16/06/2015

By Ken McCracken, co-founder and consultant, Withers Consulting Group


The family as an emotional unit identifies who is in and who is out by establishing a boundary that defines who is family; for example are spouses, partners, civil partners, adopted children and people from the same kinship group to be considered as ‘family’ or is this a smaller group defined by a direct blood relationship to a particular ancestor? The question, ‘who is family?’ is asking where is the boundary between the family and non-family/outsiders.

In a family business there are boundaries separating owners, family and business, so people can identify their different roles and responsibilities and then try to balance these. For example, a family member who works in the business and is an owner is constantly trying to balance these different demands.

Thus boundaries help individual stakeholders to get on with their respective lives and roles, as a parent, offspring, sibling, shareholder, director or employee.

When the boundaries and the roles or identities that they help clarify are agreed, a balance of interests is achieved. People know, or at least are clearer as to what is expected of them and what they can expect of each other. Also, some people usually try to police the boundaries by reminding others about where they are set, or reminding them of their different roles:

‘Don’t talk to the children like you are addressing a board meeting’ reminds someone that there is a difference in the roles of director and parent

‘When it comes to discussing your pay increase, remember I’m your boss not your mum’ reminds the negotiating parties that this is a business and not a family discussion.’

‘But when we go for dinner at the weekend let’s enjoy our time together as a family.’

There are broadly two strategies when it comes to setting boundaries; segmentation or integration.

Segmentation

A segmentation strategy refers to attempts to keep different domains separate through the creation and maintenance of inflexible and impermeable boundaries. An example of this is never to discuss family issues in the boardroom or business matters when at home. Other well-known examples of segmentation in the family business literature include:

An employment policy that says everyone will be hired on the basis of talent and that there will be no advantages afforded to family candidates. This boundary segments business decision making from family sentiment.

An ownership policy that clarifies the decision making power of owners particularly so that non-working owners are segmented from – or do not interfere in – the day-to-day running of the business.

The idea of segmentation in family business governance is that clear boundaries set out in formal policies and reinforced by structures like a family council and a board of directors help prevent negative spill over from one domain into another. While many believe that preventing either family emotion affecting the business or business stresses taking their toll on family life contributes to a healthy work-life balance, this approach is not universal.

Integration

The other boundary strategy is integration. This refers to attempts to create more overlap of different domains through the dismantling of boundaries or the maintenance of more flexible and permeable boundaries. Family and business life is in fact often integrated rather than segmented, and for good reasons.

The outstanding example involves integrating family values into the business. This is often cited as a competitive advantage for family businesses over other types of business and rarely is a case made for keeping family and business values totally segmented. A shared values system, it is argued, contributes to both family cohesion and the firm’s sustainability.

A family that prefers integration to segmentation would likely be in favour of the following:

• An employment policy that favours family members because they can be trusted implicitly and will be more committed to the long-term good of their own business than outsiders.

• Ownership policies that encourage owners to work in the business, as this may reduce the challenges that sometimes arise when the owners and managers are different people.

When setting boundaries it is important that families are aware that they have a choice; where and when do they either segment or integrate the family and the business? One approach is not better than the other, although supporters of each are likely to feel this because they are prone to compare the advantages of their view with the disadvantages of the alternative.

But in the real world of natural family business governance, whether a strategy of segmentation or integration – or a little bit of each – is followed, it is in the nature of many families to set boundaries randomly, or instinctively, without much discussion about the pros and cons. Families tend to do what feels right.

However, a consequence of setting boundaries informally is that individuals find it easier to reshape or even ignore them when it suits them; for example ignoring the rule that we do not discuss business over dinner or family issues in the boardroom “because there is something I really must mention.”

This type of behaviour may be tolerated. Another example of this would be a family who decided to “overlook” their policy on employing family members (one that segmented family and business as mentioned earlier) because, “it seemed the right thing to do in the circumstances.”

However, this randomness in setting, ignoring and resetting boundaries is likely, at some time, to make life difficult and may lead to conflict. Raising a family matter in the boardroom or talking business over dinner may not be tolerated by everyone and may trigger disagreement of the type that somehow descends into conflict.