The owners of family businesses, art, legacy real estate and even family offices worry about a lot of things. Feckless heirs, risky markets, rising taxes, surging inflation, loss of privacy, rapacious vendors, and on and on. Their children and grandchildren worry about the same things and add concerns about their stewardship of their legacy; both globally, like the environment, and locally, like debt, equity, homelessness and diversity. Now, with rampant inflation, a war in Ukraine, bank collapses and global superpower rivalry, generative AI and digital terrorism even more is on their plate.
Plans that solve worries, whether personal, business national or global, have always been promoted. Every estate planner deals with plans and knows that plans are an imperfect prediction of the future. When we say “plans” what we are saying is “if you take this action, then you will have the desired result sometime in the future.” Someone, somewhere, will have a plan to solve your worries, whatever it is that concerns you. The result of such a multiple of plans is an accumulation of trusts, LLCs Partnerships, corporation and other entities that are created and implemented for a specific purpose, but which has unintended consequences.
Despite (or because of) all these plans, systemic risk to family enterprises is ignored by two-thirds of the risk assessment professionals, according to a recent study by Linda Bourn of Crystal & Co. Professional advisors tend not to cross between the family, business and wealth management systems, so family members are unable to see how flawed their planning. What is needed is not more planning, what is needed knowing what the leading indicators of long term family business success are and an easy way of identifying systemic risk in the family enterprise.
On leading indicators, Timothy G. Habbershon and Mary L. Williams in their academic research paper on what resources are the strategic advantages of sustainable family businesses[i] found three leading indicators (Resources, Processes and Learning) and two trailing indicators of sustainability of family businesses over time. Habbershon and William’s work is pretty thick going and not easily digested by the non-professional. To make finding out whether there is systemic risk, I have developed their work a Sanity Check.
A sanity check is a series of quick questions that allow you to evaluate whether assumptions can possibly be true. It is a series of simple questions intended to weed out obvious problems. It is a fast way to avoid complete disasters. Here is a link to a Family Business Sanity Check at the Family Firm Institute weekly digital magazine The Practitioner.
So, here, in an easy sanity check format, are the leading indicators for the long-term success and sustainability of a family enterprise, and to evaluate whether the plan is worth the effort. Managing the planning process is one thing, however managing the systemic flaws in the family enterprise is a different, and more difficult, process. It requires a level of leadership to both recognize the flaws in the organization and a level of independence outside of the family enterprise to risk taking on the systemic change needed to correct them.
This leader, often from outside the family, has to both focus attention on the here and now, by learning, adapting and anticipating risks and opportunities. This leader also has to create confidence in the future for the family enterprise. So begin with the Sanity Check, then find someone to help with the hard work ahead.
[i] “A Resource-Based Framework for Assessing the Strategic Advantages of Family Firms” Family Business Review, Vol. XII March 1999
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