Family Business and

Entrepreneurship
BUSM4171 - Topic 2

Building Trust and

Commitment in the
Family Business

Family Business, Third Edition, by Ernesto J. Poza

Copyright 2010 Thomson South-Western
 Learning Outcomes
1. To promote understanding of the
absolute need for trust among family
members in the pursuit of winwin
approaches to succession and continuity.
2. To promote greater understanding of the
complex family dynamics that influence
families in business.
3. To provide several tools to analyze and
improve family functioning and enhance
the family-business interaction.
 Unhealthy Family Culture
Characterized by:
Secrecy
Lack of information
Low levels of family emotional intelligence
Little knowledge of the business among at least
some family members
A result of:
A founding culture that supported autocratic
leadership
The familys belief in benefits of privacy
Zero-sum dynamics
 The Story of Two Very Different Family
Cultures
The Binghams and the Louisville Courier-Journal Companies
Sold the company after years of bickering
The sale of the company did not bring the family together as hoped
Absent was:
A commitment to family-business continuity
A family trust catalyst
A board with independent outsiders
Family meetings

The Blethens and the Seattle Times Company

Continue to own and operate several newspapers in the fifth generation
Present is:
A commitment to continuity (even in the face of a financially crippling
strike)
Individual responsibility to the group
A sense of stewardship
Family unity
Frequent family meetings
Zero-Sum Dynamics and Family
Culture
Zero-sum dynamics are characterized by
exchanges in which one partys perceived
gain is the other partys perceived loss
The absence of growth (and increased wealth
and career opportunities) in the family
business is fertile ground for zero-sum
dynamics
The us-and-them dynamic can be triggered
by any perceived difference: malefemale,
active in managementinactive in the firm,
olderyounger, richerpoorer, etc.
 The Family Systems
Perspective
Considers the family to be the building block of
emotional life
Uses systems thinking to understand the complex
interaction between individual members of the
family
Suggests that change in any family members
behavior is more likely to be sustainable at the
family than at the individual level
Argues that the interdependence that is the
source of social/physical/intellectual/emotional
rewards in the family also gives rise to conflicting
needs, desires, and priorities as the family grows
and ages
 The Family Systems
Perspective (cont.)
Argues that while families often look to an
individual to blame whenever there is trouble and
tensions mount, sharing responsibility for the
difficulty and its remediation is more effective
than individual solutions
Argues compellingly for the tremendous influence
of an individuals family of origin
Patterns and processes set in motion from two
or three preceding generations still matter
The analysis of earlier generations is essential
to understanding what ails or distresses a
family in the present
 Bowens Family Systems Theory
In Summary:
1) A family is a system
2) Family systems transfer rules, patterns, messages,
or expectations about the behaviour of its members.
3) Individuals and families can still learn behaviours
and establish patterns different from those
transferred by messages from the family of origin.
4) Tension and distress tend to make individuals go
back to patterns and behaviours learned from their
family of origin, unless by purposeful self-
differentiation and maturation, a different behaviour
is learned and used.
 Bowens Family Systems
Theory
Because often very old emotions are still quite
powerful in the context of a familys history,
differentiation of the individual through thought
and reflection, can promote an individual
functioning above historic patterns, even under
conditions of stress
Triangulation is the predictable emotional pattern
among three people, with the third, the outsider,
being triangled as a result of the emotional
outpouring in the relationship between the other
two family members
For example, a husband and wife, in conflict over
their respective needs to control or influence the
marital relationship to their satisfaction may
 Bowens Family Systems
Theory
The less well differentiated the people are the more likely that
emotions will get the upper hand and impair the family members
ability to think about the situation.

In large families it is possible to have many triangles, and as

soon as two people are in conflict a triangled person will soon
be called up on for support or reassurance.

Ultimately it is the task of the two people in conflict to resolve

the situation and not the triangled person.

Cutoffs are unresolved emotional attachments to parents that

lead family members to distance themselves from their family of
origin, sometimes only to repeat the sins of their past.
 Bowens Family Systems
Theory
Family life and the analysis of family
behaviour is not our major focus in this
subject.

However

Family dynamics and a familys emotional

intelligence are important subjects for
students of family business to understand and
address.
 Bowens Family Systems
Theory
Family business owners, nonfamily
management in family firms, and service
providers to family firms all need to better
understand the complex family matters and
the powerful emotional fields that have a great
impact on a family-owned or family-controlled
enterprise. Whether the subject is
management, strategy, successor selection,
the location of new plants and offices,
acquisitions, or the ability to adapt and
compete.
 Family Genograms
A pictorial display of family relationships and
medical history.

A cousin of the family tree that informs us of

family names, relationships, ages, and
descendants, but also informs about critical
events in the familys history, the quality of
particular relationships between individual
members of the family, patterns of illness, and
the role that second or later marriages can
play in family life
 Family Genograms
Critical incidents in family life recorded in a
genogram can help better understand the
implications of family on issues like:
business succession, estate plans and
ownership transfer, likely alliances and likely
sources of conflict, etc.
Genograms have been widely used by
family therapists, and more recently by
family practice physicians and consultants to
help their clients understand the influences
of their families on relationships and
behaviour under stressful conditions.
Family Tree
Family Genogram Symbols
Example
Genograms for other
Purposes
 Family Emotional Intelligence
Emotional Intelligence is the capacity to recognize our
own feelings and those of others and the ability to
manage our emotions and relationships with others.
Family emotional intelligence aims to improve the ability
of individual family members to know their feelings in
order to use them appropriately to make decisions.
Ultimately Family Emotional Intelligence seeks to
increase the ability to handle feelings with skill and
harmony even in the face of differences between family
members, so that better decisions can be made and
teamwork and family unity can thrive.
Emotional competence inventories with their 360-degree
feedback process can be particularly helpful to next-
generation members of a family in business.
 How Families Add Value: The
Family-Business Interaction Factor
A family business with a high degree of family harmony
tends to be more effective in planning for business
continuity.
Tolerance of differences the extent to which a family
constructively tolerates differences of opinion and outlook
on sensitive issues is another construct that has proven
useful in understanding family dynamics and a familys
relationship to the business.
It represents the quality and the nature of communication
within a family.
Family meetings provide the opportunity for nonactive
family members to share their perspectives and/pr concerns
regarding the business, which are often very different from
those of family members who are active in the business.

Source: Poza, E., Hanlon, S., and Kishida, R. Does the family-business interaction
factor represent a resource or a cost? Family Business Review, June 2004, pp. 99
 The Benefits of Family Meetings
(Family Councils)
Having to deal with zero-sum dynamics in the family
environment is perhaps the most compelling reason
for holding family meetings.
Provide a reliable forum for delivering information
about the state of the business, its financial
performance, its strategy, and the competitive
dynamics it faces.
Particularly useful for those not active in the
management of the business.
Offers a safe haven in which to teach family members
about the various rights and responsibilities that
accompany being a business owner and manager.
 Family Unity and Continuity
UNITY being undivided or unbroken. Oneness.
Family unity is a strong predictor of the successful use of a set
of best management and family practices by family companies.
These include:
Using boards with independent advisors
Placing nonfamily managers in key positions in which their
skills complement those of top family managers
Holding frequent family meetings
Establishing a family council
Family unity affects the firms ability to capitalise on the unique
capabilities/resources that family members contribute. It helps
families translate core competencies into a unique set of
competitive advantages.
We call our values Family valuesWorld class
results. They are not radically different from the
values you hear from major Fortune 500
companies, but I think we are better able to
practice those values as a family-owned business.
People care about making quality products, really
care about the family, each other, and the success
of the company. I believe this caring attitude
translates into the success of the company.

-Fisk Johnson, President of SC Johnson: A Family Company, 1996

http://www.youtube.com/watch?v=REflq-rd_
E8
Fisk Johnson talks about Johnsons
transparency and how being a family
company makes them different.

http://www.youtube.com/watch?v=coG-86rq
eGI
A typical Johnsons ad- emphasis on "SC
Johnson, A family company" which they use
as a slogan in EVERY company ad.
 Planning and Policy Making
POLICY A principle or rule to guide decisions and achieve
rational outcomes

Having family members rush into uninformed, democratic

decision making is one of the biggest fears of current
generation family and business leaders when they hold a
family meeting or create a family council.

Family meetings should be about education and

communication. Over time, they will become effective
planning and policy making bodies, if the education and
communication phases have been properly carried out.
 Planning and Policy Making
Open and safe processes for sharing information among
family members in family council meetings are prerequisites
for effective planning and policy making by family groups.

Many family companies decide to create a family council to

dismantle the culture of secrecy established by the previous
generation. In such cases a gradual evolution is best.

Decision making should be ruled out of the family council,

and voting should be banned. Rather the focus should be on
conversations, deliberations, and policy making.

The council must strive to come up with plans and policies

that most family members are willing to support.
 Some Useful Types of
Policies
1. Employment Policy - outlines the levels of education and
experience required for employment. Based on merit and need, not
family membership.
2. Subcontractor Policy guidelines that open the bidding process to
both relatives and nonfamily members.
3. Board Service Policy includes criteria for the selection of board
members that relates to both family and company strategy.
4. Family Council Service Policy includes criteria for selecting
family members to serve on the family council and other committees.
5. Dividend Policy to balance family needs and reinvestment for
growth needs.
6. Liquidity Policy includes principles for cash flow needs on behalf of
the family and the company. It must differentiate between large and
small transactions.
7. Family Constitution - mostly used in older and multigenerational
family businesses. A collection of policies, family history, family
commitment, and the relationship between the company and the
family.
 Example: Family Employment Policy
Policies are important as by the time the company is in its second or third
generation, the number of potential family candidates could be too great for
the employment opportunities.

Family employment practices, including promotion, need to be documented

and communicated to create and ensure clarity, transparency, and a sense of
fairness.

Whilst this is obvious to prevent conflict between family members, it is equally

important to nonfamily members who may seek employment in family
businesses.

Second, third, and forth generation family businesses need highly capable
nonfamily managers to successfully run and govern a family business.

ACTIVITY:
Please read the family employment policy on p.43 of the text. It was drafted by
18 cousins that were third generation stakeholders in a $95 million family
business.
 Guidelines for Policy Making
Ideally, involve as many family members as are relevant to the
particular policy being developed. Relevance is defined by expertise
on the subject(s) to be discussed, by the need of family members to
feel included, and by the potential effect of the policy on those family
members.
Look at the big picture, and formulate a mission statement or outcome
goal that defines what is best for the extended family and the
business.
Focus on the future and let go of the past.
Use experienced facilitators, who can play a significant role in helping
a family business focus on the future, and benchmark your drafts of
policies against those of other successful family-owned or family-
controlled companies.
Agree on the process you will follow to develop, review, edit, redraft,
approve, and ultimately enact policies with the confidence that people
will support them because, after all, they helped create them.
Trusts, Legal Agreements, and
Personal Responsibility
Trying to force people you dont trust
to do what you want them to do over
generations is doomed to failure. No
matter what you write in the trust
instrument, there are no ironclad
guarantees that the company wont be
sold. You have to get the people who
can make or influence the decision to
keep the company to buy into your
vision.
John P. C. Duncan, Attorney
 Conflict Management
Conflict is inevitable in families, particularly those that
live, work, and control assets together.

All of these problems must be addressed in family

meetings and resolved to the best of the familys ability.

Family meetings can provide a forum for minimizing the

potential for conflict and addressing the troublesome
problems that confront multigenerational families.
 Conflict Management
Some of the significant problems that can be addressed during
family meetings include:

1. Frustration over alienation or lack of inclusion. This is most

common between family members who are active in
management and those that are not, and also between those of
the powerful current generation and the less powerful next
generation.
2. Anger over the unfairness of hiring practices, promotions,
family benefits, and other opportunities enjoyed by some but
not others.
3. Frustration over dividend policies and lack of liquidity. By the
time a family business has begun to hire its third generation of
family members, the financial needs of the various branches
and individuals have become incredibly diverse.
 BUSM4171 - Topic 2
Building Trust and
Commitment in the Family
Business

SUMMARY p.46