Last week, Mercer Capital conducted our annual firm-wide meeting at the Peabody Hotel in Memphis. It is a 14-year tradition where employees travel from all offices to get together and discuss the state of the business and the industry as a whole. It seems simple, but the gathering highlights something far more important: communication matters.

Communication determines the success of any relationship, and the relationships among shareholders of multi-generation family businesses are no exception. As the business and family grow, shareholder relationships become more complicated, and formal communication becomes more important. While families nearing a generational transfer have some very specific communication challenges, effective communication is essential regardless of where the family business is in the corporate life cycle.

How can family business leaders develop effective and sustainable communication programs? For family businesses, the goal is to communicate, not inundate. At some point, too much information can simply turn into noise. Family business leaders should focus on the following dimensions.

Frequency

The frequency of communication should correspond to the natural intervals over which (1) genuinely “new” information about the company’s results, competitive environment, and strategy is available, and (2) shareholders perceive that the most recent communication has become “stale.”  As a result, there is no one-size-fits-all frequency; what is most important is the discipline of a schedule. Positive engagement is enhanced when family shareholders receive regular communication.

Presentation

Family business leaders should assess what presentation of information is best to facilitate shareholder communications. If the goal is to communicate, the appropriate level of detail should be defined with reference to what is necessary to tell the company’s story. The detail needs to be presented to shareholders with sufficient supporting context regarding the company’s historical performance and conditions in the relevant industries and economy. A dashboard approach focusing on key metrics can be an effective tool for drawing attention to the measures that matter.

Transparency

Family Business Magazine discussed how family businesses and family members share information in a recent article.  One question they focused on was: how is feedback gathered from the family? Communication is a two-way street. How business information is shared with the family is essential, but listening to the family shareholders and taking their preferences and considerations as an integral component of decision-making is equally important. It is prudent for directors and managers to solicit feedback regarding the needs and preferences of quieter shareholders. Asking for input from all shareholders through a systematic survey process helps ensure directors and managers receive a balanced picture of the shareholder needs and preferences. A confidential survey administered by an independent third party can increase the likelihood of receiving frank (and therefore valuable and decision-useful) responses.

Emphasis

The goal of shareholder communication should be to help promote positive shareholder engagement. To that end, the emphasis of the communication should not simply be the bare reporting of historical results but should emphasize what the results mean for the business in terms of strategy and outlook. Shareholders do not need finance degrees to be able to understand the three basic decisions that every company faces: (1) how should we finance operations and growth investments (capital structure), (2) what investments should we be making (capital budgeting), and (3) what form should shareholder returns take (distribution policy). Educated shareholders can provide valuable input to directors and managers and will be more engaged in management’s long-term strategy.

Will conducting a shareholder survey help to understand the family shareholders? What is the best way to educate family shareholders moving forward? In our family business advisory services practice, we work with successful families facing questions like these every day. Give us a call to discuss your needs in confidence.