The Witten Institute for Family Business has studied the factors leading to success or downfall of a family-run enterprise in the course of generations. The result is stunningly clear: The major destroyer of values in family businesses is not owed to economic challenges. It is the quarrels and struggles in the family.
The prime motor of conflicts are problems with regard to succession: 90% of all firm owners in Germany wish to have a family-internal solution for succession, but 49% of the enterprises have no succession plan in place. However, family enterprises constantly have to make decisions that refer to questions of succession. Furthermore we revealed that only 27% have a family strategy or a family constitution in place.
Family strategy as management system
If a family enterprise wants survive for many generations, it is necessary to have an internal frame of orientation and action. In an ideal situation this means that there is an individual system and a set of regulations that formulate the “family will”, which is documented as a “family strategy”. Summarizing our recent research on leading multi-generational Family Businesses in Germany, we developed a set of guidance rules for such a family constitution. The aim is a family internal management system that helps shareholder families to solve internal conflicts, especially in questions of succession, or even to prevent its emergence – and that should pertain for generations.
Such a family management ensures that the family is always capable of acting and also talking about critical issues and does so. Furthermore, the business family is motivated to develop a common relatedness to and understanding of joint values with regard to the family-owned enterprise. Finally, family management creates structures that can work against imbalances within the family.
Clarify questions of survival
Our process model for the development of a family strategy is divided into twelve topics that are based on each other. It deals with all relevant questions about operational leadership and succession in the enterprise, about arrangement and organisation of the shareholder group as well as the management of the entrepreneurial family and their cohesion.
An external moderator is to accompany the family in this process. This consultant has to be selected very thoughtfully by the family. The consultant needs to be competent in matters of survival concerning family businesses as well as to have the necessary integrity and sufficient empathy for processes with family dynamics.
The steps of the Witten model
First of all the business family determines the key parameters that describe their fundamental relation to the enterprise. This means they have to decide, for example, if by all means the family has to be represented in the corporate management, or on conditions the family might be forced to give up the family business. There has to be a clear definition who exactly belongs or will belong to the business family. Furthermore, the values of the family in regard to themselves and to the enterprise have to be defined.
Development of shareholder competence
It is a very important question whether and under which conditions the members of the shareholder family are operationally active in the future. The family also needs to decide at which level of management family members may enter the enterprise and if the entrance or rise of single family members is dependent on their abilities and competences. The family needs to develop and implement a qualification programme for their successors.
Stress test of typical critical events
It is a decisive point how a family wants to tackle disputable questions within the family. The procedure for conflict resolutions needs to be formulated clearly. A “stress test” of typical critical events in the life cycle of an entrepreneurial family may reveal additional needs for regulations or provisions. The family also needs to find regulations for communication and information aiming themselves, within the enterprise and towards third parties and should by all means establish an institution of communication and exchange of opinion, for example a family committee, a special advisory board or a family council.
Discussions are necessary
It is a decisive must that the family explicitly faces all relevant topics and questions. Only in this way the family can internally manage how to deal beforehand with possible crises and reasons for quarrels, and how to acquire the necessary competences for self-management. They will not be successful in managing a crisis if the family has only superficially specified their common values or was satisfied with a “sloppy” constitution. Family management needs to be an effective instrument that even works when the going gets rough.
Dr. Tom A. Rüsen is Managing Director of the Witten Institute for Family Business (WIFU)