Is Your Family Business Geared to go to Infinity and Beyond ?

Did you know that by running a family business you are part of one of the most delicate and oldest forms of business organizations on the planet, with one major difference nowadays more and more family businesses conduct business in multiple countries or across borders? This addition of multi-jurisdictional/cross border transacting increases the already delicate environment of family businesses. 

Why delicate?

Well, it is said that 95% of family businesses do not survive the third generation of ownership, more shockingly two-thirds of family businesses would not make it through the second generation, this can be seen by the various sayings and quotes from around the world.

• In the thirteenth century England they said "Clogs to clogs in three generations,”
• In Americans say: “From shirtsleeves to shirtsleeves in three generations”
• The Italians say “Dalle stalle alle stelle alle stalle” – from the stables to the stars and back to the stables
• The Scottish say “The Father buys, the Son biggs [builds], The Grandchild sells, and his Son thiggs [begs]”
• The Chinese say “Fu bu guo san dai” – Wealth does not pass three generations or from rice paddy to rice paddy in three generations
• The Brazilians say “Pai rico, filho nobre, neto pobre” – rich father, noble son, poor grandson
• In Africa, they say “When brothers fight to the death, a stranger inherits their father’s estate”

 But still, we are reluctant to plan……….

According to research, more than 70% of all businesses started as Family Businesses in one way or another. So if you are running a family business, whether a small and medium-sized company or a conglomerate that operates in multiple countries, you are in good company as some of the worlds largest companies started where you are now, these include Samsung, LG, Walmart, BMW and Siemens amongst various other well-known names.

However, by deciding to establish a company where the majority of the voting rights and control will be held by family there is the inherent intention that this business should survive for generations to come, yet very few family businesses have family governance or multi-generational strategies in place.

If that is the intention of your family business, then the current generation operating the family business should not be seen as owners of the business but merely as stewards of that business. This brings a picture of a hand made Swiss watch to mind, an item that was crafted with such skill and love with the intention that, that watch should outlive its owner. 

Changing the mindset from owner to steward will awaken some inherent responsibilities towards future generations, no longer are you only making decisions that will affect you and your children or siblings and their children, but those decisions will have an effect on generations to come. 

As Steward of the family jewels, it is your responsibility and duty to put everything you can in place to enhance your family business’ chances to become one of the less than 3% of family businesses that survives into the fourth generation.

So, what is the key to survival?

Family businesses can improve their odds of survival by setting in place the right family governance strategies and adapt that strategy to their growth stages, including in such a strategy should be the educational process of the subsequent generations in family governance as soon as possible. These steps will allow for clear communication channels, detailed description of roles and manage the expectations of every person involved in the family business.

Family Governance is much more than a traditional estate or succession planning. Most professionals have personal stories of clients and families who did traditional estate or succession planning, designed for the distribution of the wealth at the lowest tax and administrative costs and found that both the family and the fortune were lost in a short time after the founder's death. 

Family Governance begins with the idea that clients can pass both their values (human capital) and their valuables (financial capital) to their children, and focus not only on the planning for the division of financial capital which usually ends when the client does. 

Families that have been successful in passing family values, wealth and businesses from generation to generation take a different approach. They implement a comprehensive strategy that integrates both human capital as well as financial capital and actively manage both the assets and the family relationships continually.

Family Governance Strategy endures for generations and has as its core values:

• Focussed on both Human as well as Financial Capital
• Coordination, 
• Simplicity, and 
• peace of mind

to create a concept of a “family of affinity” to combine wealth preservation with family preservation.

A family governance strategy enhances a family’s cycle of wealth creation and preservations, by 

• Identifying family objectives and priorities
• Marshaling family assets and structures
• Clarifying family dynamics and governance
• Documenting multi-generational plans
• Implementing family education programs
• Facilitating better communication between family members as well as the advisors to those family members

The implementation of a carefully thought threw Family Governance Strategy incorporating techniques such as a family constitution will alleviate the key weaknesses found in family businesses around the world, which are:

• Lack of preparation
• Increased complexity in business and regulatory environment 
• Lack of discipline in the implementation of and adherence to family governance structures 

Implementing a family governance strategy will increase your family business’ chances of survival for generations to come. Why not make TODAY the day your future generations would remember as "THAT DAY" our father/grandfather laid the foundation for our family's multi-generational prosperity?