Family Capital Strategy helps legacy families create ecosystems where families thrive and future generations flourish
I was asked recently if I could summarize from my work the 1 thing that helps families achieve the purpose statement above. After giving it some consideration, the answer was clear. Families that thrive are places where the family moves from implicit models of operation to explicit models of behavior.
Take for example a hypothetical disagreement between siblings about compensation for the 1 sibling who is CEO of the business and the other siblings who do not work in the business. An implicit model of operation does not distinguish between rewards from labor and rewards from ownership. An implicit model may not have a clearly, communicable approach to executive compensation. As a result, this creates ambiguity. In this instance, the dispute is likely centered around the question of perceived fairness of an unequal distribution of rewards.
In an explicit model, there is a clearly articulated policy regarding executive compensation in the business – both for family and non-family members alike. There is a board of directors with independents and a compensation committee who can ascertain what an appropriate level of compensation is for the role. In this model of operation, while there is an inequality in outcome (i.e. different people receive different amounts), there is a fairness of process – the family knows how decisions were reached.
Cultural dynamics rule the day – or as Peter Drucker quipped “culture eats strategy for breakfast.” The challenge of course is to have both the fortitude and discernment to face cultural matters head-on – no small feat.
Of course, culture is a necessary but not sufficient condition for success. Thriving family ecosystems build robust strategy on top of strong culture, and then build the operating platforms necessary to bring the strategy to fruition.