Family businesses: going beyond the limits

On 6 February 2024, the Board Leadership Center welcomed Dr. Raphaëlle Mattart, Lecturer on Family Business Matters at HEC Liège and Academic Advisor for Family Business stakeholders, for a keynote address on her research^[1], followed by a panel discussion with Luc Bertrand, Chairman of the Board at Ackermans & Van Haaren, Jean-Louis de Cartier de Marchienne, Member of the Board at Sibelco, Philippe Moorkens, NED Alcopa Group and Former President of the Family Council of Alcopa, and Martine Reynaers, Member of the Board at Reynaers Aluminium. The session was moderated by Patrick De Schutter, Independent Director and Family Business Advisor, and co-founder/Director FBN Belgium. This article summarizes the key takeaways from the discussion.

There is no “correct” model for family businesses. There is no “best” shareholding model or management structure. However, understanding the different models, how they apply to your company, and the limits that each face is important to overcoming those limits and keeping the business moving forward.

Each model brings its own strengths. When pressed too far though – i.e. to the point where the company is unable to adapt to a disruptive event – the characteristics that define a model can also become its limits.

While the models are dynamic and non-linear, and companies can move back and forth between them, family businesses often start with a patriarchal management structure. This model is characterized by a concentrated shareholding with a small management team, led by a single leader. Such businesses are entirely family-owned, typically with a family member serving as CEO. This brings a concentration of power and authoritarian decision-making, enabling swift actions and resolutions. While this is useful for building up a business, it can also present limits to growth.

The lack of formalization – of processes, controls, management structure – poses a risk that decisions may ignore a changing reality, such as changes in society or technology. In addition, the boss’s omnipotence – their 24/7/365 presence in and around the company – can leave little space for family-time, which creates a risk of demotivating the next generation from joining the company if they don’t want that same lifestyle. There’s also a heavy mental load that comes with being the sole decision-maker. It can be lonely, makes it difficult to step-back and, in some cases, can even lead to burn-out. 

As the business is passed on to the next generation(s), the model may shift to one of family management. The company remains 100% family-owned, with a family CEO. However, the management team may be extended to include both family and non-family members, and the ownership is shared with multiple family shareholders. This fosters consensus decision-making, which can counteract the heavy mental load a sole decision-maker faces but also brings its own challenges.

Family members who know each other well may not feel the need formalize (explicitly) the rules around processes, structure or decision-making. However, the lack of formalization can place limits on the business as the family grows and new (more distant) family members come into the board. Furthermore, the lack of boundaries between the family and the business can blur the lines between the two and leave the company to act as a “cash cow”. For example, if a company car is given to the first generation, should it also be given to the second, third, and so on? Finally, the obsession with family continuity may limit the company’s ability to grow as it becomes less clear who the business should be passed along to. 

A shareholder management model brings a more dispersed power structure. While the business may remain mainly family-owned, the management team is made up of non-family managers. This brings a clearer separation of control and ownership. However, growth of businesses under this model may face limits if and where there’s a lack of boundaries between the family and the business.

Furthermore, in a shareholder management model, decision-making is more defined and regulated. While this can address the lack of formalized processes that may limit other models, as noted above, the increased structure can also bring about a loss of entrepreneurial spirit.

Finally, while this model can be characterized by a loss of family cohesion and alignment, businesses under this model are not immune to the limits that an obsession with family continuity can place on growth.

Just as there are multiple management models, each family has their own methods for creating boundaries between the family and the business.

In one family, family members are not allowed in the management of the companies (note: these are established companies beyond the third generation). This serves multiple purposes: it relieves the pressure on the children to enter the business, it motivates the employees, who know that they can grow within the company without the risk that a family member will step in and take a management position, and it provides the opportunity to change the CEO as the company’s needs shift over time.

To complement this policy, the family is highly active at board level, where they sit alongside independent directors in a 50-50 split. Even here though, there are boundaries: family members must leave the board at 65. This gives them the time to do something else, creates space for the next generation to step in and keeps the company moving forward with new, younger board members who remain open and curious.

However, there are many things a board does not see. So, there’s another viewpoint that you need to be in the company to understand it. To do so while still creating boundaries, one family sets clear expectations about the level of competences needed in the company and relies on an independent nomination and remuneration committee to objectivize the selection process. In addition, they also impose an age limit on family members: 65 for executives and 70 for board members.

Beyond the right competences, it’s important to consider the happiness and interests of the family members. In one example, the family created seven different – but equally important – roles for family members to choose between, including operational and governance roles, the role of supporter (i.e. being present at shareholder meetings), and the animation of youngsters. This allows all family members to contribute in a way that suits them best, which is good for both the family and the business.

A family charter can be a way to formalize processes. It sets out “what we want to do together” and can be considered a cornerstone of good governance. The charter doesn’t need to be long, but it should be reviewed by, and evolve with, each generation to ensure it remains relevant. 

Education is the foundation to preparing the next generation. Beyond formal education, role-modeling and firsthand experience play critical roles in the process.

One way this can be done is through celebrating failures in addition to successes. No CEO does everything right. It’s important to show that to the next generation, give them the ability to fail, and more importantly, the opportunity to learn.

This can also be done through sharing the full picture of your day with your family. It’s easy to come home and talk about the big wins – a new client, a successful transaction, etc. – but it’s equally important to discuss the harder days to bring balance to the conversation and create a realistic picture.

Factory visits, courses and charity work are a few other ways to educate the next generation and build pride in – and connection with – the company. 

The future success of the business depends on your ability to be honest about where the company is – Are we in the right market? Do we have a viable business model?

It takes courage to be able to recognize the answers though and to make a change if not.

While families may feel a responsibility to continue, because it’s a family-business, there’s also a responsibility – both to the family and to the employees – to be honest about the market and the future of the business. Independent directors can be particularly useful in this evaluation. They have more distance and can bring an external view to highlight the gap between the heart and history, and reality. 

KPMG’s Board Leadership Center (BLC) offers non-executive and executive board members – and those working closely with them – a place within a community of board-level peers. Through an array of insights, perspectives, and events – including topical seminars and more technical Board Academy sessions – the BLC promotes continuous education around the critical issues driving board agendas.