The Latin American reality indicates that more than 90% of the companies are family-owned and range from large conglomerates to small and medium-sized companies.

Recently, the topic of Family Businesses is heard more frequently in our environment, many comment that it is the “fashionable” topic of consultants and take lightly the importance of anticipating the conflict, not only for the sustainability of a company in the long term but to maintain the harmony and happiness of the owner family.

Statistics worldwide show disturbing figures regarding the survival of family-owned businesses: less than one 30% survive to the second generation (partnership between siblings), only one 10% survive in the third generation (collaboration between cousins) and only one 4% survive in the fourth generation (family group).

In addition, it should be taken into account that the Latin American reality indicates that more than 90% of the companies are family-owned and range from large conglomerates to small and medium-sized companies.

There are stages in the life cycle of a family business in which they run a greater risk of failure, if the appropriate measures are not taken.

All companies must overcome the difficulties concerning any economic activity to compete in the market. Additionally, the nature of a family business causes them to deal with additional variables such as overcoming the transition between generations and resolving conflicts related to the family.

The formulation of the Family Protocol is not a recipe that can be applied equally in each family, since each family is unique due to its peculiarities.

What makes a family business particular is the degree of presence and control of owners and relatives in the company. As interaction in the workplace increases, the risk of painful family conflict grows, leading to an imbalance in the family / business relationship.

Our experience with more than 30 Latin American families who have made the decision to formulate their Family Protocol, indicate that the survival of family businesses and the generational transition fundamentally requires transparency and the establishment of clear family rules regarding the business.

If this planning is done early, the family and business can anticipate most conflicts and thereby minimize their consequences in order to achieve a proper generational transition.

What is the best time to implement a Family Protocol?

In the early stages of the life cycle of family businesses, conflict is more likely to be anticipated. When the patriarch or businessman and his children establish the Family Protocol, it is more feasible to avoid conflicts, since the blood relationship is stronger and, therefore, there is greater tolerance and commitment to family harmony.

However, it is feasible to carry out the Family Protocol in the stages of partnership between siblings and collaboration between cousins, but it is very likely that the conflict has already occurred, therefore, it is more complex to reestablish trust in the family.

The formulation of the Family Protocol is not a recipe that can be applied equally in each family, since each family is unique due to its peculiarities. The process is vital since policies must be adapted to the reality of the family, their culture and their way of seeing things. The main challenge is to convene and commit all its members in a series of meetings that take time, and maintain the tolerance of all who participate.

The Family Protocol establishes the policies that govern the family-business interconnection and decides how the family will solve the conflicts that arise. With the establishment of the rules of the game, the expectations of the family in matters related to the business are managed, which generates trust and establishes a convincing and shared vision of the future, with the commitment to transmit it to the next generations.

However, it is necessary to establish how to make adjustments to the policies and mechanisms defined in the Family Protocol, since the reality of businesses and families changes over time. Therefore, it is necessary to develop skills in the family to give continuity to the family constitution; adding and revising the defined policies when necessary.

Nor can it be expected that the Family Protocol will solve all kinds of future problems, it will try to anticipate the majority of conflicts and establish a body to decide and resolve all those things that were not foreseen when it was formulated.

The Family Protocol by itself does not guarantee the success of the family business. Families must go beyond ensuring family ownership and establishing family leadership, they must define and establish a sustainable family bond and a commitment to the development of the family business.

Luis Jiménez
WRITTEN BY
KRYSSIA MADRIGAL

Kryssia is a Bachelor of Economics from the University of Costa Rica and an MBA from INCAE. She is a Partner-Director of bac & Asociados and a leader in the Family Business and Corporate Governance area. As a consultant, he has extensive experience in the areas of strategy, family businesses, corporate governance and corporate finance in companies and institutions in Latin America.