From a family legacy perspective, playing a role in a family business pays off beyond the financial or monetary gains. For many family businesses, it is important to create a culture they can be proud of, with a deep network and a sense that each member is making an impact.
However, according to Family Business Matters research, 42 percent of family businesses begin to break down by the third generation due to a lack of communication. This eventually leads to a lack of trust between family members and the shareholders, according to Edouard Thijssen, co-Founder and CEO of Trusted Family in a recent presentation to YPO’s Family Business Network. Thijssen has helped more than 4,000 of the world’s leading multigenerational family businesses around the world to communicate and share sensitive information with their directors, shareholders, family members and advisers through a unique digital platform.
“Family enterprises go through difficult transitions and challenges by the third generation with only 10 percent of these family enterprises staying together as the family or shareholder group gets larger and more spread out geographically,” explains Thijssen. “That’s why communications become so vital for long-term success because it generates trust, builds relationship and creates alignment.”
To begin to create open and effective communications, Thijssen recommends families and stakeholders put into place three action scenarios:
- Identify a key individual who is charged with communication. This doesn’t have to be a full-time commitment, but it is important that adequate resources and time are devoted to the role. Priority No. 1 is to better understand what directors, shareholders and family members expect in terms of communication and this can be done through a formal survey, assessment or discussion with all parties.
- Transition from an informal to a more formal system of policies around communications. Develop a set of agreements or guidelines for how relevant information is to be distributed to family members and shareholders. Communications templates can be developed to use on an ongoing basis.
- Decide what communications channels you will utilize. Some families prefer in-person meetings, some prefer video conferencing if shareholders are spread across the globe. Sometimes a mix is best or even utilizing a central point of information such as a portal or mobile app.
Along with these three first steps, Thijssen says that if you don’t have a board of directors in place, this may be a good time to establish one. “Your board can be made up of family and independent board members depending on works best for your particular family business.”
It’s also helpful to begin to think about guidelines such as who should become shareholders in the family business? Key considerations regarding shareholders should include family descendants, in-laws and minimum age requirements.
“Once you have a communications strategy in place, it is harder for people to complain and you are putting the responsibility back in the hands of the shareholders,” says Thijssen.
Make your family meetings count
Every family business has its unique challenges when it comes to creating a formal meeting channel”, says Thijssen. “It’s of utmost importance to build a sense of belonging amongst family members even when there are obstacles such as geographical distance.” Whether establishing in-person vs. video conferencing or a mix of meeting styles, Thijssen stresses that outlining how the meetings will be structured and communicating this ahead of time is vital. The content for each meeting will determine if the session should be a more informative type of meeting, a debate style or joint-decision making in format.
“Get creative and add value to every meeting because not everyone wants to read a 60-page report,” says Thijssen. “Create a monthly video series from the CEO. Take time to share important family news like milestones, anniversary or birthdays. In our family, we mix business with pleasure like hosting a yearly golf tournament or organizing a family trip. Physical distance can lead to emotional distance for many family members and shareholders, and that is where the detachment begins.”
Leveraging technology between meetings is key and that’s where creating a centralized platform or online management system becomes important to share information such as shareholders updates, the minutes of previous meetings or board decisions.
Setting your budget and creating a plan for the future
How much should you spend on a formal communications plan? “What’s the value of having a well-informed, educated and committed board and shareholder group with a long-term view?” asks Thijssen. He suggests looking at the percentage of your company’s sales and yearly profit that you are ready to invest in shareholder engagement and in an effective board. “It is good practice to look at what companies of similar size that are listed on the stock market spend on shareholder communication and engagement as a gauge.”
As your communications plan grows and family members and stakeholders begin to participate, you can begin to add a monthly performance dashboard on the platform you use to list key performance indicators, share industry news, monitor competitors and more.
“You’ll find having a communications plan in place that informs shareholders, aligns the leadership of your business, and educates your family members, leading to a healthier business with everyone understanding their roles and responsibilities,” says Thijssen. “The effort is worth the payoff.”