How to best manage family members

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With many family feuds in the GCC, many family business groups have started to take corporate governance much more seriously today than ever before. Yes, they are still reluctant to give up male domination and power, through resistance to reforms for gender parity.

There are plenty of silver liners, however, and some of the reputable groups have brought in outside directors and CEOs to run the business. Many family businesses have started to invite potential board successors to attend board meetings as observers or guests to assess their abilities to work with the family business culture.

If the promoter’s child is not fit to become CEO, will he or she be interested in continuing to create more value? Is the promoter going to retire and disappear? Making this transition is difficult, but it’s the right thing to do, especially when the family is large with many ambitious members.

Family businesses have always offered endless possibilities for drama and strife, from Shakespeare’s King Lear to telenovelas. However, those who own and manage family businesses know that problems arise less often from such glaring power battles than from persistent and unresolved long-term problems.

A popular place for these quarrels is the form of the board of directors of the family business. Enough has been written about forming a good board of directors for the family business, developing family governance skills, finding outside freelancers, etc. Less discussed, but a common sore point, is traffic out of the boardroom – when, why, and under what conditions do family members leave the board? One of the problems we see is that it is difficult to impose term limits on the boards of directors of family businesses. It is a challenge to get the grandparents to leave the council. Generation rotation is often a concern. The parent generation just doesn’t want to quit the board. The downsides can be subtle, but obvious: uncertainty, presumption of eligibility, and a growing generation frustrated at not being able to sit at the “adult table”.

The board’s formal and written policies and procedures benefit any business and are valuable to the family mandate. As part of improving the internal management of the board regarding meetings, agendas, news, etc., add the issue of board election procedures. Mandates and appointment rules are often vague in family businesses. The promoters may assume that they can stay on board until their funeral for the valid reason that there are no suitable conditions for the election of the board of directors. Push to spell them in a structure that anyone can accept.

Once the rules for sitting on the family business board are formalized, the second step is to discuss the sunset rules. A firm limit on a specific number of terms can be more difficult to sell than simply requiring members to step down after a few years, with the option to re-nominate later. Even more controversial is the age limits on the board. A survey by boards of directors of US family businesses found that less than 10 percent impose a tough retirement age.

A better approach might be this: build retirement into a solid succession and talent management plan, gently asking members when they plan to retire so that the necessary skills and generations can prepare to join. Get them to think about the topic.

Other approaches could be the status of “director emeritus” or “ambassador”. Ask members over a certain age to form a Distinguished Advisory Board for the company or serve as a representative to customers or employees. The latter can actually work well – major clients may appreciate having a retired promoter as a liaison with the business.

Getting promoters to step down is not easy, and forcing anyone out of power has never worked in politics either. There are a few good groups that have done a great job of managing the transition. They were able to align family values ​​with the challenges of growth for the company. Disputes within different factions of the family are handled differently from the business. Not being able to pass the MD over to a son or daughter is a painful situation for a promoter, but it must be accomplished for a larger purpose if professional management is more desirable for the business.

There are a few steps family planks can take for long term success:

· Implement democratic principles. Decision-making could be made more participatory and board appointments could be based on democratic principles in order to eliminate nepotism and discrimination.
· Provide clarity on management and leadership: Who will succeed the promoter after death / retirement should be planned well in advance to avoid confusion and fuss.
· Draw a line between business and family: Communicate clearly to board members about roles and responsibilities as a business manager and family member. Any decision related to the family should be made by the head of the household while decisions related to the business should be left to the CEO / MD.

Ralph is a Global Board Advisor, Author and Editor while Dr Muneer is Co-Founder and Chief Evangelist of the nonprofit Medici Institute.


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