Why Decision-Making Is So Complicated in a Family Business

We speak with Ellen Perry, a Senior Advisor to BBH, to discuss the complexities around decision-making in a family business, how families can overcome decision blockers and the tools families can use to foster better decision-making.

In order to thrive for multiple generations, family businesses must make countless decisions as a family unit, from establishing a vision and mission to deciding on a strategy for the business to forming a succession plan. Families who succeed at making decisions often have frameworks and processes in place that help facilitate communication and mitigate conflict. While families may sometimes struggle with this, there is always the opportunity to re-evaluate and improve the decision-making process, often with the help of an advisor who has assisted other families in overcoming similar issues. We recently spoke with Ellen Perry, a Senior Advisor to Brown Brothers Harriman who has worked with families of substantial wealth for more than 25 years, to discuss the complexities around decision-making in a family enterprise and the tools families can use to foster better decision-making.

Brown Brothers Harriman: At a high level, why is family decision-making so complicated in a family business?

Ellen Perry: Decisions in a family business are made in the context of not just the business, but of the family relationships. Families are complex, emotional systems, so what can seem like straightforward business decisions are deeply affected by the history of the family relationships and the health or complexity of those relationships. That’s what makes it so complicated.

BBH: What are some of the biggest decision-making impediments?

EP: I see three main decision blockers in family businesses. The first is when stakeholders have a difference in vision or objectives, either for the business or themselves individually. These differences can be in business strategy, liquidity, management, succession and/or governance.

The second revolves around unresolved family tension that spills into the boardroom. As I mentioned, families are complex emotional systems, and making dozens, if not hundreds, of decisions each year together is complicated if either trust or communication in the family is not optimal.

The third is what I call “silent disagreement,” which can be due to the fact that families are often inherently polite and conflict-averse. Certain family members can leave meetings disagreeing with a particular set of objectives or vision, but they have not voiced their opposition. Then, when it comes time to make a decision, they block it, yet the others don’t understand the root or cause of their objections. So, one thing I stress with families and encourage them to practice regularly is eliminating silent disagreements. If people in the room don’t know that there is a difference in opinion, they can’t address the underlying issue and find a resolution. Silence is rarely golden in a family business!

BBH: Can it go in the other direction, where a family is overly comfortable and direct with each other, which creates tension?

EP: Sure, an overly casual approach can have a detrimental impact on the business and family too. I think of it as a fundamental difference between families who own businesses vs. a group of corporate shareholders who are not related. Some families are much more comfortable arguing or saying things they would never say to a person who was not related to them. Families like this need to be wary about how they speak to one another in a business setting to avoid acting unprofessional and disrespectful. Often, having nonfamily directors helps avoid this challenge.

BBH: How do you find a happy medium between not having silent disagreements and not getting comfortable to the point that it becomes problematic? Are there often rules for communication?

EP: It is good for family businesses to have an agreed-upon set of operating procedures when conducting meetings and making decisions – whether at the board level, committee level or ownership level. These guiding principles often begin with something as straightforward as treating each other with respect during meetings, not interrupting one another, encouraging debate and varying opinions and letting everyone speak up. They can include fundamental communication skills, such as listening carefully to others. These procedures can guide behavior and keep the meetings productive and members engaged.

It is also helpful for family members to declare what their agreements are collectively and to put them in writing.

Having outside board or committee members is also useful. As I mentioned, the participation of someone who isn’t related to the stakeholders can enhance everyone’s level of professionalism and raise the level of good operating procedures. Frequently, outside shareholders or board members have experience with other organizations, so simply adopting that same level of professionalism or formality is helpful in a family business.

I cannot stress enough that every family member has the ability to influence and improve the level of communication and professionalism in a meeting, no matter how junior they are, just by the way they comport themselves.

BBH: Many families shy away from “difficult conversations,” which can lead to built-up tension and conflict. How can families communicate and collaborate more effectively around these types of discussions?

EP: Many successful families value good manners! When tensions arise in the family business, they worry that difficult conversations will lead to relationships breaking apart. They perceive family unity as being dependent upon them acting in an agreeable manner and keeping any potentially disruptive feelings quiet. On some deep level, they believe that the family is vulnerable to lasting breakups. However, this can lead to built-up tension because even though the family isn’t discussing these issues, it doesn’t mean they’re going away.

What is particularly helpful is when family members have the courage to risk stating their truth over keeping things smooth and calm because they believe the long-term sustainability of the family business depends upon them being authentic, honest and open. They do it in ways that are respectful and mature and learn to value this type of communication over pleasant, smooth conversation that avoids substance.

BBH: What tools can families use to have these open, dynamic conversations?

EP: It’s helpful to have an experienced, objective advisor who can organize family meetings, translate differences within a family decision-making body and play the role of trusted facilitator. He or she can also help the family understand the importance of decision-making tools, from family meetings to mission or vision statements to communication procedures and agreements.

The disinterested aspect is important because the advisor is not part of the system nor has the complex relationships. Your family of origin (parents and siblings) is the most complicated set of emotional relationships you’re ever going to have. You are more emotionally reactive to those people than you are to anyone else. This makes objective, dispassionate decision-making complicated, so having an unrelated person as part of the process is immensely helpful.

This can become useful in situations where there are family stakeholders who are not involved in the business on a day-to-day basis. Nonmanagement owners rely heavily on management or a board to help them make ownership decisions since they’re not involved on a daily basis. Therefore, having someone who’s not part of the family be part of that bridge is useful.

BBH: Does the decision process vary based on family style or structure?

EP: A family’s style definitely has a big impact on decision-making. The process also varies based on many factors, including values, the personalities of the leaders and the generations in power. Typically, a first-generation wealth creator tends to make decisions much differently than a sibling group, and they make decisions differently than a third-generation cousin consortium, where ownership is spread more broadly among people who didn’t grow up together in the same household.

Families so often improve their decision-making over time. I’ve seen many have a particular decision-making style that stops working for them, so a new group of leaders help to create a more productive and effective style for the future.

BBH: Switching gears, how early should family members be included in decision-making?

EP: I separate preparing children to be included in family business decision-making and preparing them to understand business and finance. Parents should start talking to their kids about financial literacy and business in general when they are relatively young. It can be formal and structured or just casual dinner table conversation. It should be done for all children, whether or not they have a role of any sort in the family business.

That is different than including them in business decision-making, or governance. Here, I am talking not about those who want to be active in management of the business, but those who are only owners or directors. I suggest waiting until these young people are on their own career paths before asking them to become active in the governance of the family business. Let them devote the time needed to launch their own fulfilling careers before adding the responsibility and obligation of participating in family governance. Ideally, this is when they are in their late 20s or early 30s.

For those actively joining the family business, including them in decision-making should be done in accordance with the company’s governance or management policies. If the business’s employment policy states, for example, that family members need five years of outside experience before coming into the business, that is when they would start being included in decision-making. If ownership passes to them at a different age, then families would include them concurrent with that.

BBH: Talk about the importance of having documented family values and principles to facilitate communication and decision-making.

EP: Blueprints are essential when building for the future. If a family business wants to sustain for multiple generations, blueprints that address what’s important to the family and its underlying principles are really important. They can often be a touchstone that the family can return to.

I worked with a family for many years whose organizing motto was “A Family United Forever.” They started with a long, complex mission and vision statement and whittled it down to three words: family, united and forever. When they were making business decisions, they checked them against their mission statement by asking questions like, “Is this going to promote family unity, or is this going to cause difficulty?”

I will note that it gets tricky when family values are interpreted to mean a narrow set of characteristics by which family members judge each other. Here, I make the distinction between values and preferences. Talking about values at the highest level that everyone shares as a family is great. However, when family members begin to judge how people express or operationalize those values and form preferences about how they do that, families can run into trouble.

BBH: Do these values and principles need to be revisited over time?

EP: Each generation must have the ability to revise and expand upon the values and principles so that they fit their vision and create cohesion. In some ways, each generation should think of themselves as the first generation again. They should take what they have inherited and in the broadest terms – from financial assets to human assets to intellectual assets – create a vision for the future based on those items.

There’s always healthy tension in the family between individualism and the collective – who the members are as individuals and who they are together – which can be a driver for a successful family business. Families who stay connected and united for multiple generations are those that have energy and a generative tone to the family culture. They embrace diversity of thought, ideas and opinions. Families who are narrow, tight and restrictive in their thinking and decision-making tend to have more difficulty keeping the family connected and cohesive for generations.

BBH: Talk about the importance of a succession plan in mitigating tension during decision-making.

EP: Succession planning is essential not only in mitigating tension when making decisions, but also for a smooth transition to the future and a high-functioning decision-making body during the periods of transition. Without a clear succession plan that everyone is working toward, families cannot groom future decision-makers. They also lack preparation, so when the transition begins – often at a highly emotional moment such as the leader’s death – people are scrambling to figure out what to do, and there’s much more disruption and difficulty.

The most important element of leadership in the elders’ later years is the preparation of the next generation of decision-makers. Creating a transition and succession plan that both honors the work founders want to continue to do as well as prepares the next generation appropriately is very important.

Preparing the succession plan before the leader reaches a certain age is helpful because, at that stage, the transition feels far away. Putting together a plan when a founder is in her 60s, for example, allows her to make those emotional decisions more easily than if she was doing it at 80. These are big choices, and families want to be able to be thoughtful about them without the emotion of the moment affecting their thinking.

BBH: Ellen, thank you for taking the time to speak with us.

EP: It was my pleasure.

Interview conducted by Jake Turner, and article written by Kaitlin Barbour.

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