One size fits all: best practice in family businesses

Thursday, 05 November 2015
Ken McCracken considers best practice in family businesses and explains that what is considered right for one family will not work for all.

The term ‘best practice’ is used to describe recommended or successful strategies that can be employed by businesses, families or individuals as they prepare for the future. But, particularly in the case of family businesses, what is considered best for one family will not work for another.

Avoid ‘best practice’ traps

Over-reliance on best practice and the assumption that it will solve every problem or dilemma within a family, or family-owned or family-run business, can increase financial risk. For example, some families will consider the best succession-planning option to be the appointment of the next generation – part of the family and trusted implicitly – to the board, instead of relatively unknown ‘outsiders’. But what if outsiders can deliver better financial results?

Similarly, it is often deemed best practice to bring independent directors onto the board, to give the company the advantage of new perspectives and experience. However, if the family chooses a board with a majority of outside directors, there could be a risk that the board will substitute its own assumptions for what the family wants and takes the business in an entirely different direction.

It is also often regarded as best practice to require a family member to have a degree in a relevant field and three to five years of work experience before joining the business. But, in some families, the goal is to provide employment for family members at multiple levels of the company, and encourage family members to join the business. For such families, the perceived best practice of first working outside the business is counterproductive.

Naturally, families which think that their relatives should spend time working outside the business will agree that doing so is best practice. However, referring to this as best practice damns families that take different routes. As long as each of them is successful on their own terms, what does it matter? Ultimately, what is best practice comes down to the goals of the family, or the goals of different elements of their business.

Nevertheless, the proponents of any best practice are unlikely to be deterred by examples of families which achieve success by alternative means. Indeed, these families may be described as ‘alternative’ to suggest that they are taking risks or ‘a bit out there’. This, of course, protects best practice from being revealed as only one way of achieving success.

Indeed, economist John Kenneth Galbraith argued that conventional wisdom is revered by those who agree with it: ‘It will be convenient to have a name for the ideas which are esteemed at any time for their acceptability, and it should be a term that emphasises this predictability. I shall refer to these ideas henceforth as the conventional wisdom.’1

Beware best intentions

Maybe best practice is influenced too often by the self-interest of its promoters. No doubt recommendations of best practice are well intentioned and can be helpful as ideas for a family to consider, but is it too cynical to suggest a link between best practice and the services offered by its proponents?

There is one final reason to be wary of best practice. It is generally accepted as misleading to deduce a normative statement of what ought to be from a description of what is. In other words, it is misleading to recommend what one family ought to do based on what worked for another.

In reality, we know that every family is different. While it is very helpful to give families examples of what others have done to cope with the challenges of owning and running a family enterprise, each family still needs to work out what they mean by ‘success’ and then plan how to achieve it in a way that is consistent with their values. Families must come to terms with this challenge and resist the temptation to take a shortcut by blindly following so-called ‘best practice’. While the decisions made by a family might sometimes seem idiosyncratic to an outsider, who cares? If it works for that family, it works.

  • 1. The Affluent Society (Penguin)
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Ken McCracken

Ken McCracken is a Consultant at Withers Consulting Group. He is also the lead author and trainer for the STEP Advanced Certificate in Family Business Advising

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