Best practice principles for family business
The term ‘best practice’ generally refers to the best possible way of doing something. The peak body for families in business, Family Business Australia (FBA), believe that best practices are generally tools, not rules.
By focusing the attention of families in business on ‘best practices’, it encourages them to anticipate and prepare for the next stage of development of their family business and to consider the impact of business decisions.
According to FBA Accredited Adviser, Lucio Dana, the adoption of appropriate ‘best practices’ can make ‘great’ family businesses out of ‘good’ family businesses.
It can be helpful to perform a `mini audit’ or `health check’ on a business to identify the strengths and weaknesses in the adopted processes.
Employing family members
FBA Accredited Adviser, Lucio Dana, believes that one of the major issues that family businesses face is how to bring members of successive generations into the family enterprise.
Successful family firms are built around well-designed and customised employment policies early in the life of the business.
Best practice principles suggest that positions that became available within a business should be advertised and not automatically given to the family member wanting to join the business.
Mr Dana suggests that before family members (or their partners) join the family business it is highly recommended that they seek outside management experience. This can bring a broader perspective, new skills, fresh ideas and flexibility to address business challenges.
Adopt remuneration principles
It is important to create a remuneration policy that emphasises positive values, considers the market value of particular jobs, includes negotiation for personal goals and pay incentives, and establishes criteria for assessing performance.
Convene family meetings
Family meetings (preferably held around the boardroom table rather than the kitchen table) are one of the most important steps a business owner can take to ensure the continuity of the family business and to build stronger families and stronger businesses.
Properly convened and managed family meetings can help family members (and their partners) to recognise, discuss and resolve conflicts before they escalate.
Family meetings challenge family members to communicate and face their differences rather than avoid or ignore them. They also help younger family members to appreciate important family values, traditions and history.
Establish a board
Establishing a board of directors that includes suitably qualified and independent non-family members is important to professionalise ownership and management responsibilities in the family business and introduce a measure of accountability.
An effective board is an important forum for discussing ideas, planning the future direction of the business, and developing short and long-term survival and success strategies.
If the family does not wish to create a formal board of directors or share decision-making power with them, it might instead consider the formation of an advisory board made up of a small group of knowledgeable and experienced professionals.
Develop a charter
A family Code of Conduct is a document that guides the overlap between family and business values.
It specifies the relationship between the family and the business and sets out guidelines for resolution of issues and how the business is to be managed.
It reflects family and business values and formalises the procedures and relationships between family members and the business.
The family Code of Conduct can be very important in multiple generation enterprises where patterns of relationships can be more complex.
Create a family council
For the more complex family business involving several generations and numerous family members (some active in the business and some not), a family council (of key family members) can be an avenue for discussion of important family business issues. It can serve as a buffer between the family and the board of the business so that the board does not have to deal with all matters concerning the family.
Address challenges through planning
While business challenges will differ in every business, family challenges are often the same in every family. It is important to establish what the challenges are and then outline what steps have already been taken to address them or what steps you plan to take.
The process used to develop the plan is important with regard to the people who were involved, whether external advisers were consulted, and how it demonstrates a spirit of enterprise.
Develop a succession plan
For business owners who want their businesses to continue in family hands, succession is a main concern and challenge. It has been described as their ‘final test of greatness’.
A comprehensive succession plan includes the development of:
- a strategic plan for the business;
- a contingency and risk management plan;
- personal financial and estate plans for current owner-managers to ensure that retirement is adequately funded;
- a shared vision or uniting common purpose (that articulates the family’s commitment to continue the business as a family owned/managed enterprise); and
- personal and leadership development plans for potential successors to ensure they are both willing and able.
If there are no eligible family successors, there needs to be a plan in place to develop employees in the business to assume senior positions. An important part of this is to instil the family values and culture of the business owners.
In order to capture the ethos of the business’ beginnings, families have documented their founder’s history and even filmed the story teller. This could, in turn, be used in the induction of all new employees.
For more information, visit the Family Business Australia website at www.fambiz.com.au