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Anita Brightley-Hodges shares top tips on governance in a family business with Lynn Hart

Lynn
Welcome to the Female Entrepreneur Show with me, Lynn Hart, here on KWIB Radio. Today I’m  delighted to be joined here again by Anita Brightley-Hodges, from the Family Business Place. They are the leading specialists in family business advising in the UK and Ireland. Welcome Anita!

Anita
It’s lovely to be on the show again, Lynn. 

Lynn
It’s super to see you and thank you for coming. Today we’re going to be talking about governance, defining the roles and responsibilities of family members, adopting written policies and rules covering critical areas and establishing organised procedures and a framework for dialogue, policy making, planning and the management of differences. Anita – what is family governance?

Anita
Gosh, it’s a big word isn’t it! So, let’s say family governance is really about ensuring that the family has a road map for its continued success as a business and also for the family. A family business model is different from a non-family business from the get-go. So, if you think about the family business model, we call it the ‘three circle model’. Ownership, family and business. If you can imagine where they overlap, that means that within any of those areas within that diagram, there are different expectations and there are different values. There are different agendas and there are the differences.

You could be an owner and work in the family business but you might not be a family member. You can be a family member and work in the business but you might not be an owner. You might be a family member that works in the business, and is an owner – so in all three.  Depending on where you are, means that you see life through that particular lens. So governance is really important to make sure that all those areas are covered so everyone’s point of view is covered. I guess another word for governance would be to say policies. What are the policies? And I call them the ‘guiding principles’. What is the rule book? What is the policy around hiring and firing family members? What are the policies around shareholders and roles and responsibilities and how shareholders will pass shares on? What is the policy around succession and bloodline/non-bloodline? What are the policies around philanthropy? How are we going to gift or dispose of our wealth? What are the policies around non-family members being involved in the business, if at all? Are there particular stipulations that say ‘you can do this, but you can’t do that’? Is it all embracing? Some family businesses will say that if you work in that family, and you are not a family member, but you are my right arm and have been with me since I started the business, then they may well become a shareholder. They are family. It could be that you are a family member that has nothing to do with family but could be a shareholder. There are policies around your obligations and what you can bring to the party and your expectations which gets over this whole notion of entitlement, which is the killer really.

Lynn
Really. Is that your experience then. 

Anita
Yes – feeling entitled and not having worked for it. It kills anything. 

Lynn
And how do you deal with that Anita? Have you had that in your experience?

Anita
Oh yes! It has to be addressed. So when I’m working with family businesses, I usually take a view that it’s the first step to bring the family together for a discovery workshop. Are the family open minded enough? Do I think they could cope with, enjoy and benefit from a one day discovery workshop – if so, then I’ll take them. If I felt that there was a lot of toxicity in that family, then I might feel that actually, the best policy here is to do my 1:1 interviews that are confidential and private so I can get a feel for it. There are different approaches really and it just depends how difficult the situation is that I find myself in. It is important to be sensitive to whatever that situation is.

My role is really to bring success and harmony to that entity. If that’s the case and there is a lot of feeling of entitlement, then I could do both but the thing about entitlement is that one has to understand history and legacy. Entitlement only happens because you don’t understand. You have no idea where your wealth came from, where your success came from. You have no idea of the sacrifice and the journey, the context. I think it’s about education. So education is really important to avoid this idea of entitlement. At the same time, if we are not getting through, then it’s really the gift of the parents to say ‘do you know what, go and do it somewhere else first. If you feel that you’d really like to come and you feel you can help add something and build a success’. Some family businesses, the next generation in their constitution have to work somewhere else first for say, a year, two years or five, then you can come back. I think that’s what governance is about. It’s about saying ‘this is the policy for xx so that if this happens, this is what we do’. This is the consequence and this is the action we have to do.

Lynn
So family governance does have a very important role to play?

Anita
Absolutely. It’s just like if you had a bank account with say, Lloyds, and you know that can go overdrawn – but you pay. You know that can’t go overdrawn and not pay. There is a particular security mechanism around your account so that it is safe. You know that you can have a 1:1 with someone for mentorship or help. I think you can compare governance in any type of organisation. It’s really what I call the ‘guiding principles’ to help run the business. 

Lynn
So you work with a family business to set these guiding principles from day one?

Anita
Yes

Lynn
And then are they laid out in a document that they agree and sign?

Anita
Yes – but the journey could be one to ten years. So a family business I’ve been working with recently, is in year 5 now. 

Lynn
Wow, and you’ve not done it yet?!

Anita
We’re just at the signing of the actual charter. It was very complicated and it was geographically challenging as well. It takes time, little things happen and situations change – sometimes they get better and sometimes they get worse! Things are then exacerbated as someone might have died or the business is finding things difficult. It could be an illness or something like that or an argument in the family – you just don’t know what might happen. It could be something as simple as an A4 sheet of paper, kept on your email or something beautifully presented. It’s almost like the coat of arms for that family, depending on what the expectation is and how they feel about  their heritage, really.

Lynn
So what effect does a good governance structure do to help good communication and the running of a good family business?

Anita
It’s a document that can be referred to and it also has in it fundamentals things like why we are in business together. What is our purpose? What our are values and those are the really important things because we have to sign up for those. Then that will affect our decision making about everything else.

Lynn
Yes, of course it does as you can then more forward with everything else once you have got that agreement. So this will help members of family business embrace hopefully the process and results going forward. In your experience, what’s and example of a health family business?

Anita
A really good family business is if I walk into a family business and it just feels like fun and energy. Those tend to be those where the owners walk the floor; where the owners are seen; where the owners are available for a chat and where the owners are available to talk to members of their workforce about their families or what is going on in their lives. Getting to know them and making them feel valued. You can feel that and you know when you walk into a family business.

I remember the first time I went into Cook Foods with a friend, I thought this has got to be a family business – the products were gorgeous, the people were friendly and they knew their stuff. You don’t get that in a chain, you don’t. If it is a family business where the cooking is done and the recipes have come from the family… It’s the same with a brewery. Very often, where there are makers, you get that because it’s all about the pleasure – the pleasure of making. The pleasure of making a pair of shoes, the pleasure of making a wonderful house, the pleasure of sorting out that beautiful kitchen.

If you are a family business, no detail is left unattended is it? But you can feel it. You walk into a business and feel ‘I want to be part of this’ – it feels like a family and doesn’t feel like work.

Lynn
You can tell as soon as you walk in the door?

Anita
Totally. And those that say “we’re a family business” and you walk in and think ‘actually, this is such a crumby place that you’re asking these 60 people to work in, no wonder it’s not working’.

Lynn
So do they tend to call you in when they have a problem then, Anita?

Anita
Very often it is a fire sale, yes! It might be “he’s going to kill her, if you don’t come now!” or “I’m really worried – I’m getting to my 60s and I want to move on but I haven’t got it sorted with my family yet.” It might be that “I want to move on but my children are too young”. “I want to move on but I don’t want to worry about the experience I’ve had with my family so want to explore other exit opportunities”. Maybe to become employee-owned or to merge… maybe for fast growth with a private equity company that can bring their own expertise and management skills to take it to the next level. 

In the old days, you’d automatically think of a trade sale – usually to a competitor. Now I say to family businesses ‘no – let’s look at some other options now’. We then go through all the other options. Even valuing a business is not the same as it’s always been. An accountant might be asked to value a business and might come up with three times net profit which is what you can expect to sell from it.

You might have a different concept like BCMS who might value it at its potential. We will trawl the globe that can see value in it. It might not be that because you might make a certain thing. It might be because we can get a footprint in. It might not be because you make the same widgets but that you have machinery that might make what we want.

It might be that you have business that might be another revenue stream for us to build on if we are on the acquisition trail. It won’t always be around a profitable business – it could just be a business that needs someone to come in and sort it out. Better management, better financial arrangements but they will buy it because of its potential. Its potential has great feeling and a great business but it’s not necessarily got the experience and wherewithal on the financial side, for example.

Lynn
It sounds to be me like you are doing an amazing job Anita, well done! Thank you very much for your time here today, Anita. It’s been a real pleasure to meet you again and if anyone wants to get in touch with Anita?

Anita
It’s Anita@familybusinessplace.com

Lynn
Lovely, thank you very much indeed. It’s been super to talk to you and I’ve really enjoyed our chat today. That’s all we’ve got time for today on the Female Entrepreneurs Show on KWIB. Please join me next time.

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