For family-owned businesses, is there a missing link?

There is no shortage of quotes, sayings and expressions regarding success in Jamaica.

Familiar ones include both those for which ownership is claimed and others borrowed. Here’s a sample of a few of them: ‘If you want good, you nose affi run’; ‘The heights by great men reached and kept were not attained by sudden flight, but they, while their companions slept, were toiling upward in the night’; and ‘Hog say di fus water him ketch him walla’.

Many of these expressions mimic several of the factors identified in the literature as critical in the success of FOBs or family-owned businesses across generations. The perplexing thing is the number of FOBs seeking to cheat the process, while expecting to be successful from one generation to the next.

In other words, why are so many FOBs trying to ‘wing it’ but expecting to be successful across generations? Is there a missing link in the process of attaining success across generations?

Success factors identified in the literature across generations of FOBs include succession planning, preparation of successors, legitimacy of the successor relationship between predecessor and successor, technology, innovation, attitude of family members, responsibility of family members, leadership, potential and having a family constitution.

There should be no surprise that many of these factors are on the list successful FOBs in Jamaica. This being the case, why are so many FOBs left sputtering in the first generation, and others in the second generation, with little chance of a smooth transition to the next generation? Maybe there are missing links.

Success factors

A quick poll of a few of the successful FOBs in Jamaica, asking them to list four areas that have contributed to the success of businesses over the years, was revealing. There were common themes of the critical success factors.

By any measure, this list is comparable to the ones found in the literature. However, missing from this list is an explicit exposition of governance structures for FOBs.

Having and implementing governance structures associated with FOBs have proven to enhance the chance of transition from one generation to the next, especially beyond the second generation. There might be another level of success yet to be attained for these successful FOBs. Is there a missing link to attain this?

Here’s a summary of the responses from the referenced poll:

• A commitment to the vision of investing in the education of their children;

• A commitment to doing things well and the right way (no cutting corners);

• No excuse or substitute for consistent hard work (lots and lots of hard work);

• Involving the children in the business at an early age – to know the business;

• Having a solid but flexible business plan;

• Having strong leadership and responsible management (accountability);

• Meeting the needs of clients/customers (without compromising the values of the business);

• Investing in corporate social responsibility (a commitment to give back to society);

• Staying in my lane (remaining focused on the main target);

• Invest in your employees and retain them (low attrition rate);

• Invest in technology and invest in warehouses;

• Structure and governance (ensuring you have a knowledgeable board); and

• Involvement of employees at the “discussion table” (not exclusively for family members).

Governance structures

Coverage of the governance structures has formed part of our discourse on FOBs in this space. However, ongoing conversations with owners of family businesses suggest that these governance structures are not utilised to benefit the businesses. It is also surprising that many owners are not sure of the governance structures of FOBs available them, and thus not regarding having and implementing these as crucial success factors.

Family business governance refers to processes that are put in place to guide decisions related to the family, the business and the interaction between family and business. The type of structure adopted is not a one-size-fits-all because of the non-homogeneity of FOBs.

It is usual to expect that non-family-owned businesses, NFOBs, will have a governance structure that comprise a board of directors and the management team. For some small and medium-sized businesses, this is made up of an advisory board and the management team.

However, FOBs have built-in structures that should help to shield them from the high percentage that fail to transition across generations. Adopting and implementing governance structures that are FOBs-specific is considered an imperative for the success across generations.

Family business governance structures usually serve two constituencies: the family and the business. A well-developed and implemented set of governance structures provides a framework for decisions and effective communication, which is unique to the family and business.

One benefit of having the recommended governance structures is the harmony created and maintained. Adopting and implementing governance structures serves to provide a formal forum for routine matters related to family and business, gain transparency in the strategy, operations and performance of the business, open communication on key issues within and outside the business and broaden the scope for involvement and contribution of owners and family not employed in the business.

These governance structures include having in place a family business constitution, a family assembly, a family council, professionalised family office and ownership council. An exposition on a subset of these formed the subject of a previous article in this space.

Extended exposition might be necessary to further underline the importance of governance structures as a platform for the success of the family business beyond the first and second generations. It is difficult to cheat the process.

FOBs are encouraged to go beyond ‘walla-ing inna di fus water’ and explore other opportunities available in the missing link of FOBs-specific governance structures.

More anon!

Lawrence Nicholson, PhD, is a senior lecturer at the Mona School of Business & Management, University of the West Indies, author of Understanding the Caribbean Enterprise: Insights from MSMEs and Family-Owned Businesses and a director of the RJRGLEANER Communications Group. lawrence.n.08@gmail.com