Family businesses need stewards

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A Steward is someone who has been entrusted to look after another’s property or affairs, putting those affairs ahead of their own self-interest.  The word describes a guardian or keeper who has accepted the responsibility and accountability that comes with the role.  Indeed, stewardship theory suggests that people are motivated not simply by self-interest but by service to others.

When it comes to the sustainability of the family business, it is important that both family members, and their non-family managers and employees, embrace stewardship.

Agency versus Stewardship in Managers

Family business managers are hired as agents of the company and expected to work in the interest of owners while being overseen by the Board of Directors.  Unfortunately, as micro, small, and medium enterprises (SMEs) grow into large corporations, these managers may start to pursue self-interest over the interests of the shareholders / owners. As agents, they will first negotiate for their own short-term gains for fear of later being replaced. If redundancy becomes a strategy to cut costs in a company, these agents will likely not compromise their own compensation for the longer-term survival of the business. They will expect to be paid what is due to them in the short-term. Whether the company is in crisis or not, agent managers will expect their remuneration and other incentives to be paid before profit or loss is declared.

On the other hand, steward managers are committed to the continuity of the business. They are more future-focused, with a sense of purpose and responsibility that puts the well-being of employees, owners and customers above short-term financial gain. They live the values of the business, uphold its traditions, and promote its culture.  Steward managers are often willing to sacrifice or invest their own resources to make the firm healthy and durable, and to enhance value for all stakeholders. They have been known to cut down their own salaries in order to contribute to the survival of a firm that is in crisis.

Despite the longer-term benefits of stewardship in the family business (FB), the owners’ actions foster agency more than stewardship in their managers.

How to encourage stewardship in the family business

Stewardship does not come by happenstance. Family business owners need to be intentional about creating a favorable environment to promote stewardship. Any sustainable virtue in an organization can be strengthened through intentionality. Shareholders of the FB need to be deliberate in their actions to a) develop stewardship in family members, and b) foster a move away from agency towards stewardship among their managers.

Understand the Motivation.  There is a strong socio-emotional aspect to the involvement of a family member in the family business. Because the fate, honor and career opportunities of the family are linked to the business, family owners and executives generally act in a way that supports the business and its contributors. FB executives often tell the story of how previous generations sacrificed to leave a legacy for future generations.  Next generation family members typically want to support and protect the legacy of the older generation; therefore family managers have good reason to be committed to the continuity of the business.

Outside of their financial goals, family members pursue non-economic goals like familiness, community, philanthropy and/or reputation.  Stewardship requires stable relationships which require significant interdependence and interaction among stakeholders. These conditions are said to develop within family businesses when family members identify with, and are emotionally attached to, the firm and are thus willing to do what it takes to enhance its sustainability. Relationships among family members are enhanced through regular family meetings, picnics and other social events.

But what will motivate a non-family member to invest in the long-term survival of the business? What non-economic rewards might they value?

From Maslow’s Hierarchy of Needs we see that, at the highest level, humans are motivated by the need for self-actualization which includes purpose, authenticity, acceptance, equanimity, humanitarianism, morality, creativity, stability and more.

Family Business owners and directors should adopt reward systems that will contribute to the self-actualization of their non-family managers and employees. Consider the following suggestions:

  • Key leadership positions should not be reserved solely for family members. Non-family managers and employees should have equal consideration for promotions within the business.
  • Family business leaders should intentionally encourage non-family input and suggestions. Non-family managers should be included in decision-making and recognized for their efforts. As a result, they will adopt an owner’s mindset which leads to better decisions and actions, a more favorable business environment, firm growth and enhanced sustainability.
  • FB executives could share the story of how non-family managers and employees also contribute to the socio emotional wealth (SEW) of the family. They could honor hard work regardless of whether the person is or is not part of the family.  They could display portraits of non-family members who have made significant contributions to the firm’s growth alongside those of family members.
  • Working conditions, as enacted by the human resources department, should support employee work-life balance. Work-life balance reduces stress which in turn improves the health of employees. Good health translates to productivity and less errors. To foster stewardship in the firm, very long hours of work should be discouraged. This doesn’t suggest a drastic cut to the hours of work but there should be standard number of working hours without expecting more from employees.
  • Enact flexible working conditions. Non-family managers and employees should be seen as human beings with many spheres of life. They too have families, have hobbies, and are community / religious leaders. They too have personal and professional developmental goals.  They should be encouraged to feel fulfilled in other aspects of their lives outside of work and have time for their families. The covid-19 pandemic has proven that flexible working conditions do not detract from continued productivity.
  • Show genuine interest in the well-being of employees. There will be moments of joy, happiness, sorrow and anxiety in the lives of employees; it is important that FB owners and executives recognize and share these moments with them. For example, they should interact with their employees and ask about their family’s achievements and health. They could participate in weddings, naming ceremonies, funerals and other life events that are memorable to the employees. While it will not be possible for owners to attend every single event, executives can in turn care for their departmental managers while the managers focus on their direct reports. Note that not all employees will want their supervisor to participate in their family events — know what works for each employee. For example, attending funerals may not be suitable in some cultures. It is important to give bespoke care to employees to promote stewardship in the FB.
  • Include specific non-family managers in relevant family business gatherings. Stewardship requires stable relationships which require significant interdependence and interaction. Stewardship grows when people share a similar social network and, in non-family members, can be enhanced when they are invited to be part of a family / enterprise social function. While many family gatherings will be exclusively reserved for family members, there are always suitable occasions to intentionally involve non-family managers. When non-family members feel connected to the family, they are more likely to commit to the business’ survival.

Conclusion

Stewardship is essential to the success of ever family business and requires commitment by both family and non-family members.

When majority owners and executives promote a stewardship philosophy, they are more apt to view their organization as a vehicle to benefit many parties, not just themselves. Their intent is to create an enduring and robust enterprise.

When managers and employees embrace stewardship, they have a positive impact on attitude and conduct throughout the company. Stewards are committed to selfless service. They are team players who stretch for the greater vision.  While they support the principles and traditions of the business, they will embrace innovation and change.   They understand that they are building value not just for themselves, but for the shareholders and future generations.

So, family business leaders should intentionally encourage stewardship in order to create a favourable business environment.

 

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