“…Families devote a huge amount of time together towards WHAT they own and HOW they own and only rarely address WHY they own”
Wealth preservation and generative (intergenerational) wealth will be a myth where there is no articulation of purpose. Where generative legacy is desired, the purpose for the individual/family wealth, the family business or the family assets must be addressed.
See HERE for our discuss on articulating the purpose of individual and family wealth.
Today, we are delving into the WHY of the family business.
More often, the origin story of a family business is that of an entrepreneurial Patriarch and Matriarch who beyond their own imaginations achieved success and built up a successful business enterprise. With continued success, the concern becomes what next? What happens to the business and the wealth of the family as the Patriarch and Matriarch age and looking to retirement. Who would or should be the successor to take over the reins in continuing the business exploits and success of the Patriarch and Matriarch?
Before answers to the above are sought, it’s more important that the WHY and PURPOSE of the family being in business is x-rayed. The concerns would be:
- What PURPOSE does the family business serve for the family?
- To what extent do family members share this purpose?
- WHY should family members keep and maintain a family business?
In our practice as a family business and governance Advisors, we note that most owners and family businesses process the business from the “outside-in”. This means that they are clear on WHAT the family business does and HOW to go about dealing with what the family business does. Only very few family businesses process the business from the “inside-in” and are clear on WHY they do what they do or exist.
Articulating Shared Purpose in Family Business
For a family business to strive, it is important that the individual family members and the business all have a sense of purpose, a shared purpose. Without this, there is the risk of family members pulling in different directions and conflict within the family or even between the family and the business. The reality however is that where there are many owners, different perspectives on the WHY of the family business are inevitable.
In a family business, shared purpose refers to the goals, objectives, or outcomes the owners (family members) strive for by being in business together. It is the version of the success metric that the owners and the business will be measured against the future. In essence, the shared purpose represents a voluntary commitment by members of a family to be or remain in business together.
The shared purpose in a family enterprise is usually a combination of financial and emotional reasons. For example, one person may want to be in business together to provide financial security for the growing family and because they are proud of their brand or reputation as a family business, another might see it as a support for their new venture, while for a third, it might represent the opportunity to fulfill a philanthropic dream.
Alignment of purpose within a group of family owners is seen as the “holy grail” of a family business. The ability to speak with one voice, provide capital for a common set of objectives and provide clear direction to the business is ideal. A lack of alignment between the family members involved can very quickly lead to poor decision-making processes and conflict.
Therefore, when any conversation about the vision and mission of a family business arises, it is essential that individual family members share their personal aspirations as a starting point. This can help to debunk myths and assumed expectations, or even inspire action.
The strongest families are those that treat this conversation, not as a one-off, but revisit it time and again. Just like the business itself, the WHY never stands still; it exists in a state of continual evolution as motivations change, priorities shift, spouses marry in, and the next generation comes up.
It is sometimes the case that differences are harder to reconcile, but at least by opening the discussion and building understanding, the family can acknowledge these differences and then explore together how to find a way forward. Family owners that engage in this activity do not just build stronger familial relationships; they also reduce the risk to the business of future conflicts.
Questions for Patriarch and Matriarch in articulating a shared purpose include:
- Do you and your family share a vision for the family wealth?
- What are your ambitions and concerns for the family business?
- Is there an agreed framework for family decision-making?
- How are you preparing those who will inherit the family’s assets/wealth?
- Have you had to discuss the practicalities of the transition with your heirs?
In view of family dynamics and because family businesses operate as emotional systems, holding a meaningful discussion on family business purpose can be challenging, especially when there are multiple generations involved who have different life experiences, priorities, and perspectives.
It’s also important to note that the purpose of the business may also change over time and given the rapid pace of transformation when it comes to business models, technology, and consumer patterns. Hence, regularly engaging in discussion to ensure the purpose remains relevant for the family, its customers and the communities it serves is essential.
At Fiduciary Services Limited Limited, we utilize a framework designed to serve as an outline for family engagements and foster conversations between family members in articulating their shared purpose. Speak to one of our a Family Business Advisors today
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