How to Make Better Decisions in Your Family Business

Most of the family business owners we work with want everyone to agree.

That makes sense. The people around the table are your siblings, your children, your cousins.

Nobody wants a disagreement over a business decision to cost them a relationship.

But waiting for everyone to agree is one of the most common reasons decisions stall.

We often hear owners say, “Well, at least we agree to disagree.”

That’s far off the mark. There’s no agreement in that, and there’s no decision either.

Better decisions start with being clear about how decisions get made and who makes them.

Decision-making is part of your family business governance

When we talk about governance, we keep it simple. Governance is how you make decisions in your business and how you handle conflict. It’s one of the Six Fundamentals in the model we use to help family businesses build prosperity and longevity.

When governance isn’t defined, decisions default to personalities. They get made on history, emotion, and whoever pushes hardest, instead of on what’s best for the business.

There are four ways to make a decision, and each one has its place

Autocratic. One person makes the call. It’s the fastest approach. Use it in an emergency, when safety is involved, or when the decision is small and sits within the decider’s expertise.

Democratic. Everyone votes and the majority wins. This works for low-stakes choices where every option is fine and preferences vary, like where to hold the company picnic.

Consensual. 100% agreement, 100% of the time. It sounds good on paper, but running a business this way usually ends in deadlock. Save it for the far-reaching decisions every owner has to stand behind. The biggest one is whether you’ll be a business-first family or a family-first business.

Collaborative. This is a cousin to autocratic, with one twist. There’s still a single decision-maker, but that person actively seeks out subject matter experts to get their perspectives. A good collaborative decision-maker goes looking for people who disagree with them.

Collaborative decision-making is the best default for most family businesses

When you’re consulted, you get the opportunity to influence the decision. You don’t get a vote, and the decision may not go your way.

The goal is clarity. Everyone understands the decision and knows their role in carrying it out, even if they would have chosen differently.

Right decisions, made with the right people. That’s how you move forward without gridlock.

Collaborative decisions work when four practices are in place

• Get high-quality input. Include stakeholders and subject matter experts. For important decisions, bring in outside advisors too.
• Make decisions at the right level. Match each decision to the right role. The CEO should not be choosing the flavored coffee for the break room. In a family business, the right level also means the right room: some decisions belong to the family, some to the owners, some to the board, and some to management.
• Clarify who owns each decision. A RACI matrix spells out who is Responsible, Accountable, Consulted, and Informed.
• Set an escalation process. Agree on how and when a decision moves up to someone with the authority to make the final call, so it doesn’t sit unresolved.

Write your decision-making philosophy down

A short decision-making philosophy statement tells everyone how decisions are made and who makes them. Many families include it in their family constitution, alongside how family members join the business and the role of the board.

Pair it with a RACI matrix and a clear system for managing, and your business will make better decisions faster.

If you’d like help defining how decisions get made in your family business, that’s part of the work we do as family business advisors. Reach out to speak with one of our advisors.

More on governance, decision-making, and putting the right people in the right room

What Does It Take for Your Family Business to Survive for Generations?
Rob walks through the Family Business Prosperity Model: the one decision and six fundamentals, including governance, that give a family business the structure to last.

Will You Be a Business-First Family?
A closer look at the far-reaching decision every owner has to stand behind, told through Rob’s experience inside two 100-year-old family businesses heading in opposite directions.

When Family Business Conflict Isn’t Really About the Family
Rob, Brandi, and Price work through a scenario where two owners avoid a hard decision, and show how unclear decision-making turns into conflict across the business.

Why Governance Won’t Make Your Family Business “Corporate”
Rob and Brandi explain why families who set decision rules ahead of time handle conflict better, and how an escalation process keeps a business from getting stuck.

The Four-Room Model: A Simple Way to Think About Governance and Communication
Explains the family room, owner room, board room and management room, and which decisions belong in each one.

How Two Brothers Fixed Their Family Business by Fixing Their Governance
Follows two second-generation brothers from stalled decisions to a board, a meeting structure and a written decision-making policy.

What Is a Family Constitution?
Covers what goes into a family constitution, including how decisions are made and how family members enter or exit the business.

System for Managing: The 5 Phases of Effective Business Management in Family Enterprises
Lays out the five-phase system Ferguson Alliance puts in place so plans, execution and reporting run on a steady rhythm.