The Joys and Sorrows of Family Businesses

A family business is generally considered to be a company that is owned and operated by a single family. The size of the company is not a factor. A family business could mean a small village shop just as much as a large, industrial holding company with international reach.

Family businesses have specific attributes. Its members are hard-pressed to not discuss business matters or at least not see a member of their family also as a boss or colleague from work during family lunches, birthday parties, and other such events. With family businesses, therefore, emotions characteristic of family relationships necessarily find their way into the corporate environment, regardless of the fact that they seldom belong there.

This means that resolving internal matters in family businesses is significantly more challenging than in “standard” companies. We had the opportunity to talk about the typical management hurdles these companies face at the conference, “Family Business Governance: Communication and Decision-Making in Family Businesses,” which took place at the Faculty of Business Administration, University of Economics, Prague.

For instance, we discussed the question of process standardisation. Functional standardisation is a tool for increasing work effectiveness and quality. It facilitates planning and is a fundamental prerequisite for process portability. Successful standardisation is a challenging project for any company, let alone a family business. It requires not just formulation, but—more importantly—implementation into company operations as well. And implementation in a family business is hindered by the factor of family ties, in which a directive to change work procedures is sometimes simply not enough. So what then? We have seen that there is no quick and easy solution in this area; on the contrary, the solution is based on a proper and gradual piecing together of individual fragments— no matter how much these individual fragments may seem inconsequential or bureaucratic (ex. the requirement to obtain written confirmation of an offer in cases when Mr CEO and Mr Factory Owner are, after all, long-time acquaintances).

Intergenerational transitions

A current topic among Czech family businesses is the transition of the company to the next generation. This transition is often linked to uncomfortable questions, such as to which child the company and its management should be transferred or whether it would be better to divide the company. It is often also impossible to avoid realisations such as the fact the certain offspring do not have the requisite personality traits for managing a company and others don’t even want to talk about the family business and would rather make their own way in the world.

Preparing a family business to be transferred to the next generation and its subsequent implementation is, therefore, a long-term, highly technical matter, both legally and financially. And failure in this department often causes irreparable rifts in the family or the downfall of the family business.

How can we help transition our company? The following are a few observations from our experience as a law office:

• do not put off the decision that the transfer of the company requires my attention and decisions;
• define what I want and what is actually possible. I’m building the current or future structure and mechanisms, I’m handing over the company, tasks, or competencies, I’m diving the company, selling it, or endowing it, I’m leaving, etc.
• I’m looking for a practicable solution. Collaborating with expert advisers helps to correctly identify the goal and propose a suitable combination of tools.
• I’m realising and reflecting on my own emotions and those of my family. How difficult this is, even for an experienced yogi.