Talent and human capital a key priority for family businesses

02 February 2020 Consultancy.com.au

Every family business is unique and has its own distinguishing culture. But every family business faces certain core challenges, including attracting, developing, and retaining talented workers and adapting to changing workplace environments. In the latest Deloitte Global Family Business Survey, talent/human resources emerged as one of the top five priorities for boards of directors over the coming 12 months.

As their companies grow and the workforce evolves, many family businesses may need to eschew the hierarchical, entrepreneur driven structures that created their foundational success. Both family and nonfamily employees require investment in them, and younger generations in particular will likely reward these efforts by bringing new perspectives to strategy setting.

Issues

The typical founder of a family business is a self-made matriarch or patriarch with entrepreneurial dreams and a bold business vision. But realising those dreams takes a team, which often means hiring a manager from outside the family, a step that can be met with reluctance by founders. The first generation often doesn’t understand that the presence of an external manager and the development of modern management culture creates value for the company.

Continuing family legacy and tradition is respondents’ highest priority over the next 10 to 20 years

When outside leadership is brought in, their role needs to be clearly defined, as a lack of clarification around their responsibilities can and often does lead to conflict. There is already the potential for tension since a third-party director who challenges a colleague who is also a member of the family may simultaneously be challenging a member of the board of directors or a shareholder. 

When the family foments a culture of interference, it can drive outside talent away from the company. Even an experienced CEO with years of multinational leadership may face new pressures in a family-led environment. In these instances, companies need a governance structure put in place to stop the family from interfering with what they hire these people to do.

More broadly speaking, it can also be difficult for founders to accept the different demands of workers from younger generations. For instance, they often have firm ideas about how hard employees should work in the early part of their careers and can bridle at the notion that they deserve a more equitable work/life balance, among other things. First generation leaders may need to adjust to changes in the workplace desired by younger talent who have different ideas about the hours that they work. They want flexibility and parental leave and social impact. 

According to the 2018 Deloitte Millennial Survey, there were “strong correlations between those who plan to stay in their current jobs and those who said their companies deliver best on financial performance, community impact, talent development, and diversity and inclusion.” It’s of little surprise that changing demographics of the labour force was cited by nearly a quarter of the respondents in Deloitte’s 2019 Global Family Business Survey, when they were asked to list the issues likely to have the most significant impact on the market in which they operate.

Only 26 percent of respondents have a formal succession plan for the CEO position

Opportunities

When family businesses recruit external talent, it’s important to take into consideration cultural compatibility. Family businesses tend to have strong values and cultures that reflect the family and the company, and it is important to hire people who understand the purpose and character of the business and will fit in. But many family businesses may also need to reinvent themselves by building a culture that supports continuous learning, incentives that motivate people to take advantage of learning opportunities, and a focus on helping individuals identify and develop needed skills. Investing in talent development programs can help strengthen employees’ attachment to the company while expanding their capabilities. 

These kinds of investments tend to happen more often after the founders have made way for new leaders. Once the second or third generation take the helm, they often start to consider programs for education and retaining external managers. The second generation of the family is often very well educated and more oriented towards management than entrepreneurship.

Even when employee development is a priority, though, tension between family and nonfamily members is still inevitable. Families can work to reduce this tension by putting into place firm rules and regulations that anticipate conflict and help families manage internal politics as well as the business. Family governance structures can prevent interference by making family members aware of exactly how and to what extent they can be involved in the operation of the family company. 

Role clarification is really important. There should be role definition, key performance indicators, and annual performance reviews so that if there is any conflict between family and those working in the business, the solutions are clear.

Almost 70 percent of respondents want to keep the business in the family

As younger workers join the organisation and begin working their way up, it often leads to the introduction of new technologies, innovation, and sources of growth. In one company, for example, a second-generation leader recognised his son’s technological savvy and awareness of how the industry was changing. Although he didn’t originally understand it, the older leader allowed his son to add an online market to their business and test it for three months. The son put everything behind the digital platform to set it up for success during the trial period, and it became an integral part of their business that now accounts for 60 percent of company revenue. 

As family businesses become more digital, they face a growing imperative to redesign themselves to move faster and adapt more quickly. For some, human resource issues may require organisational restructuring. This can be a particularly difficult task for family businesses to undertake, but the way high-performing organisations operate today is radically different from how they operated just 10 years ago. One important part of designing for adaptability is a shift away from hierarchical organisational structures toward models where work is accomplished by teams, the smaller and more flexible the better in many cases. 

An article by Michelle Hartman, Family enterprise consulting partner at Deloitte Australia, and Andrea Circi, Global tax and legal family business leader at Deloitte Italy.


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