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Bringing harmony to business families

Bringing harmony to business families

Bringing harmony to business families

Carolyn Cole | Leadership,

As wealth creators and their family members pursue growth and financial stability from generation to generation, business families often find interfamily tensions flaring into conflict that can last decades. In most cases this undesired tension comes at a negative cost to the business itself and has a risk of destabilizing the financial ecosystem those same family members rely upon. However, careful planning, clear communication, and a commitment to cooperation around a shared purpose may help mitigate the risk of conflict. This is a conscious journey for a family which involves work, however the result from this process is priceless to most families.

Business family conflicts are typically attributed to communication issues

Conflicts typically stems from some level of communication breakdown within a family. One of the greatest challenges for family members is to understand what each person is entitled to know and what sits outside of their authorized scope. This can be confusing for a variety of reasons. Firstly a family member is not necessarily an owner, and even if he or she is a shareholder, that does not automatically mean they are privy to day-to-day operating decisions within a business. Secondly, there are often expectations of employees and community members, that because a person is a family member, he or she will have access to information or can influence decisions at the business leadership level. This can be far from the truth. Additionally, conflict may arise when a family member who is an employee of a company has information in advance of other non-employee family member shareholders. The question of, “why wasn’t I told about that?” can create the impression that there are insiders and outsiders in the communication channels. It can also be very embarrassing for family members to learn about business decisions from media releases or company employees.

The path to harmony begins with creating a process

One of the most effective ways a business family can reduce the likelihood of conflict and create harmony throughout the family ecosystem is by introducing a structure and process around communication and decision making. Many people refer to this as “governance”.

In a business family context, effective governance means clarifying the roles and responsibilities of the family members involved in the business, to create an inclusive environment and ensure each generation and each individual understands their “lane” and why they’re in it. A proper governance structure makes it clear who in the family makes a particular decision, as well as how, when, and why they do so—and who needs to know about it. It should also establish a mechanism for resolving disputes and provide a roadmap for family members who wish to exit the business, should they wish to. No one like the feeling of being in a locked room. Just knowing there is an exit option, provides all family members the opportunity for different decision making processes.

Establishing—or improving—a family office can support better governance

A “family office” is a group of professionals (accountants, lawyers, wealth managers and more) who come together to integrate information about the business family and develop clear processes around communication and decision making. A family office can be invaluable in helping business families improve organizational governance and build greater harmony through the family itself.

To establish a family office or evaluate an existing one, take stock of the professionals already advising the family. This should include not only those advising family members in charge of running day-to-day operations, but those supporting other family members who have a direct or indirect interest in the family business. How well do these myriad professionals work together? Are they communicating effectively? If not, that could be a key factor contributing to any family discord, as the recommendations single family members receive, may not be taking the entire business—or family—into account.

An effective family office must comprise professionals willing to embrace teamwork and prioritize the business families’ interests over their own. All too often, business families find their professional advisors competing for a greater share of the family “pie”; this ongoing competition can inhibit teamwork and lead to conflict down the road. The same is true for professionals working for the family’s business(es) rather than the family itself—a lack of communication between these advisors and those of the family office can make it difficult for family members to know what they need to know, when they need to know it, in order to make the timely and effective decisions.

To alleviate conflict and foster harmony, business families should invest in experienced professional advisors that are willing to work together and who bring an unbiased, impartial perspective to the matters of the day. They need advisors who can clearly articulate the impact of a decision on the business—and on the family members themselves—coordinating efforts in order to continually move the family business, and the family’s own plans, forward. Anything less is simply unacceptable.

Avoid business family conflict with better governance and communication 

Conflict may be an all too common feature of business families, but it doesn’t have to be. An effective governance structure, supported by a well-functioning family office, can provide the clear communication needed to mitigate the risk of family conflict and build a greater sense of harmony across both the family and the business.

Carolyn Cole is the Vice President, Family Office for KPMG Enterprise in Canada. To discuss how to bring more harmony to your business family, contact your local KPMG Enterprise advisor.