Developing a Family Business Decision-Making Hierarchy

How does a group of people make decisions? By voting on them? Democratic decision making is all well and good, and is at the heart of many long term company strategies, but unfortunately, in business, it doesn't always work. Sometimes decisions need to be made quickly and sometimes making good decisions requires a certain level of education and understanding.

Most businesses choose a manager to make day to day decisions for them, but what happens when something really important and controversial comes up - can the manager ever be overruled? Making the effort to develop a clear decision making strategy when your family business is first set up can make it much easier to cope in times of crisis.

Choosing A Manager

Among your first priorities in setting up your family business should be choosing a manager. Some families find this so difficult that they prefer to hire in an outside family manager, but usually a member of the family itself will be chosen to be responsible for day to day decision making. In many cases it is simply assumed that this position will fall to the oldest person in the proposed business, or to the one who is normally considered to be the head of the household. Be wary of doing this - that person won't always be the most capable.

As well as successfully commanding authority, a good manager has to be able to make quick, strong decisions; has to be prepared to work long hours, always being on call for business emergencies; and has to be able to communicate well with everyone involved with the business, both internally and externally - all in addition to having an excellent knowledge and understanding of the particular area in which the business is trading.

An older manager can generally command more authority but a younger manager may well have more energy and can give the business a more dynamic image. The manager does not devise company strategy all alone and the manager is not the only person who gets a say in how the company will develop, so by letting somebody else take this job you're not giving up all control. What does matter is that the manager is somebody whom everybody involved in the business trusts to implement strategy and to make day to day decisions on their behalf.

Levels Of Management

Depending on the size of your family business, it may sometimes be appropriate for you to develop a secondary layer of management hierarchy.

When choosing second-stage managers you'll need to make sure that they're willing to engage positively with the senior manager and that they can be good team players. These managers should have good specialist skills and understand particular areas of the business really well, so that they can oversee activities in that area. Generally, in a new business, they'll need to do some more direct work as well, and they'll need a thorough understanding of the business strategy so that they can coordinate their actions appropriately.

It's important that everybody working for your business knows which manager they should approach with problems or suggestions. Sometimes it can be useful to have more than one manager so that an employee who feels misunderstood can appeal to somebody else, but be wary of being set against each other by employees. A senior manager should always consult the relevant section manager before dealing with an employee directly.

Shareholders And Voting On Decisions

Most shareholders will want a say on the big decisions taken by the company, therefore it's a good idea to develop a system of regular shareholders' meetings, along with a procedure for calling emergency meetings if big decisions need to be made urgently. These will give shareholders the opportunity to exercise their voting privileges. Shareholders should always have the option of calling a vote of no confidence in a manager. However, as a rule meetings will involve managers proposing elements of strategy and shareholders discussing them prior to giving their assent, sometimes with emendations.

Having a strong decision making hierarchy within your business means that there will be fewer occasions when shareholders will be dissatisfied. It means that you will be able to react to changes in the market more quickly and it means you will be better at taking the initiative. Not everybody will get their way all of the time, but the business will get its way, and everyone will benefit as a result.