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Family Business – Where business dynamics meets family dynamics

| | TEC

In this episode of TEC Live,  John Broons, National Family Business Advisor of the Year Award Winner, reveals the differences, opportunities and challenges of family business. John covers: What are the rules of engagement and what are the rules about entry and exit? How do family members represent the brand and who is the best person to do this? and Do you have a family charter that’s dynamic?

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Podcast Transcript

Stephanie: A great conversation today with John Broons, a highly experienced Family Business Australia accredited advisor. John’s been deeply involved in advising family businesses and facilitating family groups since the early ’90s. He does have his own experience from within a third generation family business. He’s helped numerous family businesses build their legacy and reclaim their family lives.

John’s widely recognised as a leading expert in the family business field and he regularly delivers workshops, seminars, lectures, and presentations on family business, relationships, and leadership both here and overseas.

So in breaking news, John has just been awarded the National Family Business Advisor of the Year at the recent FBA National Conference in Melbourne. This award compliments John’s fellowship with the Family Firm Institute of which he’s one of two fellows of FFI in Australia and his many connections around the world.

John, a huge congratulations and welcome to TEC Live.

John: Thanks very much. It’s great to be here.

Stephanie: What did that award mean to you?

John: Oh my goodness. It’s incredibly satisfying. It’s kind of an understanding that, yeah, the work I do is valuable and valued. And a lot of people have been involved in that award, the understanding, the words that have been spoken. So I’m very humbled by it. It’s a wonderful thing to receive.

Stephanie: That’s good. It’s wonderful. But you know it is important work that you do. Something I’ve learned from you over the five years or so I’ve known you, there really is a difference between a family business and, well certainly a public company, but a different kind of business. Do you want to tell me about that?

John: The family business has that family part. It’s the heart, the values, the understanding, and the communication that gets carried across. So a family who are working in a business together, generally the values that they have at home crossover into the business. So you’ll get a feel for the business and that feel will be reflected very much in the family members.

Stephanie: Those values aren’t always positive though because you can have a dysfunctional family with pretty ordinary communication running a business, can’t you?

John: You can. You can. The values are underground. They’re the bits. If you wanted to build a house, your values are the foundation. So a lot of times you need work with the families too for them to understand what their values really are. And then if they’ve got a business as well, are they the same values? Are they similar values? And where do those values differ in the business?

Stephanie: Yes. Yes.

John: And the families need to be aware of it. That there are differences.

Stephanie: Because I think when you’re talking about values in a business, that’s for the whole organisation and all employees, to resonate with all employees. Because not everyone in a family business is part of the family, are they?

John: That’s right. You have real challenges for non-family members working in a family business.

Stephanie: What kind of challenges do you see?

John: Management don’t necessarily understand the rules of how they interact. Sometimes those rules get very messy. Other challenges are a family will sometimes bring the family arguments into the business. That can be challenges or very challenging.

Stephanie: Yeah.

John: You’ve got the opportunities for non-family members for positions of authority in the business, that growth and opportunity of education. So that’s just a few off the top of the head.

Stephanie: And so where do you see this? I know I’m sort of … I feel like I’m going to the negative here, but where do you see this coming unstuck? What are some of the biggest pitfalls that you think? We’ve heard the challenges, but what are some of the things that you see that could go wrong if this isn’t addressed properly?

John: The biggest challenge is always the transition from one generation to the next of the ownership side of things.

Stephanie: Right.

John: So we have three different head spaces when an owner is looking at his business. He’s got the head space of the business, which is all about profit and growth and that’s all about the money and his head space there is, I’ve got to have the budget done. It’s three months, six months, performance-based, everything’s going fine.

The family is forever, okay? Timeframe is totally different. He’s going to be my brother, my father, my sister, my mother, my uncle, my cousin. And that’s for life. So the roles don’t get to change. You are who you are and you’re labelled at a very early age. And then there’s the other path that doesn’t sit either in the family or the business and this is where a lot of people miss it. And this is the ownership conversation.

Now, okay, I’m the founder of the business. I own all the shares in the business and the business is how we take out income and grow our wealth. However, we’ve made a little bit of money, we want to invest it somewhere. We might take the share market, we might buy a piece of property. All of a sudden that’s an investment perspective. And if you talk to financial advisors, they always talk about the medium term, right? So we talk 10 to 15 year headspace.

Stephanie: Yeah.

John:  If you’re talking about investments, when you look really into the structure of all of this, you’re finding that the business is actually an investment. It’s just that this is the focus that the family has chosen because they can outperform shares, they can outperform bank interest, and they understand what they’re doing. So once you’ve got those three headspaces, you can imagine a founder is juggling these decisions. So it could be an investment decision or do I take the money out and pay for the kids’ education or do I go and buy a holiday house or a boat.

At the same time, you bring the kids into the business. Then there’s decision about that, when do I bring them in and how? And what rules do we have about how do we enter and exit? But then bringing those family members into the business, we don’t know yet or we’re trying to train them or educate them about what we might want in the future. So planning the exit strategy for the founder or that second or third generation, who’s transitioning to the fourth or fifth generation.

There’s so much going on that in a true corporate, where you’ve just got profit, return, ROI. It’s a very different picture, and succession in that case is the board is looking for the next CEO, and the CEO is actually trying to find his replacement. And they are contracted for so much time.

Stephanie: Yeah.

John: There’s so many different parts involved.

Stephanie: And I love that statement you said that a business has a timeframe of whatever, but a family’s forever.

John: Yeah.

Stephanie: I imagine there’s examples where all the members of the family receive some benefit, financial benefit from a business that they may not actually be involved in day to day.

John: That happens often. Parents will say, ‘Well, I want to give …’ So you’ve got four or five siblings. There’s a family business I worked with, there were three sons and seven daughters. The three-

Stephanie: Three sons and seven daughters?

John: Yes.

Stephanie: Wow.

John:  And the father is talking to me, ‘How do I get my sons to actually take ownership of the business? I want them to go through a whole process that’ll take a few years.’ And I’m saying to him, ‘What about the daughters?’ And his saying, ‘Don’t worry about them. They’ll be looked after separately.’ I wasn’t even allowed to go into that conversation. So it was just the relationship between the father and the sons.

There are times where the other kids, may be treated differently. You don’t know whether somebody’s not in the business because they may have an illness.

Stephanie: Yes.

John: They could be traveling overseas on a gap year and dad’s financing that or mum’s financing that. The family, if it’s got some wealth behind it, they may have a foundation for education within the family. So I can structure things into the future. We don’t know where they’re at. And the conversations have to be incredibly transparent so that the younger generation will understand what the parents want and expect as well as the children, the parents understanding whether or not there is capacity and desire to come into the business. So there’s a lot of that too.

Stephanie: I’m thinking of the complexity with siblings too, that if the one set of siblings have a financial interest or receive a benefit from the business but aren’t involved from an operational point of view, that that must put an extra level of pressure on those members of the family that are actually running the business.

John: There’s an extra level of pressure if communication isn’t sufficient.

Stephanie: Yeah, you talked about communication at the beginning. So tell me what are the most important parts of communication in a family business?

John:  In a family business, we need to have separate conversations about separate issues.

Stephanie: Right.

John: So if I’m a son in a business and I want an extra $50,000 a year, and I want to have my salary increased, I go to dad and say, ‘Dad, pay me more money.’ He’ll say, ‘Well then you need to perform better.’ Or, ‘Yeah, here’s the money.’

The sibling is not in the business, how does dad treat it? Does he do it equally? Does he do it what’s fair? Because the sibling may be older, younger, a different gender, a different life experience. Could have partners, could have kids. How do I do this balancing? And then 10 years down the track, one of the children might say, ‘That wasn’t fair.’

So we have to have really good communication. The business communication has to be very much in the business, about the business, very structured as any business would have conversations.

Stephanie: Yes.

John: The family stuff needs to be separated out. Depending on how big the family is and how many generations we’re talking, we can put a set of rules together, what we call a family charter. And that set of rules is agreed to by the family. We put it together. It’s not tied by law, but it’s agreed within the family and it can be changed.

So every couple of years, one or two of the family members may be charged with, let’s bring any adjustments that we need to make to keep it refined, to keep it valid so that the generations going behind us, coming behind us, have an understanding of where we’ve come from, but also have the opportunity to change. Whether it’s the economic environment, the physical, whatever changes, how we keep the balance. And then you have to have those other conversations about the ownership, that shareholding or the ownership stuff, how the trusts work, how distributions are made. And we need to keep them as separate conversations. Yes, they interact.

Stephanie: Yes.

John: Everything crosses over everything else.

Stephanie: There’s a huge crossover, yeah.

John: So we have to understand. And having place it at the best practice is a process to have these lines and people representing cousins. One cousin of one line of the family may be representing his whole family, could be 15, 20 people.

Stephanie: Yes.

John: And he’s on this little family committee that talks about the family as a whole.

Stephanie:  So as an advisor, you would work advising on the business side as well as the family charter, is that right?

John: I get invited into work with the family business, so across all aspects of it. I have to deal … This kind of work needs to be done in an interdisciplinary approach. I have to work with accountants, sometimes internal, sometimes external. I have to work with lawyers, sometimes internal, sometimes external. And other advisors that are within the family.

So I’m forever finding a balance. And hopefully … Look, I get to work to see how the business is running. I have to go in and see who’s who in the zoo, how everything works to get a perspective. And I also have to do a deep dive into the family. So I can go back two, three, four, five generations to see if there’s repeating syndromes of alcoholism or drug abuse or stuff that gets hidden away, and try and surface this to have those really deep valid conversations that family needs.

Stephanie: Wow! So you set a balance. It’s a delicate balance, isn’t it?

John: It’s very delicate. It’s always challenging. There are sometimes families where there are members that don’t understand why you’re there.

Stephanie: Of course. Well, they’d be kind of suspicion I’m sure if there’s competing agendas.

John: There’s competing agendas, for one. But also we can do this ourselves is a really strong undercurrent in a lot of families. And the reality is it’s really hard to see yourself and to see the dynamic that you’re working within and within a family, watching the dynamic play.

It’s like sometimes somebody walks into the room and they’re wearing a jacket covered in buttons, and the other family member walks in and they’re wearing a jacket covered in index fingers that’s just trying to press those buttons and we know. And I see it, I’ve seen family members stand up and bang their fist on a table, trying to lean over and impose their perspective. And you need to call time out because when we get to that level of emotion, those shutters go up. We can’t communicate, we don’t get honest communication.

So a facilitator in that situation can call time out. They have to recognise it and say-

Stephanie: And you would do that facilitation or you’d-

John: Yes. I’m talking from experience.

Stephanie:  Boy, oh boy. I mean because you’re talking about versions and perhaps extreme, extreme versions of normal family dynamic. And when you put a business that has its own politics and dynamics around it together, that’s complex, isn’t it?

John: Sure. If you have a family business and your business is outward focused to the general public, and you are representing that business, every time you go out, how does that fit with your family life? If you’re going out and you have to wear the company brand on your shirt, what are the rules? Not too much alcohol or no alcohol.

Stephanie: How do you talk about? What are the things you say if someone asks you a question about the CEO decision or whatever, what’s the response?

John: Sure. And a family might … If it’s a large enough family with a nice size business, who’s going to be the spokesperson when the press comes up and talks?

Stephanie: Yeah.

John: We have to discuss this. Otherwise, family can be talking five different headspaces and from their own perspective.

Stephanie: Well, we’ve seen examples of that. Have you seen that … I think I’ve spoken to you. Have you seen that HBO series Succession?

John: I’ve seen a little bit of it.

Stephanie: It’s fantastic. They need you. There’s a part for you, John. I think they need the role then you know, and then comes the-

John: A of the television programs about families, they don’t put facilitators.

Stephanie: No. Well, that makes it more interesting. The other thing, I know examples from my own network of family businesses that have been around for a long time, but there’s actually a generational skip in leadership because it ends up that there’s a child of the family not old enough to actually run the business and they bring in an external CEO. What are some of the challenges with that?

John: An external CEO coming in between generations is sometimes necessary because the children aren’t skilled sufficiently, their education may not be up to it, they may need areas of learning. Somebody may not have finance, they could have an MBA and yet not have skills financially, or in logistics, or whatever the business may do. So that’s just one challenge, how do we educate that next generation? A lot of it comes back to the culture of the family. You know, is this what’s expected of me? And did we have a conversation?

Many years ago, I met a gentleman from the Faber-Castell family, and he told the story that he was three years old riding his little tricycle up and down the house. And the conversation was, you know, you have to be thinking about the future and looking after your headspace for the family because one day you’ll be going into the business. So you’ve got to remember where you come from. History plays a huge part in this. So the intergenerational stuff, for being in between, as a CEO, you have to understand the family that you’re going to work with.

If your values don’t match, then it’s not going to work. You can’t do it. You have to be able to almost be as one with the family, utilizing your skills to navigate those conversations about family or business because they will get in the way. They will come into the business at one point in time.

Stephanie: I think that it’s going in with your eyes open, isn’t it?

John: Definitely.

Stephanie: If you look in a role like that or you’re in a role like that. And from the family point of view to make things work, it’s transparent conversations.

I can imagine if you’re running your business and you don’t really know what’s going on, well that’s hard for any leader and that happens in all sorts of business contexts, doesn’t it?

John: Sure. There’s a family business I did some work with where a father had come to me and was specifically asking about how do I transition to my two sons and my daughter. One son was working in the business that was created by the grandfather. One son had started a new venture that was funded by the dad. And the daughter was living overseas with a partner. And the dad was trying to make this equal, and I’m suggesting we need to do this fair.

The father had accumulated sufficient of his own wealth that it needed to be discussed. There was a complication because the father had remarried, there was another wife and another child that came into this. So we’re being very clear that it is the father and his three children.

Stephanie: Yeah.

John: However, the father was working in a business that was his grandfather’s and his grandfather was still around and very present. And the grandfather had substantial wealth, but had not disclosed his will and the father, not the grandfather, the father had siblings.

So those three siblings had no idea what was going to come down the pike. And the father is still trying to work out what’s going to come for his three kids and how that’s going to be fair. And we’re working in a little bit of a vacuum to know how do the kids …

Stephanie: How it’s all going to play out.

John:  … get educated about what’s coming for them. And their young children, not young, they’re working age children who are going, ‘Well, what have I got and how much can I afford and what can I buy?’ So we need to put parameters around these generational people. And it’s the same stuff, if you’re working in the corporate world, you’ve got to know what you’re getting.

Stephanie: Of course.

John: So you know, at least I know I’ve got a salary and I can plan for that, and I’m planning my future, and I’m talking to investment advisors, and I’ve got my superannuation. So if you’re in a family business, it’s exactly the same, but there’s all this other stuff that’s out there that we don’t know if we don’t get it talked about.

Stephanie: I love your stories. They’re so interesting. And this is really a complex field, and I can see absolutely the role of an advisor and the value that an independent advisor would bring to this. And what a great thing for all of us to hear from the advisor of the year.

So again, congratulations. And John Broons, thank you so much for your time.

John: Thank you very much. I’ve enjoyed it.

Stephanie: So that’s TEC Live for today. CEOs are in the business of making decisions and leadership is the art of execution. I’m Stephanie Christopher, and look forward to talking to you next time.

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