3 Things Every Family Owned Business Should Do
When you envision a family owned business, an image of a friendly little local store run by a small family comes to mind. But that isn’t always the case. Some of the best known and largest companies in the world like BMW and Walmart are still largely managed by members of the founding family. Family-owned businesses are more common than you think.
When a family depends on a business for its income, their drive and motivation is collectively high. They all have the same goals and are better able to manage the family owned business as the leadership team knows each other and can work often well together in stressful situations, at the beginning. But with time as the family grows and the number of involved shareholders increases, conflict is quite likely to occur.
Eu Yan Sang is a family owned business based in Singapore which specializes in traditional Chinese medicine. Over a century, the company has passed hands, down through generations of the Eu family having its ups and downs along the way in tune with family conflicts.
In an interview with Richard Eu, CEO of Eu Yan Sang, shares 3 principles which drives the family-owned company towards it success and stability.
Aligning the decisions of family members with the family owned business strategy
Finding balance between being a family and a company can be difficult when the two are so intertwined. But when it comes to business decisions, then the focus should be on what’s best for the company. Family members have great weightage in the decision making process, being major shareholders and members of the board, and so they need to align their decisions with the company’s strategy and direction for business success.
Listing the business as a public company can be beneficial. It gives you a credible profile making it easy to raise capital. You also get very strong support from the local government because they know everything about you and operations become transparent. A major hindrance however is that because of corporate governance, processing decisions can take more time. A public company is also subject to scrutiny by state and national rules and legislations.
Beware of potential conflict between generations in a family owned business
Elders of the family expect and encourage their children to follow in their footsteps and take over the company in the future. However, involving more than one family member in executive positions can be a cause for conflict, and nobody wants their family breaking apart, leaving some families wary of pushing all their children towards a career in the business. Yet the level of conflict within the same generation is much less than those between generations.
Older generations are resistant to change, new ideas and the style of thinking brought in with the new generation. The older generation should trust their successors and gradually relinquish control. Entire families are now involved in the running of the company with more women now on boards than 20-30 years ago. Before women board members were rare, but now companies value the input they give from their perspective to deal with female customers and staff members.
Plan ahead for the kind of skills needed by the next generation for a family owned business
Succession planning by public companies not owned by families extend to only two to three years ahead in the future. Family owned business however are constantly thinking in the long-term. How would this decision affect the next generation 20 years later? This is something constantly asked by Richard Eu when taking major business decisions for his company.
They need to look at the best ways to educate the next generation to enable them to take on a leadership role. It’s a long process which requires thinking 20 years ahead on what kind of skills will they need then. Not everybody is able to nor wants to be in the family business. If the skills are available in the family, then they will prefer to utilize them before hiring an external employee. It’s a continuous process which spans many years and generations.
The family has a lot of input in the philosophy which defines the company. Non-family businesses often only think about themselves and immediate solutions when stuck on a crossroad, instead of what should be happening in the longer term. Family owned companies keep on thinking of ways on how the company will survive on in the next generation. They plan ahead for the kind of skills the next generation will need to keep the family involved in developing the company. They also place high emphasis on installing key values important to the company in their children and teach them all they’ve learned while they can.