Five Elements of Continuity

Continuity of a Family Enterprise is best planned with the family, for the family. It is only by aligning the purpose, mission and values of the family enterprise that a family can work together effectively to achieve the “familiness advantage”.

A Family Enterprise comprises all of the human and financial capital of a family unit, including the operating business, financial assets, real estate, heirloom assets (like cottages, art and the like), philanthropy, deferred assets (like life insurance), and human/non-financial assets that each member of the family personally contributes.

A Family Enterprise can change its elements over time, for example by exiting an operating business and reinvesting the sale proceeds in another asset class, or by starting a family office or family investment business. It still remains a Family Enterprise, provided the family unit is united in preserving the familiness advantage, for maximum synergies.  A key dependency is that there is a continuing role which is understood by the members of the family unit comprising the family enterprise.

Family Enterprise Advisors are taught there are 5 important elements to ensure a successful family enterprise continuity plan, to assure the healthy foundation in each of the 3 circles invested in the successful outcome, namely the family, the business management, and owners. 

The 5 elements of successful continuity include:

Business strategy – there must be a sound formal business strategy, the design of which must be delegated to competent management.  The business strategy should be in writing, and understood by management and the Board.

Wealth Integration – the family must recognize the importance of building the family wealth over each generation, including all of the different assets classes comprising the family enterprise.

Intrapersonal Clarity – there must be clear roles within the family unit, with governance structures created to elect the most competent active family members to represent the rest of the family on the Family Council.  Others can play a leading role in philanthropy.  There must also be agreed boundaries (e.g. let’s not ruin Thanksgiving fighting about business regrets!), family employment policies and “codes of conduct” to ensure there are communication standards expected of all members.  If the family is not able themselves to have such clarity, they should engage the services of an independent professional facilitator to run family meetings so oversee the rules of conduct.  Facilitators can be extremely effective to get things done, and move agendas ahead.

Ownership Alignment – the owners must acknowledge that the family enterprise has an importance that is far greater than the interests of them as individuals, and that the synergy of the familiness advantage only materializes through a philosophy of alignment.  Success can only be achieved by an attitude of Us and We, and not I.  This requires tools such as the family constitution (outlining the values, vision, and mission statement), and well worded shareholder agreements.

Governance Formalization – there must be strong governance systems built in all of the 3 circles, with a willingness to not rely solely on family members where stronger skills/expertise can be obtained through the use of external parties (i.e. as board members, management, or advisors).  To build the best, you must work with the best.

Family Enterprises succeed past the generations when a strong continuity plan is put into place. While succession is a series of events that happen within the next 5 years, continuity is the whole time horizon – the 60 year or 100 year plan. Continuity focuses on working together and not on how to divide things up.  Continuity is moving forward with intentionality with regular and continuous communication

Continuity encompasses the following:

• A dynamic process with multi-generational lens
• Continuous change and growth
• Communication
• Incorporates all aspects of family enterprise system
• Led by a family for a family
• Multi-stage – reflective
• Value creation
• Interdisciplinary
• Encompasses a variety of elements

John Ward said: “The most critical issues facing business owning families are family based issues more than they are business based.”  This is why we start with the family circle when looking at the family enterprise as a system and preparing the continuity plan.

One of the greatest challenges in engaging a family in continuity planning for the family enterprise is homeostasis. Homeostasis is equivalent to staying with the status quo, sticking to routine, moving forward mindlessly, doing things out of habits.  Because of the existence of homeostasis a family unconsciously holds back to change.  Often things may get worst before it gets better. A family holds back to the way things have always been and even when a family moves forward in a process, without accountability over time and when faced with difficulty, the family will revert back to its old ways.  New habits can be formed but it takes grit, will and great accountability.

As the magnitude of family wealth grows in Canada, we are seeing far more families seek out the knowledge and tools to build the framework for multi-generational continuity, with an attitude of continued wealth creation.  It is an exciting new phenomenon, changing the landscape in our nation.  It will be interesting to see how these rising family enterprises, with the right tools and education to guide them, will flourish over the next hundred years and stay true to the families agreed upon vision, mission and values.

Decision Tree Question: Is there a continuing role for the family in this vision?