MEMBER TALKS
Understanding
FAMILY -
On the surface, family businesses share numerous traits with their non-familial peers. Dig deeper, however, and they are an entirely different breed. Priorities differ, issues of governance and succession can be more complex, and long-term goals are often as much about such items as protecting legacies as they are about serving the bottom line.
PHILIP J. FOGARTY Partner and GTA Audit Innovation Leader KPMG
22
Then there are the complexities posed by family dynamics when mixing family and business. We’ve all heard the saying from “clogs to clogs in three generations,” in fact, there is research which suggests that 70% of family businesses won’t survive the second generation, while 90% won’t make it past the third. The reasons for failure vary, but more often than not, they are in some part the result of an inability to find harmony between the often competing priorities in the so-called “three-circle” model that is, “Family”, “Business”, and “Ownership”.
The following are only some of the common issues which can unsettle the scales: • DEFINING WHO IS “FAMILY”: Many family businesses are challenged to answer the “who is family” question as it relates to issues of Ownership, Governance, and Succession. Should ownership be restricted to “blood line relatives”, and are spouses and common law partners considered “family”. How do we view issues of same sex unions, adopted children or even divorced family members? • OUTDATED GOVERNANCE: Family businesses employ a variety of natural or informal governance structures, many of which attempt to maintain harmony between the Family, Business, and Ownership (aka the “three-circle” model). This natural or informal approach to governance may keep the business and family on course in the near term, but can buckle under the pressure of competing priorities, generational values, and business realities. • LACK OF SHARED PURPOSE: In all organizations, not just the family business, it is critical to success
CONNECT | 2020 ISSUE 2
