Well-developed socioemotional wealth (SEW) gives family businesses a decisive competitive advantage over non-family businesses. But what is SEW, and how do you develop it? This article considers socioemotional wealth and how to increase it in family businesses.
Have you ever noticed the interpersonal dynamics at play in a family gathering? Some cause you to smile, others make you cringe, and some just drive you nuts.
Believe it or not, these family dynamics, or rather the relationships behind them, give family businesses the edge over non-family companies.
What is Socioemotional Wealth?
Emotion is a critical differentiator in family businesses. Gomez-Mejia (2007) coined socioemotional wealth (SEW) to reflect the non-economic attributes that lend strength and competitive advantage to the family and its business.
SEW is the intangible energy flowing through family members' hearts, minds, and interactions that creates and strengthens bonds. Multi-generational family businesses surviving the long-haul prioritize the development and nurturing of socioemotional wealth. They avoid destructive forms of conflict and other behaviors that break trust and detract from relational strength.
How Does Socioemotional Wealth Affect Family Businesses?
When SEW is low, the family experiences more destructive forms of conflict that inevitably erodes business performance. When SEW is high, and family business dynamics are constructive, it empowers family business leaders to drive results efficiently and effectively for business and family interests. This is achieved through:
Fostering a loving, values-based environment with clear expectations
Prioritizing both family relationships and business outcomes
Maintaining governance processes that support the family system and business goals
Curating a business culture that supports both organizational strategy and family legacy
Ensuring long-term strategic business endeavors promote the family's interests
The Dangers of Pseudo SEW
Many families fall into the trap of unintentionally developing pseudo (or false) SEW. Pseudo SEW results in destructive and dysfunctional relational dynamics and occurs when:
Families prioritize relationships over results
Engage in conflict avoidance (artificial harmony)
Struggle with power, authority, control, and influence (PACI) issues
Fail to hold each other accountable
Enable dysfunctional behavior
Pseudo SEW can be difficult to detect as love among family members often runs as strong as resentment. Common signs include:
Artificial harmony
Compromise or avoidance that enables dysfunctional behavior
Hiring for relationship over competency (e.g., nepotism or cronyism)
Power plays, triangulated relationships, insider decision-making, and a host of other PACI related issues.
Non-family managers inability (or unwillingness) to challenge family members
How To Foster Socioemotional Wealth in your Family Business
Successful family businesses have discovered the secret of building healthy relational dynamics. These families focus on developing five attributes that reinforce constructive forms of SEW:
#1) Values
Think of values as building blocks for the beliefs that drive behaviors and decision-making. When values are intentionally defined, attached to specific behaviors, and curated over time, both the family and the business benefit because people know how they are expected to behave.
A culture driven by authentic core values is purposeful, safe, energizing, and exciting. Authentic values lead to observable actions congruent with stated expectations and aligned from the C-suite to front-line staff. Organizations with implemented authentic values realize cultures that drive as much as 50% greater profitability to the bottom line (James Heskett, 2007)
#2) Family Narratives
Stories form the basis of meaning and purpose within the family and are the vehicle that perpetuates a family's legacy and values.
Curating stories that impacted the family's values, business origins, challenges overcome, sacrifices made, and triumphs realized is a powerful antidote to attributes like entitlement, apathy, and affluenza.
When families connect values for family and business to these narratives, they become a powerful, cohesive force that shapes identity and culture across generations.
Families that are intentional about curating their stories and reconciling discrepancies are investing in developing their SEW. Successful multi-generational family businesses…
Intentionally identify important family-business narratives and connect them to both family and business values
Objectively acknowledge the good stuff and the tough stuff, including hard lessons
Regularly share the stories with pride, love, and compassion as a part of the family's legacy
#3) Conflict
The word conflict can conjure up images of emotion-laden exchanges, pain, and angst for many people.
But there is another side to conflict. One that produces the trust and intimacy essential for maintaining close relationships, gaining shared understanding, and building commitment to ideas.
We have the power to change how we experience and engage in conflict, embracing the power of constructive conflict. Successful multi-generational family businesses do this by:
Creating an emotionally safe environment
Leading by example
Acknowledging people have different personalities and conflict styles
Seeking to create a shared understanding for expected conflict behaviors
Intentionally developing skills and attributes that help family members and staff engage in Productive Conflict
#4) Clarity
Family business leaders wrestle with complexity and PACI (power, authority, control, and influence) challenges that make creating clarity for decision-making difficult but not impossible.
Establishing clarity requires making hard choices, resolving competing priorities, and addressing family relational issues.
Recognizing the need for separating family governance, business governance, and business management and taking initial steps (drafting a family constitution, creating a family council, and creating an organizational chart) is the easy part. Documenting, implementing, and maintaining are very different realities.
During implementation, difficult questions must be answered, such as:
Who are the holders of power, authority, and control in the business?
How will we deal with inter-personal family conflict when it impacts decision-making in the business?
How and when role selection and succession will happen?
What is fair, equity (everybody gets what they need) or equality (everybody gets the same thing)?
Answering these questions tests the family's commitment to its values and beliefs. In some cases, the process will also challenge long-held family narratives, inevitably creating conflict as discrepancies arise. Resolution forces family members to explore different levels of KASE (knowledge, ability, skill, and experience), needs, and perspectives.
Successful multi-generational family businesses achieve clarity by:
Creating and reinforcing role clarity in the family and business
Establishing behavioral expectations aligned with values and roles
Intentionally managing PACI issues
Prioritizing performance and accountability
Adhering to meeting rhythms
Supporting the power and authority of non-family executives
The process of gaining clarity is neither quick nor easy – hence, why families are often unable to overcome this obstacle alone.
#5) Leadership
Parents train kids to follow their instructions during the early years of a child's life. Making leaders requires a pivot to teaching kids to think for themselves, own the consequences of their decisions, challenge biases, and test assumptions. When young adults embrace these skills, they will inevitably challenge family narratives and long-held beliefs. What does this mean for the workplace?
In business, challenges often stem from confusion about the difference between forms of authority and leadership. This is a widespread challenge in family businesses where family patterns of behavior are brought into the workplace and forms of authority substituted for leadership. Authority demands obedience, not followership.
Leadership arises when a person, exercising their agency, chooses to follow another without pressure or fear of repercussions for failing to do so. Influence is the essential power base leaders rely on to motivate followers. Leadership in a family business is about choosing to forgo forms of authority to grow free-thinking followers responsible for their actions and choices.
Closing the leadership gap requires understanding how power, authority, control, and influence (PACI) flow in an organization and shape culture. Those at the top of the organization shape the culture to support their management style. Separating leadership development from culture change in family businesses is futile as PACI is the point of leverage for change.
No matter what the current state of leadership is, change is possible. Successful multi-generational family businesses:
Establish role clarity for:
The business
Family governance structures
Interactions between the business and family structures
Ensure decision-making responsibility is clear and tied to roles
Empower family and non-family employees to take ownership of their decisions
Conclusion – The Rewards of Fostering Socioemotional Wealth
The reward for all this hard work is an environment allowing family business leaders to continually break through organizational and family barriers, conquer obstacles, and maximize opportunities. Bottom line: focusing on building SEW results in stronger family relationships and more profitable businesses.
If you want to learn more about developing SEW in your business, get in touch. We’d be happy to help.