Family: what do you come up with if you play word association? I hope the answer involves words like love, security and commitment.
It is good to feel all three when operating a family-owned business too. But the key issue is to make sure that the love family members have for each other does not cloud their professional judgement.
Previously, I wrote about the family charter, which my family has put in place to govern our dealings with each other. This not only helps us to minimize strife and misunderstandings but also puts boundaries in place between our work and our home lives so that we can separate what happens in one from the other.
In this blog, I would like to expand a little further about how we have used this charter as a springboard to improve THP’s governance and management.
Indeed, one of the biggest challenges that family-owned businesses face is making sure that they are run professionally. It is one that does not apply to publicly owned companies where there are clearly defined processes in place.
One example, relates to the processes of hiring new employees and executives. It is critical that family-owned businesses set up systems for making appointments, which are both transparent and based on merit rather than relationships with family members.
Proving jobs for “friends and family” just increases the likelihood of opening a door for incompetent people to walk through. This will immediately cause problems for the company and everyone around them.
The new appointee will not only do a poor job, but so too will the people who work in his or her team. The wider team will likely be deeply resentful of the favouritism behind the appointment and the consequences for output and career progression.
It is important to be fair and to document what means so that no one can ever be in any doubt.
As family-owned companies get larger, the importance of having clear governance becomes ever more urgent. My father began this journey at THP when he simply became overwhelmed trying to do everything himself.
Being a one-man whirlwind was fine when THP was starting out and everything was done from one factory, but not when the company started to employ hundreds of people.
Some of the best consultancy advice he ever took was to start bringing in external experts such as a CFO. Employing layers of professional managers enables family members to take a more strategic role, planning for the long-term.
Accountability is important too. It is all too easy for family-owned members to think they always know best and remain wedded to what has worked in the past.
Having a Board of Directors and more importantly, one with independent members is crucial. Their job is to ensure that the family aren’t surrounded by “yes people,” helping to ensure that the interests of all stakeholders are aligned.
When employees, suppliers and outside parties can see that a family-owned business has good corporate governance in place, there is a massive increase in the trust placed in it. Corporate governance and business value go hand-in-hand.