It is that time of year when we tend to look back and review what has transpired, for better or worse, while looking toward the future with the hope of learning from past lessons so we grow going forward.
Here are the top two questions I routinely pose to business families. Sometimes I’ll ask these outside of any specific context simply to see how families respond. Other times I’ll ask as families are struggling with a very specific challenge:
How would any given situation, issue, choice point, or the business in general, be different if yours was not a family business?
This is great when a family brings in the rising generation and pays its members well above market salaries – especially when they do not have the experience that would be required of a non-family candidate. It forces the family to look at the nature of combining family and business and whether family comes with unearned entitlement, or if the family business should be a meritocracy – a business in which one gains position and compensation only by earning them.
This same question is useful when families do the opposite – underpay family members who are well-educated and experienced. This is also not unusual in my experience. Sometimes the senior generation believes it needs to toughen up the younger generation and fight a tendency in them to feel entitled. However, this strategy can backfire leaving family members resentful about losing better opportunities outside the family business.
Another situation where this question applies is when ownership and management get so intertwined as to become indistinguishable from one another. An example is the spouse of the CEO who has an office, a great salary and gets involved in all kinds of decisions even though they have little to no experience in this type of business. And please do not assume that by “spouse of the CEO” I am referring to a woman. CEO’s in family businesses are women at much higher rates than non-family businesses! The inexperienced spouse (or other relatives) of the CEO would never be in a position like this outside of the family business but here they are taking their ownership stake, or simply their family status, and assuming it automatically gives them management and leadership ability. In close, extended families I’ve seen uncles with no formal connection to the business stop by, walk around and give employees direction! This happens in very large and financially successful enterprises, not just in “mom and pop” operations.
The dynamics seen in these and other examples often lead to resentment among non-family employees at all levels (and I could give many more examples). They become fearful that the family cannot manage itself in order to run a professional and merit-based organization.
In summary, this question forces families to look at the assumptions they make about family, ownership and management in order to make informed and enlightened decisions about combining all three.
What are the ramifications in the present of the possibility that future generations might own together as a much larger family ownership group?
I see parents struggle with how to involve their kids in the family business and be “fair” to them – often, in the minds and deeds of parents, “fair” translates to “equal.” (I’ve written about this before in blog posts of July 2011 and September 2011.)
When there are three or four children parents might give each a special title and a nice box at the top of the organizational chart even if they are placed above non-family executives with much more experience. The parents want the kids to feel special, included and that no favoritism has been shown by the parents. Similarly, parents often go out of their way to make sure that all the kids are able to have input into major decisions.
However, this can limit and disrespect the non-family employees who suddenly have a box above them on the org chart, and it gives the rising generation the unrealistic expectation that every family member should be intimately involved in every important decision – operational and strategic alike. If you project into the future and imagine twenty or more cousins sharing ownership, with everyone having direct input to senior management, you recognize it could never work (though I see it attempted). It would (and does) drive a CEO (family or non-family) a little crazy.
There is no time like the present to develop a family ownership group who, through a family council, can begin to develop and communicate family vision and strategy to the Board and senior management so they can do what they were hired to do in unfettered fashion.
This question helps to focus families on the ramifications of multigenerational stewardship. If the family vision is to transition the business to future generations, implement family governance structures now so you are prepared for the exponential growth future generations will bring.
What is the Lesson?
Enterprising Families: Start off 2016 with family, love and the key to combining business and family: good governance. Simply put, governance is about formalizing how decisions are made and who gets to make them, and occurs in line with an articulated vision for the future. As a family, ask yourselves the two key questions above for starters. Remember – tough conversations about challenging issues are essential to productively combining family and business.
Advisors to Enterprising Families: Feel free to use these questions with your family clients. They are a great way to help them consider many of the issues that lead to classic family business pitfalls. You can do all the technical aspects of your role perfectly and family dynamics will trump you every time. Tough conversations must occur and you are in an excellent position to guide your family clients toward the issues they must face. They will thank you for it.