De-Risking In The Family Enterprise
“Life is inherently risky. There is only one big risk you should avoid at all costs, and that is the risk of doing nothing.”
– Denis Waitley
Risk is inherent. We know this. Business is risky, interpersonal, familial relationships are filled with risks, and combining the two creates a unique risk profile with unique challenges. Likewise, we all tend to be somewhat naturally focused on growth - both members of enterprising families and advisors alike. We often come together around the core intentions of growth and development of the business system. This makes sense: growth is the default mindset for most of us.
But growth without addressing risk in business and family systems is, well, risky. With business growth comes the related and dependent increase in complexity. It’s difficult to argue against the fact that solid, robust platforms are the best foundations to build upon, and can sustain long term growth much more effectively than foundations with fundamental weaknesses.
So, if de-risking is so important, what is “risk”? Identifying risk in businesses often comes a little more easily than identifying it within our family systems. When we think about risk, many of us likely default to business risk: financial risk (risky investments, where to grow etc.) or unclear processes or systems (i.e. lack of business governance structures) likely come immediately to mind. The risk in families may seem less obvious, but it is usually intuitive: poor communication processes and inadequate family guidelines for addressing conflict are pretty common areas of risk.
Firstly, risk is inherent - all family enterprises have areas of risk; secondly, by de-risking we are guaranteed to add value to the family, the business, and the ownership group. As part of my work as a family enterprise advisor, I have seen time and again that engaging in a process of de-risking in the business and the family systems as a mutual process is not only beneficial, it’s crucial.
Identifying Risk in Family Systems
When identifying the risks in the family enterprise, I begin by initiating discussions with the family, both in one-on-one and group settings. This brings to light the strengths and weaknesses as well as any underlying (and perhaps unacknowledged) issues in the family, business, and ownership systems.
Throughout these discussions, some of the key areas that I keep an eye to are business planning, governance work, relationships, and personal and financial planning. Keeping this focus broad is important because de-risking needs to be done from the personal level all the way through to the business and ownership levels. If any one level is vulnerable, it puts the entire system in jeopardy.
As we dig into these different levels, some of the common risks to be attuned span from relationship conflict, sibling rivalry, breakdown in communication and lack of planning (personal finances, transition, etc.), to a lack of transparency, poor governance and misalignment between the personal and family vision. If families have not put structures into place to protect what is important to them prior to expanding their enterprise system, some of those primary areas of value can be put at risk as the system grows larger and more complex.
Strategies for Addressing Risk
We can address these issues by ensuring more accountability is implemented on every level (namely, personal, business, and ownership), and creating more points of contact to keep the communication flowing.
Some comprehensive practical ways this can be implemented include regular family meetings, protocols for when issues arise, clear distinctions in roles, and other general governance structures. Establishing these forms of governance doesn’t have to be onerous or complicated, it can be as simple as agreeing that everyone gets in a room together (or on video) once a quarter, or coming to a mutual agreement about how, when, and to whom discussions around conflict should be initiated.
Once the key risks are identified and addressed within the family enterprise, then the work of building can begin. Similar to starting with a full plate, you first need to remove some of the unhealthy food before having room for healthy additions. Ensuring your system is de-risked can give you some small but powerful wins early on, and get the family engaged, excited and ready to move forward with the process.
It’s Not ‘One Size Fits All’
Not to put too fine a point on it, but when it comes to de-risking, everything is at stake. The core areas of oversight or weakness in business and family are what we’re addressing here. This means that even looking at risk can feel risky - or, put differently, the implications can feel overwhelming.
This is why each enterprising family will have a unique process of de-risking. Addressing the areas of challenge and and, in turn, finding new capacities for growth can only happen by first taking stock of what exists now, today, in your family enterprise or in the family enterprise(s) you work with. Stopping, taking a deep breath, and then taking a deep look at where the gaps are, are fundamental precursors to strong and effective planning for growth in both the family and the business.
Vincent Valeri is a Family Enterprise Advisor and certified Family Legacy and Executive Leadership Coach, and works closely with families and their advisors to foster alignment and create clarity. He is also recognized as a passionate and engaging speaker on the topics of wealth and business transition, behavioural risk in the family enterprise, and family legacy.