The family’s human capital is key to business success

A portfolio manager I work with on a regular basis has the credo “pay attention to the risks and the returns will look after themselves”. When we work with business families that credo could be paraphrased “pay attention to the family and the business will look after itself”.

The fact is a family business, with family members working together in some harmony for the common good has a competitive edge and a strength that helps it survive tough times and thrive when times are good.

Looking after the family requires establishing good communication lines, facilitated by formal communication vehicles including shareholder agreements, family charters and family meetings. Not all family members are “in the business” but the business may still be a central part of their lives, and often a cornerstone of their economic well-being. Their need to know how things are going in the business is very important; in return they often can give an objective view of an issue from an “outside” perspective, seeing the forest instead of the trees. This is exactly the kind of role that gives strength to the business’s management, if they have the wisdom to include family members not involved with day-to-day operations through an established communication process.

Family members can be owners but not in management, or be neither an owner or in management, they may still, however, have a stake in the company and its success. They also bring different skill sets, and experience from other organizations and alternative views of economic and social changes that could be critical for family business managers to recognize and incorporate in the company operating and strategic planning.

When a family develops a culture of communication it can take advantage of the human resources, or human capital in the family, that same facility will help establish the transition plans that all families need to go through to successfully transition family wisdom and assets from one generation to the next.