Inside Boardroom: Decoding Decision-making Process In Family Businesses
A successful family business is built on two pillars, first and foremost is the family relations, and the second equally important is the business performance. Every decision is personal in the family business. Decisions are evaluated by emotions in the family and it is seen through the lances of economic progression and growth in the business. Balancing the expectations of the individuals, family and business is complex in family business decisions.
Most decisions in family and business impact individual relations and the economic performance of the business. Businesses and families move levels up or otherwise down with decisions. An effective decision-making process brings the family together and cohesion and motivates the members to work together. A governance system for decision-making takes the family in the right direction and creates a win-win situation for family and business. Decisions affect individual behaviour, hope, trust, emotional and mental status beyond governance systems and need to have clarity of role, responsibility and accountability of individuals for the decision.
The system can set protocols for communication, involvement and listening to others’ perspectives carefully during the discussion. Such protocol keeps the meetings productive and members engaged. The process also takes care of transparency and quality of information passed on to the members before the decision as a background note for the discussions, tones of the individuals, emotional and mental status needs to be taken care of during the meeting and choices made and progress for the conclusion and outcome of the decision should be communicated timely.
The process should involve individuals, feeling that their voice has a due weightage in the decisions. They also get enough time and space to decide their viewpoint. The system should take care of fear, anxiety, hope, conflict of interest, and impact on an individual’s life and business. Review and progress of the decision outcome needs to be communicated timely to the family.
The governance structure for decision-making at various generation stages is different i.e. in the first generation, the founder is at the entrepreneurial stage, ownership and operations are controlled, and the survival of the business and family is at the central of the decisions, involvement of family members is not that influencing in decisions as most decisions are taken by the founder. In the second-generation stage - sibling partnership, ownership is shared, and generally, decisions are taken through agreement, here consensus means taking everyone together for a common purpose, vision, goal, and managing business togetherness is at the centre of the decision. While in the third generation and beyond, the decision-making process should be more formal as the extended family also influences the decisions of business and family.
The ownership is divided among the family branches. The family has decision-makers who are in operations, influenced by many others at this stage. Different person has different mindsets, lifestyles, cultures, personal aspirations from their life, different education, and understanding levels for the business and family relations that impact the decision.
Various studies concluded that at any stage of the family business, decisions should be taken considering the business interest in the centre. Family council should see the impact of the decision on the family as a whole, on individuals, business management, ownership group and other stakeholders. In the formal process of decision-making advisors and non-family executives play a vital role in the success of the business. Engaging professionals and advisors in the decision-making process raises the level of decisions.
Family should learn to make a collaborative decision for managing the happiness and harmony in the family and the economic growth of the business which is considered the ultimate objective of the generational success family business. The prime objective for decision-making beyond the third generation would be to productively engage family members' interest for the smooth functioning of the business, working together as a family and taking the legacy forward.
Family should be open to change, accepting new ideas and diversity for thriving the business. Trust is considered the foundation for better relationships in the family. It is the responsibility of the family leader to bring everyone on the same page, carefully understand their concern and assure them a better future in the family business.
The decision process should be fair, accept different elements received from various individuals and groups, maintain cohesion, and everybody should act in good faith. There should be an agreement that good for the business is better for the family. For the longevity of the family business, governance should prepare a system for decision-making that takes care of silent disagreement in the family, the interest of minority owners, management and other stakeholders interests. A common vision needs to develop for the next 5/10 years that is known to various interest groups, will create a better level playing field for the family business's success.
Family should learn to discuss undiscussable and communicate difficulties while making decisions. It is advisable to define, who should be involved in the decisions, and who should be informed about the decision. When the children of the family–owner are involved, need to clarify that do their opinions matter in the decisions. Successful family businesses have created a junior board where the next generation can sit as an observer only and understand the business process, operations and decision-making process.
The process keeps family values and principles set by the founder while making decisions. I worked with an Indian fourth-generation family business, whose prime value includes, ‘Togetherness’ the founder wanted to keep the family together in the business for generations working together happily is the success of the family.
While making any decision, they first ask, if this decision affects togetherness positively, if the answer is yes, they evaluate the decision from other business criteria. The family believes that they have inherited ‘Togetherness in the family’ and are responsible owners who have to preserve and grow togetherness and pass it on to the next generation.
