

His post is really worth reading and I recommend you do so, especially if you get something out of the subjects I write about here.

I want to concentrate here on a couple of contrasting terms that were highlighted in one of the quotes he used.

He features the words from Rabbi Jonathan Sacks at length, and I want to take a couple of snippets from those quotes to share here.

But before I get to his words, a bit more context is in order.

 

Contracts are Legally Binding

The word “contract” has a legal definition, and lawyers and the court systems spend a great deal of time arguing the interpretations of the definition every day.

In no way am I suggesting that a family business should ignore contracts or try to find ways to substitute covenants in their place.

 

Covenants are Morally Binding

Perhaps this subhead is a bit of foreshadowing, but that’s my interpretation.

If the lawyer is comfortable with the contract, the rabbi may be more at home with the covenant.

 

In Rabbi Sacks’ Words

Without further ado:

Contracts are about “Me” and “You”;

Covenants are about “Us”.

I think you can see why this quote felt particularly à propos to me from a family business perspective.

The business aspect may cover things between the company and its suppliers and customers via contracts, but the intra-family stuff should be more about “us” and therefore covered by covenants.

 

And Furthermore

“…framing a covenant will help keep

people together, without any side

claiming victory or defeat”

Once again, it just feels so much more appropriate to me for families to think about how they interact and work together to be focused on “keeping people together”.

When there is any sort of conflictual issue in a family, finding a resolution that works for the entire family should be more important than seeing one side or another “claiming victory”.

 

One Final Snippet

 The whole quote is good, and so is Roy’s post, and I bet Rabbi Sacks’ book is too.

But here’s one last part:

A covenant lifts our horizon from

self-interest to the common good.”

When you’re dealing with family members, the tendency of some people to be more concerned with their own self-interest rather than the common good of the group can be the biggest source of conflict.

 

Definitions and Synonyms

When you look for definitions, “contract” usually mentions something about “enforceable by law”

When you search for “covenant” you’re more likely to see references to the Bible, to God, and words like “promise”.

A search for synonyms of covenant gives results like:

pact, compact, promise, arrangement, deal,

agreement, commitment, contract. 

So Now What?

 You may be thinking, “thanks for the vocabulary lesson, but so what?”

Well, writing these posts is a way for me to think through issues, much like people who “think out loud” by talking (I do that too).

This post is a perfect example of that.

 

Covenants BEFORE Contracts

My “A-Ha” moment writing this, and my conclusion is this:

The family should work on its covenants first,

and only then

should they turn those covenants into contracts

I have been saying it in less elegant ways for years.

Families should figure out what they want the future to look like for their family, first.

Once they know what they want, then they should turn to professionals (lawyers, accountants, trustees, tax experts) to turn those ideas into legally-binding structures and agreements.

Too often, they do it “Bass-ackwards”.

Somehow the idea of “Covenants BEFORE Contracts” hadn’t come to me yet.

Feel free to use it, and share it.

Ownership Stages In Family Business

Readers may have noticed that the topic of “ownership” has been featured in this space more and more lately.

That’s no accident, because last summer when I wrote Ownership: The Forgotten Circle of Family Business” I also vowed to give this subject a bit more prominence here.

 

The Simple Stage “Model”

Most people who work in the Family Business field are well versed in this “model” that looks at things in their simplest form as a family business goes from one generation to the next:

Sole Owner => Sibling Partnership => Cousin Consortium

There really isn’t anything new here, but it’s a good starting place to discuss how the ownership of a family business can get more complex as the business goes from one generation of owners to the next.

The verb I chose there, “can get” was very intentional on my part, because things do not necessarily get more complex, depending on the desires of the family and the plans that they make about how the actual ownership will be transitioned.

 

Does this Tree Need Pruning?

As I wrote last year in Pruning the FamBiz Ownership Tree”, sometimes the difficulty in passing a business down through generations is complicated by something as simple as math.

I recently spoke with a second-generation member of a farm family, and their case facts make for an interesting example.

Mom and Dad had 4 children, and each one of them is now married and they each have 4 children of their own.

The family group is expanding at a geometric pace. Will the farm be able to match that growth? That’s the proverbial $64 million question.

 

Counting People and Households

The farm initially supported 6 people in one household. One generation later, that became 26 people in 5 households. So far the math is pretty simple but only in a textbook example do things remain that way.

Did I mention that the range of ages of the grandchildren (G3) varies from late 20’s to single digits?

The oldest G3 member already has children and yet their generational “equal” is still in grade school.

How are they going to work out all of that stuff?

 

Getting Good Help

I often write about the importance of getting help from outside the family to assist and guide any family through these difficult decisions.

Luckily, there are surely plenty of well-qualified lawyers and accountants out there who have crafted the types of agreements and structures that are required to work out these complex cases.

So is that my answer, to go out and talk to a lawyer or an accountant?

Not so fast, please!

 

What Exactly Are You Trying to Do?

Before you look to technical professionals to structure things and write up the agreements necessary to formalize things, don’t you think it makes sense to figure out what you’re trying to do first?

How will the four siblings in the example above work through the decisions surrounding the best way to structure things?

I’m going to assume that the four siblings won’t all necessarily agree with each other on every question right off the bat.

OK, so what if the one who is the de facto leader of the business were to simply get a lawyer to write it up his way?

Well, that might be efficient, but I’m willing to bet that some negative consequences would result, somewhere down the road.

 

Governance and Ownership

Who died and made him king? Maybe that isn’t just a rhetorical question; maybe before Dad passed away he did “anoint” his successor.

I don’t know enough about the specific case facts here, but they are not that important to the discussion.

My point is that the ownership of the business is a very important aspect to understand and work through in a thoughtful manner, but it is not sufficient by itself.

A family facing this type of situation actually needs more than just clear ownership, they also need to agree on governance.

 

How Will We Decide Things Together?

When people try to simplify governance, they usually mention communication, problem solving and decision-making.

I can’t really make it any simpler than the six-word question, “How will we decide things together?”

It’s a pretty short and simple question, but answering it is rarely short and simple.

And getting the right answer for your particular family is actually more important to work out than the more straightforward questions about ownership.

 

Please see: Family Governance, Aaaah!

What is your “True Family Legacy”?

The term “Family Legacy” can conjure up different images and thoughts in anyone who hears it, depending on their age, wealth, and life circumstances.

This subject comes up a lot in my work, but I haven’t necessarily written about it much, and I feel a need to share more thoughts on it.

 

Twitter Chat

I recently took part in the monthly #FamBizChat on Twitter, where a bunch of my colleagues tackle a subject for an hour on that social media platform.

The subject this time was “Legacy”, and I naturally went to my view of legacy as being much more of a “family” thing than a “business” thing.

What struck me is that I felt pretty alone in that perspective.

Maybe most of the others were advisors who worked more on the business side of things, and less with the family, I’m not sure.

But it stayed with me, so I thought a blog on the subject would be timely and useful.

 

Business Card Title

The title on my business card is “Family Legacy Advisor”, which hints at my bias.

It used to say Family Business Advisor, but because I really prefer to minimize my interactions with the business, in favour of those with the family, I made the change a couple of years ago.

Admittedly, I usually answer “family business consultant” when I’m asked what I do for a living in some circumstances like going through customs.

 

Whose Legacy Is It?

But my bias is to concentrate on the family legacy versus the business legacy, although in truth, they certainly can and do co-exist together, often for decades at a time.

In a multi-generational family business though, at some point they can bifurcate.

Family involvement in the ownership and/or management of the company eventually changes, and the family eventually diversifies its focus to other endeavours.

 

Who Takes the Lead?

A business has many resources at its disposal, and they’re necessarily organized into functioning groups of people with more or less clear roles and responsibilities.

So ensuring that the business legacy is captured can actually become part of the job of a person or group. It will often fall under marketing because the business legacy is closely attached to the company’s brand.

And so of course the corresponding person whose job it is to ensure the family legacy is, um, well, of course it must be, um, well, uh, I’m not sure…(?)

“Sorry, our family doesn’t have a marketing department”.

 

Why Did You Work So Hard?

Most business founders work hard because they want to support their family, and as their wealth grows thanks to those efforts, they continue to work hard so that their wealth can serve the next generations of their family.

Many of those people, however, will fail to properly transition that wealth to their family, and that goal will never be reached.

Research shows that about 60% of the failures can be attributed to a breakdown in family communication.

 

Family Governance and Alignment

The exceptions, the ones who manage to keep their wealth in the family for multiple generations, are the ones who actually put in the work to establish some family governance.

That word, “governance”, scares some families, and I get that.

See:

It doesn’t have to be that complicated, especially when you are just starting down this road.

What it does require is some intention, which begins with a decision, normally from the top, that it’s important enough to direct some time and effort to this task.

 

True Family Legacy

Your “true” family legacy is one that’s custom tailored to your family. No other family resembles yours, so why even pretend that this work can come ready-made, off-the-shelf?

Two expressions capture this whole question rather well, and I’ve been known to use both of these:

  • Instead of concentrating on preparing the family assets for the heirs, make the effort to prepare the heirs for the assets
  • Don’t just concentrate on transferring the family’s valuables, work on preserving the family’s values

If you’re the person in your family who recognizes the need for this, you already know you can’t do this alone.

Maybe this can get you moving in the right direction:

The Exponential Magic of Family Collaboration

Also note the photo above this post: “Heritage”.

That’s much more about Family Legacy than any business the family happens to own.

 

Related posts:

My Beliefs on Family Legacy Advice

The Languages of Family Legacy

Brainstorming your Family Legacy