Soft Rules For Business Families

Managing a family business is complex. In addition to managing the business, the family also needs to manage itself. Countries and jurisdictions impose well-established structures with well-defined rules and roles to manage a business—boards of directors, board committees, required audits, chief executives’ management teams and executive directors—with clear goals and incentives.

These do not exist for a family. At a minimum, the family needs a mechanism to align its views as a family. As families grow, alignment is harder to achieve. So, many families create family charters, constitutions and rules for behaviour. They also create forums for families to meet and discuss and agree on issues in respect of their ownership of the business.

These rules cover a set of subjects—family values, purpose of business, rules regarding the distribution of wealth and benefits, a definition of the family, rules around exit from the family business, rules of management and employment, succession and selection of business leaders, principles around entry into politics, and methods of conflict resolution. While some of this is required, the extent of specification varies by family. But what most families neglect is to have a system to manage the emotional well-being of family members.

People Get Hurt

In its ideal form, a family is about love, affection, fairness, respect and trust. And yet, every family member understands that frustrations and major fights can arise over seemingly trivial issues. People get hurt. Conflicts about hurt feelings are rarely about right and wrong. They frequently cannot even be reduced to material issues like money or self-interest. These ‘hard’ issues are easier to identify and even resolve logically.

Rather, conflicts often spring from the well of hurts, slights to self-esteem and ‘soft’ emotional issues. Once these issues start, they are difficult to heal.

While all families understand the power of emotions and slights, they rarely institutionalise mechanisms to address them. The importance of these soft issues in the context of family business cannot be overstated.

Need Tailored Rules

Three key characteristics define these soft rules. First, they are based on emotional considerations of affection, fairness, respect and equitable treatment of family members. Second, soft rules vary across families and are shaped by norms of family and society. These norms evolve over generations; what is acceptable now may change later. Third, when these rules are violated, somebody gets hurt, and this hurt can grow into discord.

Emotionally upset family members can get irrational and cause incalculable damage. Recognising these feelings is the first step for a family to manage conflicts. Thereafter, families need an approach to manage soft rules. Given differences in cultural norms and family traditions, a single approach for all families is unlikely to work.

Sources of Discord

There are five key sources of discord:

• Trust erosion: This typically happens when family leaders take decisions that one or more members view as unfair, unjust or unethical.
• Norms: Family members are expected to abide by deep-rooted traditional norms, but norms can affect individuals. Strained emotions can surface when members believe that norms around age, gender, adopted children and treatment of in-laws are out of step with time.
• Value systems: A family’s underlying value system can also be a source of conflict. Potential hotspots include who receives recognition for effort and business acumen—the family or the individual? Are positions in the hierarchy awarded based on merit, fairness, age or branch of the family? The treatment of employees is another potential flashpoint.
• Exposure: Family members may inadvertently violate a family’s soft rules because they have had different life experiences. These situations become more common as families send their children to study abroad and even as families start to live spatially apart and lose context.
• Personality type: Families that are actively involved in the management of the business can face conflicts when incompatible personality types work together. Some family members may be analytical while others could operate on gut feeling.

Families would do well to explicitly articulate and communicate the soft rules to the broader family. Patriarchs need to identify and resolve concerns early. This requires agreement and articulation of a family culture around material benefits, rights, freedoms and prohibitions. Families need a loose charter to clarify both obvious and more subtle expectations around behaviour. 

Managing Emotions

Families that manage emotional issues best create a responsive family culture. Family members can voice their frustrations and not keep them bottled up. Despite a family’s best efforts, violations will occur and must be addressed. Family leaders need to be cognisant about the risks of ignoring these issues for the harmony of the family. They need to encourage family members to feel comfortable raising uncomfortable issues.

The act of speaking up should not be viewed as disrespectful but a constructive way to do so should be designed. No subject should be trivialised or be considered too insignificant to raise. The head of the family has an outsized role in establishing culture.

Elders of the family need to get respected outsiders to inform them on shifts in societal norms and traditions, such as female participation so that family norms are constantly updated.

Young family members should be encouraged to respectfully raise a violation against a senior member, especially the head of the family, to a well-respected family member (grandmother, sister, uncle) if they so want. When a soft rule is violated, a quick and sincere apology can often help resolve the issue.

This is easier said than done, especially for unintentional violations. Releasing bottled up emotional hurts can unlock energy and prevent disruptive family conflicts. Families will be well advised to heed the advice of the Mahatma that “peace is not the absence of conflict but the ability to cope with it”.

The writer is chairman, India, BCG. Views are personal