Family businesses have a unique challenge:  not only do they have to deal with the complexity of managing the business and interacting with the external environment, they have to address the inter-personal challenges that exist in family relationships.  In order to effectively formulate and execute on a strategic plan, these issues cannot be addressed in isolation, rather some must be addressed simultaneously, and others must be addresses before strategic planning can begin in earnest.

Common Family Issues to be Addressed

 

Ownership

  - Who can own equity?

  - Will the company pay dividends?  Will it be fixed or variable?

  - Who will have voting rights?

 

Corporate Governance

  - What is the process for selecting Board members?

  - Who can be a Board member?

  - How many, if any, outside Board members?

 

Compensation

  - Will there be a Compensation Committee?

  - If yes, who will sit on the Compensation Committee?

  - If not, how will the "fairness" of compensation be determined?

  - What will be the procedure for family and non-family compensation grievances?

 

Succession Planning

  - Will there be a structured, formal succession plan?

  - If yes, how will such a plan be formulated and who will be involved?

  - If not, how will the members of the next generation of leaders be selected and trained?

  - Will the timing of leadership transition be formally set and adhered to?

  - Will there be a mentoring program for the next generation of leaders?

 

Family Career Planning and Human Resource Issues

  - Will all family members be required to work in the business?

  - If not, how will it be determined who can and cannot work in the business?

  - Will family members be required to get outside experience before joining the business?

  - What if a family member does not perform up to expectations?

  - Is it understood that performance will be the main determinant of upward mobility in the business?

  - Will spouses of family members be allowed to work in the business?

 

The above family issues and a host of others must be discussed and addressed against the backdrop of the engine of family wealth creation:  the business itself.  The family business has reached its current point based on the decisions of the founders and current and previous managers.  It is in essence, a living organism that has a current condition and likely a current path.  The current condition may be very healthy, or not, and the current path may be a good one, or it may need to change.  Regardless, given ever-changing market and macroeconomic conditions, it is prudent for the family to be proactive in its planning, rather than permitting external conditions to take the company where they may.

This leads to the traditional concept of strategic planning, one that in a non-family business has the luxury of proceeding without the added complication of family relationship realities and challenges.  In a family business setting, however, the result of the processes put in place to address the above-mentioned Family Issues to be Addressed, has a profound effect on the company's ability to be proactive, formulate a strategic plan, and execute it in the most efficient manner possible.  For this reason, in the ideal world, the answer to the majority of the issues mentioned above would be determined prior to undertaking formalized strategic planning.  Since the ideal world does not exist though, typically strategic planning must be conducted without all family issues completely resolved.

Strategic Planning Basics

 

A strategic plan cannot be formulated in a vacuum.  That is to say that the family business cannot sit down in a room, absent of a knowledge of the strengths of the company and the realities of the market, and put together a plan that is likely to be successful.  Such plans are generated frequently, but rarely result a plan that serves a useful purpose.

 

In order to create the highest probability for success, a strategic plan must have at least four critical characteristics:

  1.)  A careful consideration of the realities of the external market: current and prospective customers' needs and wants, competitors' strengths and weakness, macroeconomic trends, etc.;

  2.)  A careful consideration of the strengths and weaknesses of the company, along all relevant dimensions, including: marketing, organizational, financial, etc.;

  3.)  A participative planning approach that yields a plan in which those who must execute it believe;

  4.)  An accompanying tactical plan that assigns resources, deadlines, responsibilities and accountability to those who will execute it.

 

Strategic Planning