The Ten Com­mand­ments for fam­ily busi­ness

In my 30-odd years of ac­count­ing prac­tice, I have lost count of the num­ber of times peo­ple have said to me, “My son hasn’t got the skills to carry on the fam­ily busi­ness.” Oth­ers grum­ble, “My chil­dren are ir­re­spon­si­ble with money – they wouldn’t know how

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is the CEO of Marin

Ac­coun­tants.

It’s im­por­tant to re­mem­ber that a fam­ily busi­ness – and its as­sets and wealth – should be the glue that holds the fam­ily to­gether and the fuel that pro­pels it to­wards hap­pi­ness and suc­cess. How­ever, if suc­ces­sion plan­ning from one gen­er­a­tion to the next is not man­aged prop­erly, it can be­come the cat­a­lyst for blow­ing the fam­ily apart.

Aus­tralian fam­ily busi­nesses gen­er­ate around 50% of GDP and em­ploy al­most 50% of the Aus­tralian work force. Given the po­ten­tial cat­a­strophic con­se­quences it is fright­en­ing how lit­tle at­ten­tion is paid to suc­ces­sion plan­ning by fam­ily and busi­ness lead­ers.

The Ten Com­mand­ments

struc­tures are put in place to fa­cil­i­tate this process. Thus the SEC­OND com­mand­ment. “Thou shall es­tab­lish struc­tures.” 3 Be ob­jec­tive, not sub­jec­tive: fam­i­lies are an amal­gam of power, love, money, jeal­ousy, pride and a host of many other emo­tions. Each fam­ily busi­ness must de­velop its own ob­jec­tive sys­tems and struc­tures to en­sure that these emo­tions are not im­ported into the busi­ness. Hence the THIRD com­mand­ment: “Make busi­ness de­ci­sions for com­mer­cial rea­sons and NOT for fam­ily rea­sons.” This is es­pe­cially the case when it comes to em­ploy­ing fam­ily mem­bers. 4 Em­ploy fam­ily care­fully: fam­ily mem­bers em­ployed in the busi­ness need to feel that they have earned their po­si­tion. Also, fam­ily mem­bers not em­ployed in the busi­ness have a right to know that the fam­ily as­sets have not been squan­dered on ‘ jobs for the boys’. Nepo­tism is an un­healthy mes­sage for all con­cerned. So the FOURTH com­mand­ment is: “Es­tab­lish an ob­jec­tive job se­lec­tion and em­ployee pol­icy.” 5 Plan: all busi­ness in­volves risk. But if you run a busi­ness in a pro­fes­sional man­ner, you min­imise the risk. There­fore, the all-im­por­tant FIFTH com­mand­ment: “Cre­ate a busi­ness plan.” Do so af­ter care­ful con­sid­er­a­tion. Build in a process to re­view and mon­i­tor this plan on a reg­u­lar ba­sis. 6 Use in­de­pen­dent di­rec­tors: fam­i­lies do not have a mo­nop­oly on knowl­edge, so the SIXTH com­mand­ment is: “Ap­point arms-length and in­de­pen­dent man­agers and di­rec­tors.” They not only con­trib­ute to the on­go­ing ac­tiv­i­ties of the busi­ness but also add ob­jec­tiv­ity and com­mer­cial re­al­ity to the de­ci­sion mak­ing process. 7 Don’t pres­sure that in­de­pen­dence: it is crit­i­cal for fam­ily mem­bers to avoid putting un­war­ranted pres­sure on in­de­pen­dent di­rec­tors. Over-in­volve­ment by the fam­ily can re­sult in the ‘tail wag­ging the dog’. In­stead of the Board mak­ing de­ci­sions, fam­ily mem­bers do so, to the detri­ment of the Board’s abil­i­ties to carry out its busi­ness in a pro­fes­sional and ef­fec­tive man­ner. The SEV­ENTH com­mand­ment is there­fore: “Re­spect your in­de­pen­dent di­rec­tors and do not co­erce them.” 8 Suc­ces­sion plan­ning: the EIGHTH com­mand­ment is crit­i­cal to the longer term: “Cre­ate a suc­ces­sion plan.” The ab­sence of a con­struc­tive suc­ces­sion plan has the po­ten­tial to de­stroy the busi­ness and cause ma­jor dis­rup­tion within the fam­ily. 9 Trans­parency: this is also crit­i­cal, to en­sure that all rel­e­vant de­ci­sions are made openly and com­mu­ni­cated to the en­tire fam­ily. The NINTH com­mand­ment there­fore is: “Have reg­u­lar fam­ily re­treats.” A re­treat should run for one or two days and prefer­ably, all gen­er­a­tions of the fam­ily should at­tend. It should en­cour­age fam­ily mem­bers to ta­ble their as­pi­ra­tions, dis­cuss their dif­fer­ences, de­velop poli­cies and re­view all rel­e­vant mat­ters. 10 The Fam­ily Con­sti­tu­tion: fi­nally, the TENTH com­mand­ment of fam­ily busi­ness: “Write a fam­ily con­sti­tu­tion.” All fam­ily mem­bers (say 13 years and over) should sign the con­sti­tu­tion. The doc­u­ment should in­clude the busi­ness ob­jec­tives, the terms of em­ploy­ment for di­rec­tors, man­agers and fam­ily em­ploy­ees, an out­line of the Board’s de­ci­sion-mak­ing process, and the way the busi­ness is man­aged. It should also set out clearly the share­hold­ers’ obli­ga­tions.

Over the past 10 years, Aus­tralia has moved onto the lead­ing edge of world’s best prac­tice when it comes to fam­ily and pri­vate wealth man­age­ment. Now we just have to get more fam­i­lies bet­ter or­gan­ised to help en­sure the smooth tran­si­tion of wealth to the next gen­er­a­tion. Bernard Marin is the founder and CEO of Marin Ac­coun­tants, a firm spe­cial­is­ing in ad­vice for in­di­vid­u­als, in­vestors and fam­ily busi­nesses.

Bernard Marin

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