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Dr. Josh Baron is a co-founder and Partner at Boston-based Banyan Global where he works with families who own assets together, helping them to define their purpose as owners and establish the structures and strategies they need to achieve their goals.
A prolific author and speaker, Josh also teaches an MBA course at Columbia Business School about managing conflict in family business. In Dublin to address the Family Business Network, we caught up with Josh and started by asking him about his ‘four room’ theory of separation.
Hi Josh, tell us why it’s so important for family businesses to create separate ‘rooms’ for owners, business managers, family and Board?
Not long ago, we worked with a family in Asia with six siblings who owned several businesses together. They’d have lunch every day and the conversations would go literally everywhere, from what are we going to pay on dividends this year, to where are we going on family vacation, to should we invest more in this business or that business.
They found that those conversations never reached a conclusion because they weren’t structured; they didn’t have the right people or the right advisers in the room at the right times. It was like they wanted to play in all the rooms, but they lacked the ability to have constructive decision-making around that.
So we needed to pull them apart and create separate spaces: an owners’ room where they could debate things like dividend policy and ownership strategy; a family room where they could bring in some of the spouses and next generation to talk about family issues; a room for Board members; and one for the business manager.
Each of those rooms has a different way of making decisions, instead of constantly trying to use the same model to work out family or ownership issues, and that in itself creates a lot of value and accountability.
Does the emotional intensity of family business help or hinder the decision-making process? Is there ever a case for trying to remove the emotion from difficult decisions?
I’m not sure you ever really want to remove the emotion from decision-making, or anything else. For me, that emotional connection to the business and to each other is actually the source of a lot of the advantages that family ownership brings.
Owning a family business has certain disadvantages too, of course. So, you have to counter those with benefits and advantages that other [types of companies] don’t have. And a lot of those advantages are tied up with emotionality. One of the things that’s often said about family businesses is that they are able to create a long-term perspective, and research suggests that a long-term orientation towards business can create a competitive advantage. Because you’re making decisions that generate value over the long term as opposed to just meeting quarterly earnings targets.
The willingness to do that comes from a generational focus where people are working and doing things not for themselves but for their children and grandchildren and that’s very much an emotional tie.
What else does a family business have that can generate a competitive advantage?
If you look at the business world today, there’s a lot of talk about the race for talent. In our experience, what people are looking for – millennials and others – is a business that speaks to them, not just a profit-making entity but something that connects to their sense of purpose and values.
Well, those values actually come from families. And families that prioritise a sense of connection, and a way of working that reflects who they are as people, are often able to create a greater attraction in the talent race. That can be a huge, tangible advantage.
And again, much that comes down to emotion. You really don’t want to create an antiseptic business environment where there’s no emotionality and no conflict because those things are inevitable. You’re trying to create a space where powerful emotions are channelled towards a common cause and a shared set of objectives.
Speaking of conflict, what causes emotions to boil over and how can families manage and contain that?
People tend to focus on the causes of conflict: why people fight. So, it’s about money or it’s about status or power or respect. But I find it’s unhelpful to concentrate only on the root causes because it gives the impression that families are supposed to be naturally harmonious. I think it’s the opposite.
I believe conflict is embedded into families and that it’s a very natural occurrence. I mean, we all have different interests, even members of the same family. So, the notion that we’re going to want the same things all the time is just impossible. There’s also the very human need to have a space that’s your own, what psychologists call ‘individuation’, where you’re trying to create a distinct identity. But when you’re part of a family business, it’s hard to do that.
Within families, we’re always competing for scarce resources. One of the things I ask students is this: if you’re getting a bonus from a family business, would you rather get less money but more than your sibling? Or more money but less than your sibling? Most people judge their success based not on the absolute number, but on how they do relative to the people they compare themselves to. Within the family dynamic, that leads to conflict.
Instead of trying to figure out what causes it, families should look at ways of ensuring that conflict does not escalate out of control. A lot of the work I do is trying to identify strategies that enable you to put boundaries around conflict – not eliminate it, but deal with it in a way that enables you to deal with the real issues
Those issues, are they broadly similar across the spectrum of family businesses?
I get asked a lot about similarities and differences between family businesses around the world and my experience is that they’re much more similar than different. Much of the variability is driven by the choices each generation makes about how they want to own the business. And a lot of that [difference] in turn is driven by local regulations, how much freedom you have to do what you want in terms of ownership and structure.
We work with a very broad range of companies, everything from first-time founders trying to pass the business down to the next generation, to 25th or 26th generation businesses. However, the majority of clients are probably in the 2nd or 3rd generation, which is when a lot of issues tend to crop up that require expertise and specialisation.
Succession is one of the common themes for all family business, big and small, how do successful leaders approach this complex issue?
With succession, I think you need to look at it from both sides. It’s about how you prepare the environment for the next generation to come up, and equally how the current generation creates the space for the ‘hand-off’ to take place when the younger ones are ready.
There isn’t really a right or wrong way to do it. But I think the ones that tend to be successful are those who try to cultivate an interest and a passion early in the next generation. Not trying to keep them too distant from the business, not trying to make them feel that they are obligated to it either, but giving them a sense of why this is important and meaningful.
One family I know that’s in the shipping business, the leader who is now towards the end of his career took one of his grandchildren on the maiden voyage of one of their ships through the Panama Canal when the kid was 11 or 12. And years later, that person would still talk about how much the experience meant to him. You see these sorts of examples all the time of people feeling like they’ve grown up around the family business – they went to the office, they went to the warehouse, they drove a forklift, whatever they did it created an emotional connection. Then, I think you want to give them the space to decide if this is what they want.
Even if they decide it’s not for them, they may still have enough of connection as an owner… You don’t have to run the business to own the business, put it that way. You can hire people to do the running. But the one thing you can’t outsource is ownership. So, if you can foster that early on, if you can build a connection to the business and to one another, that will put you in a good position in the long term.
Is philanthropy another way of creating that connection?
I think it can be. In some ways, philanthropy is a perfect way of bringing families together because it doesn’t require everyone to care about or even understand business and it’s something that can make you feel really good about what you’ve accomplished.
But on the other hand, philanthropy is value-driven and as I mentioned, just because people are in the same family, you can’t assume they value the same things. Philanthropy gets right to the core of those value judgments and if you have people who don’t hold the same values, it can cause disagreements.
There are ways to do philanthropy that finds a middle ground, where maybe you’re doing some things together or different members of the family get to choose different ways of donating or investing. It’s not like you have to do it all together or not at all.
With philanthropy, I would explore it as a possibility but be mindful that you’re not creating another potential avenue of conflict rather than trying to dissipate one.
Do you think most family businesses can benefit from a little outside help?
Look, there are plenty of families that are capable of figuring out this stuff on their own. I think it can be hard though. When you’re going through these generational transitions, you really only get one shot at it. So, it’s probably worth taking the time and energy to figure out the lessons of people who have been through it before.
There’s a halfway step that’s learning from others. Family businesses tend to be very private but once they find an environment where they feel safe, whether that’s a course or something like the FBN, people tend to be quite open and willing to share. The first thing you’ll learn is that you’re not the first family to go through these issues, and even just normalising that can really take the edge off.
People come out of FBN events thinking “There’s nothing wrong with us, these are just things that families in our situation have to deal with”. You get exposed to different experiences, different ways of dealing with issues, finding out what worked and what didn’t work, and there’s a lot of value in that
Then of course, if you find that the issues require more than just some ideas and you need someone to help you through a particular process and bring a variety of best practices in, that’s when advisers can be helpful. Every family is different
The article originally published in Family conflict is normal, it’s how you manage it that
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Co-founder Banyan Global, Visiting Lecturer at Harvard Business School, HBR author and thought leader
Dr. Josh Baron is a co-founder and Partner at Banyan Global. For over a decade, he has worked closely with families who own assets together, such as operating companies, family foundations, and family offices. He helps these families to define their purpose as owners and to establish the structures, strategies, and skills they need to accomplish their goals. Prior to Banyan, he worked at Bain & Company and The Bridgespan Group. Baron taught family business courses at Columbia Business School in the MBA, EMBA, and Executive Education programs. He is now a Visiting Lecturer in Executive Education at Harvard Business School where he teaches about how to build a family business that lasts, how to manage conflict in a family enterprise, and how family ownership can create a competitive advantage. He publishes and speaks frequently on subjects concerning family enterprises and is the co-author of the Harvard Business Review Family Business Handbook. A regular contributor to HBR.org, including Why the 21st Century Will Belong to Family Businesses, Why Family Businesses Need to Find the Right Level of Conflict, and Every Business Owner Should Define What Success Looks Like, he is graduate of the University of Pennsylvania, the University of Cambridge, and Columbia University. Josh is also the author of Great Power Peace and American Primacy: The Origins