When my family moved to Clearwater in 1980, my father joined forces with his brother in his brother’s accounting firm. Unfortunately, that partnership didn’t work out. The conflicts lead to family strife, and the ultimate dissolution of the business. Both brothers ended up working in separate firms, and to this day they don’t interact often, and when they do it’s often strained.
Looking back, I believe that a lot of the problems they experienced could have been avoided had the brothers engaged in a conversation about expectations before they began their business partnership. What were their expectations of themselves, the business and of each other? Were their expectations in line with what the other saw? Who was going to be responsible for what elements of the business? How was the business going to be managed?
In last week’s column I focused on family business succession planning – its importance as well as various psychological factors that must be overcome to implement a successful plan when transitioning a family business from one generation to the next. Today I am going to focus on management problems many family businesses face that are not common in other businesses.
Inadequate organization is probably the most common problem found in many family businesses. The lack of realistic organizational charts or specific job descriptions often causes family members to duplicate functions, or for various family members working in the business to lack true responsibility. An informal family business structure is often considered a benefit to the family patriarch or matriarch who is running the business, since decisions can be made more quickly and handed down to those below.
That same centralized management, however, can result in a less thoughtful approach to very important issues, often leading to bad decisions. Those decisions may not be based on what is really going on with those who are “on the ground” with customers, vendors and suppliers.
While some families may fight and others negotiate, it is far more common for family business members to simply ignore conflicts. It’s easier, in the short term at least, to sweep things under the carpet. This causes long-smoldering conflicts to flare in stressful situations such as a bad economic downturn, or the death of the family business owner. These are the times when the family business members must pull together to ride out the storm, but instead they find themselves venting long held grievances, with each side digging in their heels, which is exactly what the business doesn’t need at a crucial moment in its history.
Another problem found in many family businesses is disgruntled family members. A key family member might leave the business, which is bad enough as the business must replace that employee. Often however, when a disgruntled family member leaves the business, he or she continues to second-guess the decisions of the family members who remain in the business. This might be due to a variety of factors, including the expectation of an inheritance or sibling rivalry or jealousy.
Compensation is yet another issue plaguing family businesses. While all businesses wrestle with compensation issues for their employees, it becomes that much more difficult when parents, children, siblings, cousins and other relatives are all working together. Perceptions that certain family members are overpaid and underworked, while other family members are underpaid and overworked could lead to many of the other problems I’ve highlighted above.
When these and other common family business issues are present, it is important not to ignore them. But how should the business respond? There are many ways to respond. It’s not so important that you find the “best way” so much as the family business finds “a way” that will work for them.
For example, I’ve found success leading a “family business retreat” where the attorney, accountant and other important advisors meet privately – first with the family business owner (typically the patriarch or matriarch) to discuss the issues that he or she sees that might plague the business or that might ultimately cause problems. Next those same advisors meet privately with the family business employees to get the scoop from their end.
I next meet with the other advisors to discuss what we’ve witnesses to see if we are all hearing the same thing. We gather ideas that might help the business, including introducing the business owners and other family members to others that might help solve a specific problem. We’ve used everything from consultants familiar with the specific industry that the business is operating in to psychologists familiar with the conflicts that this particular family business may be experiencing.
From there we may engage in a family business retreat where everyone participates. This retreat might discuss the expectations and hopes that every family member harbors – similar to the conversation I wish my father would have had with his brother back in 1980.
It’s never too late to put things on a better course. If any of this does sound familiar to you, suggest a family business retreat with your own advisors to see if there isn’t a better path for your family business.
©2010 Craig R. Hersch