Finally Finding Common Ground
Summary: Personal relationships among a second-generation family business owners had become so strained that they thought they may have no option but to split up. Communication among the owners was poor and long-simmer resentments were impossible to ignore. But when the owners came together to determine what they could agree on, rather than their differences, they began to find a path forward that allowed them not only to start making better decisions together, but to keep the business – and the family – intact.
The Case:
Working through an Owner Strategy statement helped one family come together for the first time in a long time.
The Situation:
One second-generation family business we worked with had long struggled with clear communication among the owners. The first-generation founder had built a powerhouse services company over three decades but had kept his succession plans close to the vest. While two of the three second generation family members worked in the business (one as their father’s hand-picked successor), their father had done little to encourage them to feel like a group of owners. They had different appetites for risk, different perspectives on the long-term strategic direction of the business, and different feelings about how important the dividend was to them individually. As a group, the owners had long-simmering personal resentments from past family issues and significant communication problems. Which meant that they’d discussed none of these issues as a group of owners, as they did not have the ability to do so. When they first contacted us, they said they might be on the brink of splitting apart.
How They Worked Through Their Issues:
When we first started working with this owner group, we quickly recognized that one of the primary challenges was that there was no Owner Room – a forum for discussing any of the big decisions facing the business (or the business family). The family business was being run by the dad and his chosen successor son, while the other two second-generation owners had little insight into decision-making or a chance to contribute to an Owner Strategy. Because two of the owners had insight into both the business decisions and priorities and two did not, there was asymmetry among the owners, which only exacerbated their communication problems. Technically all three members of the second generation were equal owners, but it didn’t feel that way.
Rather than immediately diving into tackling their long-simmering personal issues, we suggested the group could begin to move forward by finding common ground on which to align. Though they had not historically been able to agree on much, the owners were able to agree to create an Owner Room so they would have a forum and structure for making decisions together. This means that the family members who were most involved in running the business wouldn’t make significant decisions without consulting the full owner group for the first time. By creating a structure and some agreed upon ground rules, they were able to begin constructive conversations for the first time in years.
Once we had agreement on the Owner Room, we suggested the group start by articulating their Owner Strategy. A thoughtful Owner Strategy can help a family agree on what it most values and what it wants the business to accomplish for the owners. Typically, owners need to choose among three priorities: liquidity, growth, or control. It’s improbable that a family business can prioritize all three. In this case, their growth came at the expense of liquidity (dividends varied wildly year to year). Using the Owner Strategy triangle helped guide the discussion – the owners had to talk through where they were (and were not) willing to make tradeoffs. Once a group of owners is aligned on which of those it most values, an Owner Strategy can help guide strategic decisions for the business.
When the owners first began their discussions, they were not in agreement on which of those three priorities mattered most. Some owners were bullish on growth, others were more cautious about financial risk. But over time, they were able to find some middle ground that worked for all of them. They would still prioritize growth, but not at the expense of a more conservative take on liquidity. They agreed that keeping control within the family (as opposed to seeking outside investors or having to service debt with restrictive covenants) was still a priority. This helped them agree on a few key principles, including:
- Dividend agreement: The owners should have the right to discuss the dividend, it will not be determined without a group discussion. If the recommendation is ever to have a zero-dividend year in order to invest in growth, for example, that will only be because the owners have agreed to that. The owners were very specific about how these decisions would be made. For example, “until we bring down our debt to X, our dividend will be Y.”
- Prioritizing the use of cash: To ensure that decisions about investing in growth were thoughtfully made, the owner group agreed to a staged allocation process about how cash would be used. So, there were agreed upon priorities for the use of cash generated by the business. Decisions about where to invest cash were never, therefore, spontaneous decisions, but always guided by the group’s consensus about priorities. For example, first cash goes to pay the bills. After that, the next priority would be for improving safety, efficiency, and quality (for example, investing in updated technology). After that, they would look to lower the existing debt until a certain level. And finally, they would create a rainy-day fund so that if they ever decided they needed to pay off their debt or had to endure a tough business cycle, there would be money set aside for that. And finally, after those priorities, they would consider what, if any, dividend they would pay themselves versus investing for additional growth.
Aligning on decisions that owners will make
Articulating on Owner Strategy that took into account the various owners’ concerns actually helped free those family members who were running the business to make better decision about the day-to-day operations of the business. They decided against bringing in a board of directors, instead agreeing on a set of major decisions that are reserved for the full owner group. The owners were able to articulate goals and guardrails for these decisions. Among those they agreed were decisions reserved for the full owner group:
- Hiring or firing the CEO
- Dividend distribution
- Mergers and acquisitions
- Changes to estate planning (what transfers of ownership are permitted without others needing to agree and which require owner group permission?)
- Defining owner compensation (for those working in the business)
- Setting owner strategy
- Getting into new business sectors or geographies
- Selling the business
The owners were able to articulate goals and guardrails for these decisions, which helped give directions to the company’s executive team to keep things running smoothly on a day-to-day basis.
The Outcome:
Going through the Owner Strategy process helped keep this family together. This was the first time the owners had gone into that level of detail about what they, as a group, most valued, what decisions were critical to ensuring that they stayed focused on those values, and that all owners had a voice in the Owner Room. Capturing this in an Owner Strategy statement and a specific set of owner goals and guardrails was an essential part of the success of this work together. The clarity of this agreement helped reduce the long-simmering tensions and enabled them to find common ground.
As one of the owners told us: “The fact that we had agreed on an Owner Strategy was crucial to help as navigate the huge impacts that COVID had on our business. Having articulated it in an Owner Strategy statement reminded us of our common priorities and aspirations and guided the difficult decisions that we had to make during the pandemic”.
By focusing on what they could agree on, the owner group was able to get unstuck after years of discord.
Best Practices:
There is no one-size-fits all solution for owners to work through pre-existing conflict to getting aligned on Owner Strategy. But we have seen a few practices and guidelines help.
- Operate with brainstorming rules. As you work your way through difficult discussions, agree in advance that your initial goal should be to let people express themselves. Let ideas and preferences emerge with no judging. Your goal is to find common ground – no judging what another owner may want. Listen to understand one another, rather than going straight to trying to find solutions.
- Seek common ground step by step. It may seem that you can’t possibly get to a good place when you start to work through what might seem to be significant disagreements. But if you work to find common ground in small steps, you will begin to make progress. For example, if you are not in agreement about how to use cash, take the discussion up a level. Can we agree that we need to be thoughtful about how we use cash? If yes, can we agree that we might want a process for deciding when to use cash? That might be enough to decide in the beginning. If you aim to find some agreement, however small, from each interaction, you will make progress, little by little, toward finding common ground.
- Set the bar at “good enough”. It may be tempting to think you have to find a perfect solution to everyone’s issues and priorities, but that’s unrealistic. Getting to an agreement that everyone can live with, even if they don’t love it, may be the only way to keep your business and your family together. After all, your alternative to “good enough” might be breaking up.
- Keep your conversations at the owner-level decisions. Your goal is to set an owner strategy that will give direction and set boundaries for the people who are actually running the business and the board. Keep your conversation at the level of owner decisions. In other words, you may want to come to agreement on how much debt to incur, but you should not dive into any of the operational details of your family business. Leave those decisions to your board and executive team. You’ll be more productive if you focus on getting to consensus on a few key decisions rather than wade into decision that are best left to your board and executive team.