3 December 1999

Want to Know a Secret? It can Stunt Firm's Growth

The following article is excerpted from "The Globe and Mail" of 30 November 1999.

Many family firms believe that privacy and secrecy lead to a competitive advantage. And in some instances, they do, when directed outwardly. But they usually cause tension — and, ultimately, a dangerous silence — when directed toward others in the family, firm and shareholder group.

Let's make clear the difference between secrecy and privacy. Secrecy is intentionally concealing information owed to others, while privacy restricts unwanted access from others.

When secrecy rather than privacy shapes relationships, it becomes awkward to talk openly. You can't let anything out without letting everything out.

Business families that respect private boundaries but share information within the group develop a better informed next generation and a more productive work force.

The tension between secrecy and privacy, and who gets to decide for whom, is a direct indicator of power within the family and the business. What kind of secrets do family businesses keep?

High on the list are secrets that define the hierarchy. Secrets about money and how it was made are fairly common. Thus, financial statements remain a secret....

Compensation and how it's determined are also on this list because it's the ultimate status symbol. In one second-generation family firm, the three siblings — all in their late forties — are divisional operators and shareholders, but they never know their final bonus and dividend until they receive it.

Their father controls the consolidated finances with his long-standing advisers. It would seem rude and greedy to ask for some participation in this process, so the three "children" wait and at times lobby for their needs....

Secrecy stunts the growth of a family business. It distorts communication. Family members act as though they see and hear nothing when it comes to secrets. They don't respond to serious questions and problems.

Privacy, on the other hand, is mandatory in any relationship. Without it, the family offers no sanctity to its members. Some people need more, some less, but everyone needs to hold back a certain amount of personal information, influence or territory that is closed to all but an intimate few....

Challenges to family privacy most often occur when planning for continuity. The older generation often feels that too much is being revealed too quickly; the incoming generation usually believes the opposite.

It's always best to explicitly list in a transition plan those areas that are open for discussion and those that are private. Nothing should be secret. For instance, parts of the parents' will that affect the business should be shared, while other aspects remain separate and private. It's crucial that everything relating to ownership, management and the family's relationship to the business and to each other be shared.

If you disagree with more than three of the following statements, your management style may be leaning ore toward that of J. Edgar Hoover than a family leader:

- clear, documented and measurable targets are set for everyone in the firm at the onset of the year
- financial statements are seen by all
- remuneration is based on performance — it's not an arbitrary decision
- key staff participate in long-range planning
- outsiders outnumber insiders on the board of directors
- professional advisers are regularly informed of company goals and decisions
- regular and substantive discussion takes place prior to major decisions
- everyone has access to a documented organizational chart

If your need for secrecy is based on wanting your needs to be met above those of others, you cannot work well within a family firm and a participative shareholder group. You must be willing to redirect your personal needs to the organization and to those who will contribute to its success.