Building the foundation

December 01, 2012

The fourth article in the series, The Seven Complexities, stressed the importance of developing and sharing your vision for the future as you prepare for the inevitable transition to new leadership and/or ownership of your business. In The BDO SuccessCare Program™, we call this vision your “house on the hill” — something that inspires others and creates both purpose and commitment, and can become the target of each stakeholder's energy and enthusiasm. It represents a common interest for the current generation and a legacy for future generations.

Your “house on the hill” is no different from any other structure that is designed to last for centuries. It needs to be erected on a strong foundation. In business families, that foundation is a solid base of trust — or what we describe as a “we focus”.

Trust is a fundamental requirement for the success of any endeavour but, in a business family, should go beyond the general expectation of honesty or competence. Trust often involves relying on the integrity, strength or ability of others, and can also be defined as committing something for use or safekeeping. The common denominator is the need for a “we-focus”.

Unfortunately, a lack of trust or “we focus” is the major reason many business and wealth transitions fail. As fifth on the list of the top seven complexities facing family enterprises, it is the focus of today's article.

Calculating trust

To better understand the definition of trust or “we focus”, consider the mathematical formula developed by authors David Maister and Charles Green. It is broken down into four key components:

  1. Credibility: When what we have to say on a subject is worthy of belief, we build credibility
  2. Reliability: We prove we are more reliable and dependable when we do what we say we will do
  3. Intimacy: We can create a caring and secure environment for those who choose to be involved or share their lives with us

    At first glance, a maximum score in each component results in a very high trust factor. That is, until we consider the fourth and final component:
  4. Self-orientation: The degree of emphasis we place on meeting our own needs first

As the following equation illustrates, the true trust factor is calculated by dividing the level of self-orientation into the total of the top line components. Therefore, when we have a high focus on self, our trust factor is low. On the other hand, if we focus more on our common vision, our self-orientation score drops and the true trust factor increases.

Developing trust

Building a strong foundation of trust requires leadership, when you move from the role of visionary to leader. A leader's role is to balance his/her vision with a clear understanding of what needs to be done to get there. A vision that is short on execution will not yield results. A leader needs to translate the vision into a set of measurable steps.

In our last article, we discussed Thom Penmaen's concerns regarding the lack of buy-in for his vision. Thom and his wife, Sophie, along with their children and children's spouses, participated in The BDO SuccessCare Program™ in hopes of addressing these concerns and developing a common vision for the future of their family business. While the process resulted in a set of realistic action items specifically designed to address all of their current or potential roadblocks, there was an even bigger payoff at the end of the session with an increased level of engagement and “we focus” among the family members.

In addition to displaying leadership and engaging the next generation, this process allowed Thom to plant the seed of stewardship: accepting the responsibility to take care of the family wealth, use the assets for a common good, and pass them along to the next generation healthier and stronger than before.

Setting the direction for the family unit was the first step in giving its members the confidence to forgo the “what's in it for me” mindset and adopt a “we focus” in building their “house on the hill”.

Continuing to lead by example

Thom Penmaen now appreciates that, if he expects the other stakeholders to buy into the “we focus”, he must endorse and actively pursue a “we-focus” himself. He must lead by example.

All business owners like to keep their fingers on the pulse and they have high confidence in their own abilities and instincts. It is understandable that they sometimes find it difficult to defer to those with less experience. However, a business owner can only hope to foster the sense of stewardship required to transition both the passion and purpose for the future by engaging the next generation in the decision-making process.

At BDO, we can help you and your family or partners build a strong foundation of trust, leadership and stewardship for your “house on the hill”. The following are some additional points and reminders to help you create a “we focus”:

  • While your prospective successor may have a different personality or take a different approach, he/she can be just as successful
  • Understand the strengths and weaknesses of your prospective successor and place him or her in roles where they can learn and excel
  • Delegate authority and responsibility to develop your prospective successor and demonstrate trust, but also be sure to include some accountability so you clarify your expectations
  • Without your trust, by the time your successor takes over the leadership role, he/she may have little self-confidence, fail to rise to the challenge of building a bigger future, and at best adopt a stance to preserve the status quo. These risk-averse successors tend to rely on others to shoulder many of their responsibilities, can lose the respect and trust required as the head of the business, and subsequently fail in the leadership role
  • Create a process to allow for a gradual change of leadership; when the first pass at delegation is operating as expected, you can move the successor to a higher level of leadership
  • Actively promote your successor to your employees, customers, suppliers, lenders and investors so they can gain the respect and confidence of these key stakeholders

For more information on this, or any of the other seven complexities, please contact your personal BDO advisor or call The BDO SuccessCare Program™ at 1-800-598-6400.

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