A Well Run Family Business in Not an Oxymoron

A Well Run Family Business is Not an Oxymoron

by John Rogers

A “well-run” family business is not necessarily a contradiction in terms. However, while having family aboard not only can help, at times it hurts. That’s because familial ties are so strong.

Why did you start your business? Ask a founder entrepreneur that question and the answer likely will be: “To build something for my family.” Yes, the American Dream of launching your own business often includes keeping the family together through that business.

Family can be one of the biggest challenges a business can face. Main problems are how to mix love for family with fairness to all staff and how to resolve family conflicts within the business. Results may be a disgruntled staff plus rivalry in the family.

For this article on managing the family business, we interviewed several experts.

First, a word about the importance of the family business in the American economy. Family-controlled businesses are responsible for 59% of employment and 78% of all new jobs. Eight of ten companies in North America are family firms, many of them small ones but nonetheless distinct businesses.

Family Business: What’s Good, What’s Not

An important question to our experts was: What are the pros and cons of the family business? Generally, all agreed that the family firm offers the advantage of a closer relationship with family members and provides them with opportunities. Greater loyalty from customers also is likely because they relish dealing with the owner/boss of the family. There’s a warmer relationship usually.

Another advantage of the family business can be more agility and less bureaucracy in management. Dad or mom or son or daughter may quickly say yes or no rather than taking it to a board for a vote.

On the Other Hand

Drawbacks are as plentiful as are the advantages. Unfortunately family members often assume the same roles in the business that they do in the family. There’s a carry-over of personalities and emotions. Also, even worse, often there’s a feeling of entitlement among family members.

Keeping the Family Baggage Out of the Family Business, is the title of a book by management consultant Quenton Flemming, published by Simon and Schuster. Fleming finds that families tend to bring home their patterns of relating to each other. This may recreate the family hierarchy within the firm even though the business has different needs than does the family.

Nurturing the Family Employee

How to develop family in the business draws some unanimous comment from experts. All of them point to the danger of an older generation holding onto authority too long and suffocating the younger generation. Elders refuse to allow the mistakes necessary in any learning process.

Or too often a job is designed to bring a relative on board rather than having each job described in detail and then matching the relative to that position. “Clarify roles and responsibilities based on positions, not people,” urges Kim Schneider of Schneider Consulting Groups, Denver.

Preferably before signing on, family members will have acquired outside experience, perhaps working for another firm in the same field. Some family firms require two years of such hard knocks elsewhere before taking on a relative. There’s nothing like working for someone other than dad or mom to learn humility, respect and responsibility. An added plus would be respect of other staffers for having paid your dues.

Early Preparation at Home

Expert Joseph Astrachan of the Family Firm Institute, Boston, stresses the importance of preparing a son or daughter at an early age, teaching the value of hard work, money and personal responsibility long before being hired. Short family meetings of 5-10 minutes are recommended to set goals for homework and chores, etc.

If you have a daughter, better treat her like a son in regard to your business. While less likely than sons to join the business, even today, daughters are stepping up the pace. And they resent having to ask to become part of the business while a son may have been invited. Equal consideration for daughter and son is best.

And in developing a family employee, there should be a career timeline established. Goals and positions should be specified for every two-year period, according to Paul Karofsky, executive director of the Northeastern University Center for Family Business, Dedham, Mass. As with other employees, it’s often best for family members to be assigned a mentor to monitor individual work progress, Karofsky adds.

How to Be Fair Yet Take Care of Family

What about fairness and does this require treating family like everyone

else? Well, yes and no. Yes, the experts agree, family is to be paid for the job and the performance on equal terms with all employees. However, special compensation is okay provided it is as a bonus or part of an ownership incentive program and not in the pay package.

One way to assure fairness is to make sure everyone, family and staff alike, know the rules of operation and what is expected of each of them. While at home, families may not need written guidelines to operate: family businesses do.

Everyone must be made aware of required basic business behavior. No coming in late and no taking off without notice. What’s sauce for the goose, as in this case the staff, is sauce for the gander, family.

Same Last Name No Excuse

Just because an employee has the same last name as the owner does not avoid performance reviews necessary before a raise or promotion. The family members need that review, just as much as do other employees, to realize where the required level of performance is being achieved.

What happens if a family member in the business wants to borrow money from the business? Apply the same rules as for other employees. Actually, when you apply rules equally, you will become more perceptive of needs for all employees.

And the fairness list goes on, same discount on merchandise, same vacation allotment, all the same throughout the business. The worst example a family member can set for others is to dip into the cash register like the cookie jar at home.

Report to Non-Family Member

Who to answer to? Experts are quite firm on that point. Karofsky says whenever practical, family members should report to non-family members. What about pay? Astrachan urges that all employees be advised clearly up front what to expect in the way of compensation. “They may not like what this is, but at least they realize you have a policy and stick to it.” he says.

Every employee can contribute valuable ideas for the business if they know the path is not blocked by family members. Their comments and criticisms will be forthcoming provided they are encouraged to share them, says Karofsky.

On the other hand, lack of communication can sap morale and prompt people to leave the company for jobs where they will be heard and appreciated. One way to open up communications is to invite any employee with suggestions to attend relevant meetings of managers and supervisors.

When Conflicts Do Strike

Inevitably conflicts in the family

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business will arise from family relationships. “This trouble with kin is the cause of most close family demise,” states Astrachan. He reports that close family communications often is the key to resolving such conflict. Karofsky and Schneider suggest forming a family council to keep communications open and help resolve conflict.

The family council also can monitor business progress. But Astrachan says a professional evaluation can best determine whether the business is being run well and in accordance with the family’s wishes and values. Conflict should be addressed as soon as it appears and not allowed to fester.

Some business families seeking outsider help look beyond lawyers and accountants, turning instead to psychologist, therapists and other behavioral experts. The family business in conflict has become a gold mine for mental health professionals.

Regular Family Meetings A Must

A regular business family meeting, including stakeholders, and not just workers, also is recommended, preferably weekly. However, the fact is that fewer than 10% have such meetings, fearing that their business may turn into a democracy. Such meetings really are so important, they are the title of a volume: “Family Meetings: How to Build a Stronger Family and Stronger Business.” This is part of the Family Business Leadership Series by two doctors of philosophy, Craig Aronoff and John Ward, NARDA Institute, Chicago.

Family meetings and an active outside board of directors are the two most important steps assuring continuity of a family business, according to Aronoff and Ward. Such meetings, they declare, give individual family members opportunities to develop and display leadership.

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Some Topics for Meetings

As with any other type of meeting, a family session requires having an agenda. Topics might include; which family members are allowed to work in the business; are in-laws welcome; how to determine titles and authority for family members; and how old is too old to enter the business.

Speaking of in-laws, having them employed in the business solves the problem of a spouse feeling left out. But there also may be big trouble in the event of a divorce if the couple continues to work together. When partners divorce, it’s the stickiest of sticky situations. This usually presents three options: sell the company and split the proceeds; divide the responsibilities in some way; or let one partner buy out the other. In a divorce settlement, consideration might be given to a noncompete agreement.

A Lot of Help Available

Fortunately, there is abundant help available. More than 100 universities (85 of them in the U.S.) have family business programs, often named Center for Family Business. Information on university programs can be obtained from Family Firm Institute (www.ffi.org). Trade associations also are likely sources.

Tips for Sidestepping the Pitfalls

Beware the family carry-over Dad or mom may hang on too long Don’t tailor a job for junior Urge getting some hard knocks elsewhere Prepare heirs at an early age Be fair or at least be wise Same last name is no excuse Report to non-family members A formal family council can solve conflicts

Recommended Reading

Family Business, Risky Business, Bork Institute Aspen, Colorado Keeping the Family Baggage Out of the Family Business, Quentin Fleming, Simon & Schuster v