Some people perceive risk as negative, as something to avoid, while others voraciously embrace it as an opportunity. Business leaders’ risk profiles typically find reflection in their strategic planning decisions, and a lack of alignment can create challenges and conflict, says Krista Han, partner and National Business Family Services leader at Grant Thornton LLP.
Ms. Han is very attuned to the needs of family-owned enterprises and believes they face an additional level of complexity. “In family businesses, the people you work with are also the people you spend time with outside of work. Any conflicts can spill over from one sphere into the other,” she says. “People may be unaware of the differences in how they and their family members perceive risk.”
Her experience with this has given her the insight that it’s important to determine the appetite for risk. Depending on how comfortable you are with uncertainty, you may be categorized as a risk seeker, manager, mitigator or avoider.
When members of a business family know each other’s risk profile, this can help them work through differences and inform their decision-making process, suggests Ms. Han. “Focus on the decision that must be made – why you need to make it, what success would look like and what information you need to make the decision.”
Her belief is that open communication about this process can lead to greater alignment with the family enterprise’s strategic direction. “When you are planning for the future and you have people with very different appetites for risk, it can be very difficult to get everyone rowing in the same direction and at the same pace,” she says. “You have to spend enough time to make sure all participating family members wholeheartedly support the plan.”
When you are planning for the future and you have people with very different appetites for risk, it can be very difficult to get everyone rowing in the same direction and at the same pace.— Krista Han, Partner and National Business Family Services leader at Grant Thornton LLP
A risk is anything that can affect an organization’s ability to meet its objectives and preserve its reputation. For example, bringing in the next generation and new ideas may be perceived as “risky,” explains Ms. Han. “Transitions in family businesses can be challenging because they often encompass management as well as ownership changes.”
Typically, the outgoing generation’s appetite for risk is lower than the incoming generation’s. “This can create tension for outgoing business leaders, who tend to stay involved, for example in mentorship roles or on the advisory board, when they don’t agree with the next generation’s direction,” says Ms. Han.
What complicates matters further is that resulting issues may not be seen as “business issues but as family issues.” The best method is to have clear policies, an effective advisory board or board of directors, with a solid strategic plan.
Clear rules can also be effective for dealing with reputational risk, an issue that is increasingly coming to the forefront at a time when a careless or misguided social media post can go viral and reach a multitude of customers or other stakeholders.
“When you have a large family involved in the business and everyone has social media accounts, it’s important to consider how public posts reflect on the business,” says Ms. Han. “For many family businesses, their brand is defined by family values. So when a family member does something that is challenging for the brand, it’s not as easy to remove them from the business as an employee from a company that’s not family-held.”
Produced by Randall Anthony Communications. The Globe’s editorial department was not involved in its creation.