With family businesses accounting for almost 60 percent of the private sector workforce, they have a significant impact on our economy. In addition, they are often characterized by strong cultures that bind employees to a common cause. These cultures are also a key competitive advantage.
Having a strong board of directors is essential to the continued success of your family business. This group of people works with the management team to ensure that the business is running smoothly and achieving its goals.
The composition of the board should be reflective of the size and complexity of the business. It should also be dynamic to handle the complexities of business growth and development.
It's important to have independent board members that bring their own expertise to the table, as well as a perspective that can be critical to decision making. They should have a background in financial experience, technology and other key areas that will allow them to offer a unique view of the company and its future.
To achieve this, it's important to ensure that the board has a strong process in place for selecting new directors and evaluating their performance. Moreover, it's important to establish procedures for regularly scheduled meetings and set clear expectations about what is expected of each member.
Family businesses with strong and effective boards often employ non-family directors to help them oversee the company's governance. Including independent, professional leaders outside the family helps to establish a strong separation between business and family issues. It also helps to create a board culture that encourages questions and fosters a frank discussion of issues, allowing for a more productive boardroom atmosphere.
For many business owners, maintaining positive cash flow and a stable balance sheet is an ongoing battle. Even retirement often seems like a distant speck on the horizon, let alone plans to hand over the business to the next generation.
A successful succession plan enables leaders to transition power to the next generation, ensuring a smooth transition and continuity of the company’s success. However, a well-planned transition requires careful planning and consistent investment.
One of the most critical elements of a successful succession plan is talent development. This includes training and valuable work experience for succession candidates to help them prepare for leadership roles when the time comes.
It also involves engaging the next generation in conversations about how they see their future with the family business and what supports their goals. This helps to build trust and alignment, as well as collaboration and an overall sense of shared purpose.
Finally, a family’s succession plan shouldn’t be a static document. It should be revisited as necessary based on family or business circumstances.
Family business founders are often the ones who build the business, so it's no surprise that they have a unique edge when it comes to long-term survival. Companies like Ford and Estee Lauder, for example, have endured over generations.
But as they continue to operate, they're also reassessing their goals and strategies for the future. That's especially true for second and third generations of family owners who often are tasked with creating new opportunities to grow the business.
These leaders need to understand the importance of preserving their legacy. And they must also consider how to develop responsible shareholders—people who are committed to the company's growth and value for generations to come.
The challenge for most families, though, is that traditions are also often an impediment to innovation. This is often referred to as the "innovation paradox."
Many researchers argue that family firms are less innovative than nonfamily businesses because they are more attached to their traditions. But others suggest that some family firms are more innovative because of their traditions, and that better management of them can help family businesses innovate while also honoring the founder's vision.
Ultimately, the best way to ensure that your family business continues to thrive is to invest in the future. That involves preparing your next generation to take on responsibility, setting clear rules, and developing career paths.