Note from the Author:
When I coach my son’s basketball team, I make sure the team understands that as the playbook evolves, the fundamentals of rebounding, shooting, and passing must stay the same. Just like in sports, family businesses must maintain the fundamentals of strong communication, clear boundaries and structured decision-making to successfully navigate the ever-changing landscape of family business.
Interview with Rob Lachenauer and Omar RommanAccording to Rob Lachenauer and Omar Romman, establishing boundaries is a delicate, multigenerational balancing act, but one that strengthens a business by preparing it for the future. Subsequent generations need boundaries to ensure the family business’s sustainability. Boundaries prevent confusion, define responsibilities and create an environment where reinvention is possible. For the founding generations, however, structure can be daunting. Their success is often a product of their complete involvement and lack of boundaries, but the efficacy of this model lessens over time and with growth. Finding a balance means communicating a clear vision of the future without losing sight of the past and using boundaries to get there. We sat down with Rob Lachenauer and Omar Romman to learn more.
How are boundaries and expectations related?Rob: Boundaries can help us deal with expectations. When setting boundaries, families should consider where expectations come from and whether those expectations align with their expectations of themselves. One of our clients, the 60-year-old CEO of a successful family business, was a trained physicist. His conversation with us was emotional because he felt that he had wasted his life. Despite being a successful CEO, his passion was physics. Decades before, he was forced into the business by his father. In the end, his success was measured on his father’s terms, not his own. Many family members come in subject to somebody else’s expectations. Omar: Dealing with incongruencies like these is part of generational succession – it’s the critical juncture when boundaries become paramount. Typically, the absence of boundaries is a factor in the founding generations’ success. The lack of bureaucracy in decision- making – complete trust in the founder’s instincts – is often a defining feature of a successful first-generation business. Imposing boundaries, even in the name of business continuity, can be discomforting to a founder, hence the need for a strategic conversation.
How can families start the boundaries conversation?Omar: It can be a daunting task, which is why we like to start by talking about the future. It helps if leadership is able to envision the business in 10-20 years when they are no longer in control. This perspective enables the creation of structures that will ensure its sustainability when they are gone. Rob: Founders start a business free from obstruction. We often call that environment ‘the loft’ – a big room with no boundaries. When businesses are new, conversations and decisions typically happen in an ad hoc manner – family members might make business decisions at the dinner table and plan their family vacations at the office. There are no real boundaries. The other system that we see is what we call ‘the four rooms’. In essence, family members create effective boundaries around different roles and responsibilities in the family and the business. There are four distinct areas that need boundaries in our four-room model: the business room, the board room, the owner room and the family room. Each of these rooms has distinct roles and leadership. More importantly, everyone knows what decisions are made in each room and who is allowed to be in that room to make those decisions. Instead of building walls between themselves, family members work together to create boundaries between their many different lives. In an effective four- room model, for example, the discussion about opening up new offices doesn’t happen around the dinner table. Instead, it happens with the appropriate people at the appropriate time, most likely at the office with the management team. We see some version of the four-room system with successful multigenerational family businesses.
Do some boundaries come naturally?Rob: Sometimes – for example, later generations often aren’t as involved in the operational side of the business as their predecessors were. Not everyone possesses an entrepreneurial spirit, but that doesn’t preclude them from being excellent owners. These family members are sometimes defined as stewards of the family business. They have a more hands-off approach but play a vital role in maintaining the family business’s value system. That said, when it comes to the first and second generations, entrepreneurship is essential for success. Founders and their progeny must be hungry for the deal and passionate about the minutiae of their business. However, boundaries usually form over subsequent generations, and the structure of the business changes naturally. Omar: I’ll add that reinvention, which is not unrelated to entrepreneurship, plays a significant role regardless of the generation. Successful multigenerational businesses often look nothing like they did when they were founded, which is evidence of the necessity for change. Boundaries are critical when it comes to creating an environment for reinvention. When there are too many people involved in the process, it’s difficult to take the bold actions required to abandon one business model or pursue another. Creating boundaries that allow decision-makers to make the requisite changes with minimal interference strengthens the long-term prospects of the business.
How can family businesses avoid conflict when establishing these boundaries?Rob: Decision rights are a volatile issue. First- and second-generation owners hold the decision rights for nearly everything business-related. In healthy multigenerational systems, families let go of some of this control, especially where governance is concerned. Sometimes, family businesses are better off with external CEOs or board members. Negotiating this step, especially for the founding generation, can be unsettling. Omar: The fear that boundaries will result in the loss of something important is often at the root of any resistance to implementing structure. We worked with a family where the wife of the founder had no formal position but walked the halls of the business daily. It intimidated the employees and affected their performance. To keep a healthy distance, we recommended that she be appointed to the board and spend less time at the office. She maintained authority and influence but no longer disrupted the day-to-day. In the end, what felt like an overt threat to her authority turned out to be a necessary boundary, and she didn’t end up losing anything in the process.
What leadership qualities work when attempting to establish these boundaries?Omar: For the next generation, enthusiasm for positive change should be always be tempered with humility, deference and respect. Next-gens may have exceptional ideas for the company, but to enact change, they need to tread lightly. Their approach must show balance between the company’s origins and the implementation of new approaches. Doing so will allow them to maintain the respect of the previous generation and long-time employees, which is critical when it comes to implementing new ideas. Rob: One of the ways we classify leadership skills is by identifying leaders either as conquerors or rulers. The first generation are conquerors. They are aggressive and ambitious, which doesn’t necessarily work in later generations. Instead, the family business may need a ruler who understands the politics of the business and appreciates the sensitivity required for working together with other family members. Moreover, rulers have tact, which is a vital part of building the alliances needed to sustain the business.
How can family business members assess whether or not additional boundaries are needed?Omar: Creating boundaries is a continuous process, but the transition to the next generation is often a touchpoint for reconsideration. When deciding where boundaries are needed, a frank conversation must take place, and it can help if that conversation is framed in the future. The most significant concern is in identifying how the business will move forward after the current generation has left. Framing it that way will show next-gen concern without imposing pressure or threatening incumbent family members. Many families don’t engage in these conversations because of a fear of conflict. While we don’t believe in stoking conflict, avoiding it completely often means that a family is not addressing important issues. The goal of many family businesses is to maintain harmony at all costs, which we urge against. Having a healthy amount of conflict among family owners is normal in a successful business.
Are there any boundaries that should exist regardless?Rob: Absolutely – family businesses need some boundaries no matter what, and the first is financial. The next generation cannot simply subsist off of an allowance from the previous generation. Family members should have financial independence, such as external investments. The other simple but critical boundary is language, which is important for maintaining order and respect in the business. For example, family members referring to the CEO as ‘dad’ during meetings is a problem. Delineating between language used in business and language used in family prevents confusion and helps to keep roles defined; it’s a useful starting point to work from when it comes to building strength into the family business.
First Published in Tharawat Magazine.
Summary: In this interview with Tharawat Magazine, Banyan’s Rob Lachenauerand Omar Rommandiscuss the benefits of defining clear boundaries in the family business to prevent harmful conflict and to aide in a successful generational transfer. Although these conversations can seem daunting, they are essential to a thriving family business.