Regulating the family-company relationship is key to survival

06 2017 March
Executive Education INCAE

In Latin America, as in many other parts of the world, about 60% of companies are made up of family groups. Although some of them have managed to survive the ups and downs of time and have become essential engines of the world economy, it is also true that others have failed to adapt to the changing world of business and globalization.

Professor Esteban R. Brenes, Academic Director of the program Family Businesses, talks in detail about strengths and challenges that characterize these organizations.

-Around family businesses we find some negative connotations, such as saying that “their days are numbered”, how true is this?

-In reality, most companies in Latin America are family-owned, therefore, if we see it that way, what we are saying is that companies in general do not work and that is not correct. I agree that in some cases, there are problems that need to be addressed, but most family businesses do well.
Here, the most important thing is that those who lead them understand the importance of giving them continuity in the long term and, the way to achieve this is through the establishment of very clear rules that regulate the family-business relationship.

-What kind of rules?

-Those rules have to do with aspects such as: when would family members be admitted to work in the business? Under what conditions and circumstances? And what characteristics should these people have?
Other important aspects to consider are the issues of succession: when should we pass the command in the organization? There are people who do not want to stop captaining the ship until very late in their age, which is good and there is nothing wrong. However, the problem is that many times they do not prepare the second or third generations and then, the succession becomes difficult.
Others do not want to make decisions regarding who would be the successor, although these types of issues should be discussed, preferably when the leader of the organization, the founder or the founder, is still alive.
It is essential that the family meet and agree on a series of rules and everything is reflected in a document. This writing should contemplate basic moral principles, and all the necessary rules to regulate the family-business relationship, that writing is known as the Family Protocol. Even certain families decide to legalize some of these rules in their company statutes.

-In times of crisis, how has the behavior of companies led by family nuclei been?

-It has been shown that family businesses are very strong in times of crisis. They weather storms quite well because many times what their members do is sacrifice themselves personally so that businesses prosper and stay afloat. If you have to put money in, you put it in, if you have to work harder, you work, and so on.

-What should family businesses take into account to avoid the fulfillment of the prophecy that says: "the first generation builds, the second develops and the third destroys"? 

-Today in Latin America, due to circumstances of our natural evolution, companies are passing to second, third and fourth generations at a great speed. Therefore, it is a good time to ask ourselves what should we do? For me - I insist - one of the fundamental things is to write a family protocol where the rules that are established are absolutely clear to everyone.
Adequate preparation of the successors is essential. There will be boys and girls who will not want to continue in the business and will dedicate themselves to other things, but there will also be enthusiastic people who can take the reins in the best way if there is proper planning.


Family Businesses: Successful Models

Have you already made the decision to venture into your family business, but you do not know the guidelines to follow to stay and achieve success? INCAE will guide you on the path to achieve this: acquire new management approaches and techniques that allow you to have effective tools to guarantee the growth and continuity of the family business. This program will take place in Medellín, Colombia, Latin American capital of innovation, progress and potential.

Next edition: April 18, 2018. Colombia.

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