The Two Sides of the Business Family: Governance and Strategy Across Generations (Management for Professionals)

This book focuses on a central success factor for family businesses: maintaining the decision-making ability over generations while not jeopardizing the business due to family conflict, inefficient governance structures, or lack of identification. The authors identify that this is not as easy as the endeavor to bring two social systems together with contradicting logic (family and business) leads to many dangerous pitfalls. This book presents outcomes of a unique research project in which family managers of eleven of the oldest and largest German family businesses, at least the fourth generation, met for more than three years on a regular basis and presented the essence of their family governance structures to each other and to the authors. It was a joint "learning journey" that admits identifying twelve core questions that these families had been answering to keep up the relationship between family and business successfully over generations. Obviously, there is no "right" answer to these questions. The key to success is rather engaging the families in a process to find out their own answers and make them aware of the "two sides": being a family is different from being a business family--from Backcover Foreword: Practitioner ́s Perspective 6 Foreword: Researcher ́s Perspective 8 Preliminary Remarks 12 References 16 Acknowledgments 17 Contents 20 Part I: Introduction 24 1: Family Strategy over Generations 25 1.1 Family Strategy in Fact Has Always Been There 26 1.2 The Business Family as an Object of Research 29 1.3 Defining Terms 32 1.3.1 Family Businesses and Business Families 32 1.3.2 Family Business Governance and Family Governance 33 1.3.3 Family Strategy 34 1.3.4 Family Constitution 36 1.3.5 Family Management and Family Compliance 36 1.3.6 Shareholder Competence 37 1.4 Longevity as a Subject of Research 38 1.4.1 Previous WIFU Projects 38 1.4.2 Family Strategy Across the Generations: The FüG Project 40 References 45 Part II: Managed by Neglect: Solutions that Create Problems 50 2: Riding a Ghost Train: ``What Happens If `Nothing ́ Happens? ́ ́ 51 2.1 Yesterday ́s Solutions: Today ́s Problems? 51 2.2 ``Equal Treatment ́ ́: Equality and Fairness Among Siblings and Their Children 52 2.3 Destruction of the ``Fictional Consensus ́ ́: Revelation of Differences and Loss of Face 54 2.4 ``Learning Trap ́ ́: It Had Always Worked Before 57 2.5 ``Change of Paradigm ́ ́: The Transition from an Operationally Active Family to a Shareholder Family 59 2.6 ``The Mindset of Family Branches ́ ́: He Who Sows Equality Risks Reaping Inequality 61 2.7 ``Loss of Purpose ́ ́: A Stock Market Launch and Its Consequences 62 2.8 ``Post-patriarchal Paralysis ́ ́: Nobody Is Allowed to Take Power 64 2.9 ``Shareholder Competence ́ ́: Who Has What It Takes to Work on a Committee? 66 2.10 One of the Most Important Questions: What Happens If ``Nothing ́ ́ Happens? 67 References 68 Part III: The Witten Theory of the Business Family 70 3: Family and Business: The ``Impossible Endeavour ́ ́ 71 3.1 Families and Businesses Don ́t Really Go Together 71 3.2 Three ``Circles ́ ́? 73 3.2.1 Three Circles and Four Intersections 74 3.2.2 An Interpretation Based on Role Theory 75 3.2.3 The Perspective of System Theory: Three Simultaneous Expectational Contexts 75 3.3 Paradox and Paradox Capability 82 3.3.1 Logical and Pragmatic Paradoxes 83 3.3.2 Pragmatic Paradoxes in Family Businesses 85 3.3.3 Paradox-Friendliness, Paradox Tolerance and Paradox Awareness 87 References 88 4: Family and Business Family at the Same Time: The Duplicated Family 91 4.1 The Theory of the Business Family: A Process-Oriented View 91 4.2 Unresolvable: Paradoxes and Oscillations in the Business Family 92 4.3 The Business Family as a ``Duplicated Family ́ ́: A Reversible Figure 94 4.4 A Different Three-Circle Model 96 4.5 The Core Paradox of the Business Family 99 4.6 Family Strategy as a Mission 103 References 104 Part IV: Core Issues of Family Strategy 106 5: Appointment Decisions: A Sense of Belonging and Drawing Limits 107 5.1 The Paradox of Belonging and Selectivity 107 5.2 Affiliation Issues in a Business Family 111 5.2.1 Inclusion/Exclusion as a Critical Distinction 111 5.2.2 Questions of Belonging as Put to the Family and the Business Family 112 5.2.3 Answers Provided by the Family as a Business Family 115 5.3 Structures to Ensure a Sense of Belonging: Contact, Information and Voice 129 5.3.1 Family Meetings and Family Days 130 5.3.2 Relations with Parts of the Family That Do Not or No Longer Belong to the Business Family 131 5.3.3 Specific Groupings in Connection with Family Governance 132 5.3.4 Committees and Bodies 134 5.4 Access to Positions and Committees 138 5.4.1 The Problem 138 5.4.2 Appointments to Operational Positions 139 5.4.3 Access to Committees 141 5.5 Handling the Boundaries of Family Branches 143 References 145 6: Legitimation: Decide Without Deciding! 149 6.1 Fairness: A Core Issue 149 6.2 From Outcome-Based to Process-Based 151 6.3 Avoid the Impression of Arbitrariness 153 6.4 Paradox-Friendly Legitimation Practices 156 6.4.1 Creating a Sense of Obviousness 157 6.4.2 Transforming a Decision into Dialogic Processes 158 6.4.3 Meta-complementarity 160 6.4.4 Externalisation: Family Does Not Decide on Family 161 6.5 Vote by Head Count or by Shares? 162 6.6 Four Generic Legitimation Models 163 References 169 7: Being Aware of Mental Models 171 7.1 Four Ways of Envisaging the Relationship Between Business and Family 171 7.1.1 Patriarchal Logic 174 7.1.2 The Logic of the Operational Business Family 177 7.1.3 The Logic of the Active Owner Family 179 7.1.4 The Logic of the Investor Family (Fig. 7.4) 181 7.1.5 At a Glance 183 7.2 Challenges Involved in Post-patriarchal Structures 184 7.2.1 The Shadow of the Patriarch 185 7.2.2 Inverted Power Struggles 187 7.2.3 The Role of Spouses 189 7.3 Decision-Making Procedures: From Person-Based to Process-Based Orientation 190 7.4 Changing a Mental Model 191 References 194 8: What ́s the Point of It All? Cross-Generational Meaningful Purpose 196 References 200 Part V: Developing a Family Strategy 201 References 202 9: Reinventing the Wheel! The Witten Model of Family Strategy Development 203 9.1 Towards a Family Strategy: Twelve Topic Areas 204 9.1.1 Topic Area 1: Commitment to Family Entrepreneurship 208 9.1.2 Topic Area 2: Definition of Family 210 9.1.3 Topic Area 3: Values and Goals for the Business and Family 214 9.1.4 Topic Area 4: Role and Function of Family Members in the Business 216 9.1.5 Topic Area 5: Role and Function of Family Members as Shareholders 219 9.1.6 Topic Area 6: Family and Business Governance 225 9.1.7 Topic Area 7: Information, Communication and Behaviour 230 9.1.8 Topic Area 8: Crisis Prevention and Conflict Management 234 9.1.9 Topic Area 9: Dividend Policy and Asset Management Strategy 237 9.1.10 Topic Area 10: Existing Family Management System 239 9.1.11 Topic Area 11: Developing Shareholder Competence 242 9.1.12 Topic Area 12: Changing of the Rules and Family Compliance 246 9.2 From a Family Document to a Family Strategy Embraced in Practice 247 9.3 Family Strategy Development According to Mental Models 248 9.3.1 Typical Issues Arising in the Mental Model of Patriarchal Logic 250 9.3.2 Typical Issues Arising in the Mental Model of the Operational Business Family 251 9.3.3 Typical Issues Arising in the Mental Model of an Active Owner Family 253 9.3.4 Typical Issues Arising in the Mental Model of an Investor Family 255 9.4 Family Strategy as an Ongoing Mission 257 References 258