Collective Responsibility in a Family Owned Business

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Communication is the most important currency for Family Owned Businesses(FOB). In families where this is done right, entrepreneurship can last for generations and leave a lasting legacy behind. Communication is not only about showing leadership and making inspiring speeches. A part of it also involves telling somebody things they wouldn’t like to hear or listening to some member without bias/judgement as we are all ONE at the end.

Joint family business issues involve dealing with touchy and tricky things. Who should take responsibility for talking about it? Why me, always? How do I say it? The resultant fights and emotions could lead to distrust and breakdown in relationships. It’s actually a funny situation- everyone is right and sees a slightly different version of the truth. And here arises the need for the wise leader who addresses each person’s views and concerns, guiding them towards a common agenda. Normally, an impartial senior or a seasoned trusted professional is able to do it well- they retain objectivity with compassion. This paves the way for future clarity and action on other delicate matters. The leadership is tested on how people eventually collaborate and contribute towards the success.

Let’s look at a real-life example of this.

A pan Indian FOB had multiple business units. It was festival time and 5 divisions in different parts were not doing well, each headed by a cousin and a professional manager. Let’s call them Cousin 1, Cousin 2 and so on. There was a Festival Bonus due in 2 regions. The bonus was to be paid and all of them had their company cars due for change. Independently, 2 cousins took unsecured loans; one used it to pay the bonus and the other for buying the car. When borrowing money from the market or banks, FOB members borrow on the strength of the group. The professional manager for Cousin 1 raised an issue and got HQ to send funds for the bonus. He convinced a supplier to arrange for a new car for which the company would pay soon. The professional manager for Cousin 2 requested for funds but did nothing more to get them. According to him, he had done his best and the rest was up to fate. A loan default immediately reaches the marketplace negatively affect the business and the family.

Union leaders complained that it was not fair that others were being paid a bonus while their boss said “No money and hence no payment for bonus.” Cousin 3’s division was doing well and he got his car changed and budgeted for the upcoming bonus. He refused to transfer any funds from his division saying that there was no surplus. He also went ahead and sponsored an event in aid of charity, just to fan his ego. In one such event, a banker questioned the family patriarch. He said, “Sir, you talk of trust and legacy. However, one of your divisions is not able to pay off even interest on time to a friend of mine who gave a loan on the family name.” Tempers flew in response to the correct yet embarrassing statement.

The issue was immediately taken up. It was found that the division was not doing well and one cousin’s car was due for a change (as per family norms) and his cousins had already got theirs. Cousin 2 had once pointed out that his car was due for change to the CFO. The CFO had himself deferred his car change as funds were tight. Cousin 1 also requested the CFO for funds but was simultaneously trying to arrange for funds from other sources. The head was very happy with what the Cousin 1 had done, as he had averted any labour unrest and upheld the family values in terms of caring for its employees. He was instantly rewarded and recognised. As an acknowledgment, his new car was immediately bought. The other cousin arranged for a loan in his division and took his car. To remedy this, an immediate payment was made from another source.

Soon after that, new rules were set in place. Before anyone takes a loan for any purpose, they must inform the company head office and ensure repayment or proper communication for the delay. The company HO has the veto right against taking a loan if there are valid reasons not to. The CFO must be informed at least 90 days in advance if there was going to be a backlog in timely payment. No loans could be taken for anything other than the business and no default would be tolerated. The entire amount with an extra rate of interest would be charged to being charged to the individual’s personal account.

The erring cousin was told to never repeat this. The commitment as a family member is critical to build mutual trust and cooperation. Everyone was reminded of their code of conduct and warned to never indulge in such practices with suppliers or anyone in the market. The group CFO was hailed as an example of a trusted leader who knew how to give up his interest for the larger good of the family.

All of this was done to keep the family’s flag flying high for its trust, word and commitment. It is each member’s responsibility and each one needs to fulfil it. It seems very logical that there should be a code of conduct that all FOB members (owners/ professionals) have to follow, but this is rarely implemented as a practice. Most FOB leaders always have funds to fulfil their lifestyle desires in good and bad times. Someone has to take responsibility to point out what’s wrong. There needs to be an outside objective view, a buy-in must be created and rules must be laid down in writing. An overall policy must be followed at the company level.

But how do you do this? When it actually comes to the action stage, how should one proceed? The important thing to remember is that a FOB is a close-knit collective unit made up of individuals. Carl Jung calls this the collective unconscious; wherein thoughts, views and meanings are unconsciously derived from archetypes common to all members of a group, and in this case, the family. In such a scenario, where these familial archetypes have such a strong bearing on the business, a conflict-free, wholesome and enriching environment becomes a must for its smooth, successful operation. Conflicts can be kept at bay by fostering an environment of fairness and transparency, where healthy discussions are encouraged, freedom of speech is practised and each is entitled to their opinion while respecting those of others. Constant communication, transparency and changing with time are key to continuity for generations in a FOB.

Some points which help in communication:

  1. Establish a family constitution with broad guidelines to be followed and create a steering board/council. A few independent board members whose role is to be objective in an unbiased manner should be included.
  2. Do’s and don’ts can be written down. Clear communication is important in this regard.
  3. Family dynamics at home/issue’s / fights etc. should be kept away from office and business meetings. In the office, ensure discipline and compliance to this rule. The focus should be purely business related. Openly communicate on current and future red / green flags.
  4. Family name and its reputation is the joint responsibility of each one. The Leader should take action against the wrongdoing instead of the person. They must have a firm hand on the situation along with the right amount of compassion.
  5. Allow freedom & independence to empower responsibly.
  6. The desired state is “Self-Regulation”. Conflict resolution and its ease come later.