In wrapping up our exploration of the top complexities facing businesses in transition, we will focus on a common thread among all seven - the role that communication can play in addressing these roadblocks. Whether there is a loss of personal identity, no dividing line between family and business, unresolved conflict, no clear vision, a lack of a "we focus", or no clarity around responsibilities, roles and rights, the need for open and structured communication is unmistakable.
From our informal survey of business owners who have previously experienced a transition of leadership or ownership, we confirmed that communication accounts for approximately 80% of the process. These owners recognized, albeit after the fact, that the conveyance or exchange of thoughts, opinions, ideas, and information was the key to get everyone going in the same direction and make sound decisions about the future. The easiest part was the implementation of tactical solutions that accounted for the remaining 20% of the transition process.
In a previous article, we used a highway analogy to explain the journey to building and ultimately transitioning a privately-owned or family business. Travelling this "highway" requires a roadworthy and reliable Communication Vehicle™ that aligns family and individual needs with those of the business. This Communication Vehicle™ helps business families manage the potholes that cause fender benders - or even more serious collisions that can result in a failed transition.
Equipping the Communication Vehicle
Every business family needs to invest in a vehicle that will not only promote unity, but ultimately meet the objectives of both the family and the business. It should be equipped with all types of communication strategies, from clarity around the family's overreaching philosophy to forums for discussion and decision-making and policies and plans that convey these decisions. Above all, it should represent a common purpose: the ultimate destination of the journey on the business highway.
Understanding and achieving a consensus about "who you are" is the foundation for designing a roadworthy Communication Vehicle™. Whether or not you have family members involved in the business, every individual who is likely to inherit the tangible and non-tangible assets that are part of your legacy need to be involved in the process. It is important that they all feel connected to the bigger goal and have a sense of responsibility about managing the wealth one day.
Defining this common purpose begins with clarifying your family's core principles from which your current values, beliefs, standards and attitudes stem. Stephen Covey describes these principles as the "True North", a direction that is constant regardless of how the compass is positioned. Thus, your principles are the reference point or map for your journey. They will help you choose your destination and travel in the right direction.
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To be truly effective, this process should also address your guiding principles for the business. From establishing who you are and what you stand for, it will be much easier to define your overall "business philosophy" and, as a family, agree on the standards for conducting business. In addition, you will have more insight into the role the business must play in embracing a common purpose that ultimately achieves the family vision.
Your business philosophy should determine how you address the overlap of family and business, specifically the rules of engagement for your immediate and extended family. These guidelines are called a "Family Participation Plan" and include such issues as:
- Expectations of family members in the business
- What qualifications are required to be employed in the business
- Compensation for family in the business
- Decision-making processes for family members
The business philosophy is the foundation of a well-diversified plan for the day-to-day operations. It can help you weather road conditions that result from any number of external forces.
The final component of establishing a common purpose is having a definitive philosophy for the stewardship of the family assets, called the "ownership philosophy". The objective here is to ensure clarity and achieve a consensus regarding the management of the family wealth. For example, if the overreaching philosophy is to preserve the family assets, then policies regarding future investment and/or ownership of the business should uphold that principle.
The most effective way to document the ownership philosophy is to craft both an Ownership Plan and a Shareholder Agreement that are based on your key wealth transition principles.
Once the design of the Communication Vehicle™ is underway, the next step - and the focus of upcoming articles - will be to equip the vehicle with structures that can ensure communication is effective. From family vision to business success and wealth preservation, there is a lot riding on this vehicle. It carries precious cargo: your family and your wealth.
For more information or assistance in designing your Communication Vehicle™ contact your BDO advisor, or call our Business Transition Services team at 1 800 598 6400.