Family ties: sustaining legacy in family business through clear governance

Consider the case of the McPherson family, who owns and manages a large homebuilding company. Siblings Rachel, Mary, and Ed built the organization from the ground up, ultimately involving three different family units in a somewhat ill-defined and unstructured leadership group. Complicating matters even further, Rachel and Ed were getting ready for retirement.

The founders’ three children, Claire (Mary), Bob (Ed), and Nancy (Rachel), were also involved in the company and had plans to work their way into management positions. Despite lacking leadership experience, Bob was eager to step into his father's shoes as soon as possible.

The original three McPherson siblings were united in their business vision, but the next generation of family members had different concepts about the future. Nancy and Bob wanted to focus on building a tiny home division. Claire remained committed to her father's original vision of single-family homes.

The situation was straining relationships and creating a culture of slow decision-making. One non-family manager quit the company, citing a lack of clear direction and poor morale. The older generation grew concerned at the turn of events. They met with MNP Family Office Advisor Danielle to see if she could assist.

Danielle brought a wealth of practical family business experience to their situation. She suggested a three-pronged approach to governance strategies to address the family's issues.  

Establishing a foundation for effective communication

“Effective communication is the cornerstone of any successful family business,” says Danielle. “It promotes understanding, alignment, and harmonious relationships among family members and employees.”

Danielle quickly realized two things as she asked questions to get to the root of the issues of concern. The senior McPhersons communicated quite well. The cousins were often dismissive and had little interest in one another’s opinions.

While the family often felt like there was little rhyme or reason to their conflict, Danielle recognized several recurring themes related to a lack of professionalism among the younger generation and their inability to separate work and family. She introduced a family business constitution to guide their interactions moving forward.

Defining expectations: creating a code of conduct

As a first order of business, Danielle helped the family develop a code of conduct outlining acceptable and unacceptable behaviours within the family business.

“A code of conduct sets a framework for respectful and effective stakeholder communications that all family members must follow. It doesn’t guarantee that everyone will always like the ideas put forward by one of their peers. Disagreements are normal, even healthy in business. But it does reduce the likelihood that differing opinions will escalate into a full-blown conflict,” says Danielle.

Timely transition and succession planning

Danielle also recommended that the family begin planning immediately for the transition of the family business — noting that Ed and Rachel’s decision to retire had effectively started the process.

While Mary planned to remain a leader for several years, the next generation needed time to learn, adjust, and grow into their new roles, whatever those would be. Their employees also needed time to adjust to the coming changes.

“Any type of transition has the potential to be destabilizing,” says Danielle. “It takes time for management, customers, and suppliers to build relationships with the younger generation. A clearly defined plan lets all stakeholders know what to expect and helps to build confidence and stability.”

Promoting understanding and harmony

Danielle then asked the family how much they knew about the science of personality and the tools available to help them get to know one another better. The McPhersons all thought they knew their various family members well. After all, they'd known each other their entire lives. And they'd worked together for just as long.  But each admitted that it was often difficult to predict what would trigger an argument or why. Every one of them also believed that they were the most misunderstood McPherson in the room.

“Individuals with different personality profiles often have distinct communication styles. They may process information differently or focus on various aspects of work. Some are relationship-oriented; others are task-oriented,” says Danielle.

She encouraged the McPhersons to participate in a DISC assessment, which she could facilitate. These sessions would deepen their understanding of one another and give them practical tools to speak and listen more effectively.

Sure enough, in just a handful of weeks, the family found their interactions became far more diplomatic, collegial, even. With an improved ability to empathize with one another and with themselves, laughter returned to the McPherson household.

Instead of getting angry when someone pointed out a problem or unreasonable behaviour, they could finally step back and recognize why they were responding that way — and why their response might trigger a reaction from their other family members. This allowed them to finally start collaborating instead of working against each other.

"Every family has conflict, but most families don’t have to worry about those conflicts bleeding into their work lives. In most cases, their interactions are leisurely and joyful,” says Danielle.

“It’s often helpful to remind family enterprises that there’s a life outside of business. Making time for fun helps to alleviate tension when times are tough or tempers flare. It can also restore goodwill by reminding everyone that their bonds run far deeper than the business’s strategic or operational goals.”

Building a strong governance structure

Another thing that was missing from the McPherson business was a well-defined governance structure that provided clarity on individual roles or defined the accountabilities of the various stakeholders.

Rachel, Mary, and Ed never saw the need for formal roles and reporting structures. They rarely disagreed and were always happy to chip in wherever needed. This lack of structure didn’t work for Claire, Bob, and Nancy. It stoked resentment about favouritism and accusations that some were pulling more weight than others.

“A clear framework defines the core duties and reporting structures, as well as mechanisms for decision-making, conflict resolution, and succession planning. It is non-negotiable for family and non-family businesses,” says Danielle. “It’s almost impossible to move forward with a common purpose without some kind of governance structure.“

The family agreed that they needed to formalize their roles and internal practices. Danielle recommended several governance-building strategies and best practices that her team could help implement and administer, and they could build on themselves.

Strategic planning and stakeholder involvement

Claire and Nancy’s desire to take the business in a new direction was a major sticking point in the family. Rachel, Mary, and Ed were open to experimenting with a tiny home division, but Bob was convinced it would spread their resources too thin. He also worried it would affect their reputation as a large homebuilder and that they would lose contracts as a result.

Danielle suggested implementing a strategic planning process involving all relevant stakeholders, including non-family senior managers.

“The keyword is process. Strategic plans aren’t unilateral, and they don’t come together through a single brainstorming session. There needs to be an effort to align everyone towards common goals, overcome conflicting objectives, and support collaborative decision-making,” says Danielle.

The leadership team met several times over the following months to discuss the business’s present strengths and weaknesses as well as the risks and opportunities they faced over the next five years.

The sessions opened Bob’s eyes to the benefits of a tiny homes division. At the same time, Nancy and Clair recognized the immediate obstacles to their tiny home division dreams. The rest of the family and managers also had an opportunity to visualize how tiny homes could be an intelligent future innovation.

The role of a management table

Despite their significant (and often vocal) involvement in business decisions, none of the younger McPhersons held genuine management positions. Still, Bob was keen to take over as CEO when Mary retired. Everyone else worried that his eagerness and inexperience could result in expensive mistakes.

Danielle suggested that instead of fast-tracking the cousins into leadership roles, the company should create a management table instead. Here, Claire, Bob, and Nancy could practice decision-making on a limited scale alongside their parents and other non-family company leaders.  

“The benefit of the management table is that it’s a platform which allows for a gradual transfer of responsibilities from one generation to the next. The consequences for the business and the individual are significantly reduced. However, participants can still learn from their successes and failures and the calculus of making sound, real-world decisions,” says Danielle.

Effective management practices

Finally, Danielle looked toward the management structures and practices in the McPherson Homes. The family members largely involved themselves in all areas of the business, with little consistency in their day-to-day tasks. Employees reported they often received conflicting instructions since the cousins joined the company — and that it had, on occasion, caused significant delays for their clients.

“Successful management in a family business requires balancing the interests of family members, employees, and the overall business,” says Danielle. “It requires getting everyone on the same page and an effective division of work.”

Job fit and education

With Mary poised to be the sole remaining founder, Danielle advised that she take on the official title of CEO and assume final decision-making authority for the business. If any family member or employee was unsure what to do, they could go to her for the final word.

Danielle also recommended better-defined roles for the three cousins and steps they could take to perform better in those areas. Since the family decided that Bob would indeed take over when Mary stepped down, that meant appointing him as operations coordinator with a direct line to operations manager and then chief operating officer. He also agreed to take courses to build the finance and management skills that he lacked.

Nancy, on the other hand, agreed to take responsibility for building the new tiny home division, while Claire would be responsible for the design and customization side of that business. A big part of the initiative’s success involved getting the word out about the new offering, so Nancy committed to learning more about marketing and branding. Claire decided that she would take night courses to finish her architecture degree. 

"A first instinct for the older generation is to immediately bring children into the business as managers or in other loosely defined roles. It’s stressful being the owner’s son or daughter, especially when you’re facing pressure to uphold the family legacy. It’s almost always better to start them with a narrow and specific mandate that can expand over time with education and practical experience.” says Danielle.

Transparency and structured processes

With their roles in place, Danielle helped the family formalize transparent rules and processes that spelled out who was responsible for what and who everyone reported to. She also encouraged them to put a second set of rules specific to the family, including a requirement for regular family council meetings.

“When family members are held accountable for their actions, they are more likely to act in the business's best interests. They view the business less like an extension of their home life and more like any other employer — which is precisely what’s required for this kind of arrangement to work.”

Among these rules, the family agreed to keep the lines of communication open and present a united front in their business dealings. They acknowledged that there would still be disagreements and misunderstandings, but they would table those for the closed-door sessions.

Conflict resolution and fairness

The last piece of the puzzle was implementing a dispute resolution process and rules to address conflicts related to succession planning, family matters, and business issues. The family accepted all the recommendations and even went a step further by engaging her as an arbitrator to sit in on disagreements they couldn’t resolve among themselves.

“As a neutral party with relevant expertise and an understanding of the family dynamic, I can offer unbiased opinions in case of disagreements,” says Danielle. “A family office advisor is a good fit for that kind of role because their interest is the success of the entire family unit, and they invest considerable time to earn everyone’s trust beforehand.”

Building for the future

The complexities of a family business such as the McPherson homebuilding business required a deliberate and proactive approach. Fortunately, the processes that Danielle established based on their needs successfully addressed the communication, management, and governance challenges they were experiencing. The family moved forward together, and their business is poised to thrive for generations.

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