5 Rules for a Thriving Family Business

When you work with family, the boundaries between professional and personal are sure to overlap. Where does one role begin and the other leave off? “Spouse or sibling relationships are complicated enough,” says Greg McCann, director of the Family Business Center at Stetson University in DeLand, Fla. “But they’re more complicated when you’re navigating dual roles in a business.”

An old poignant joke sums up this tension, says McCann: The owner of a business calls his son into the office, puts on a hat labeled “Boss” and says: “You’re fired.” Then he takes off the hat, puts on another labeled “Dad” and says, “Son, your mother and I heard you lost your job today. Let us know if there’s anything we can do to help.”

Family businesses are in transition. Life at family-run businesses may be challenging, yet they are thriving. Family firms make up more than 80% of all business enterprises in North America. They employ more than six out of every 10 (62%) United States workers, according to the Family Firm Institute, a membership organization based in Boston. And since most of today’s family-owned businesses were formed shortly after World War II, many will soon change hands.

That means hundreds of families and owners will wrestle with such issues as transferring power, developing leadership and grooming the next generation of management — whether owners realize it or not. Among family business CEOs who plan to retire over the next 5 years, more than half (55%) haven’t selected a replacement, according to a 2007 American Family Business Survey, conducted by MassMutual, Kennesaw State University and the Family Firm Institute.

So this is an opportune time to take stock. If your kids aren’t cutting it or Uncle Harry thinks he’s office manager or your niece is marketing in all the wrong places, here are five rules that will get everyone headed in the right direction.

Send consistent messages in a family business

1. Set clear expectations and hold family accountable. Companies often get into trouble because owners don’t differentiate between what’s acceptable in the family compared to the business. “Participation in a family is based on unconditional love. If you mess up, families still love and support you,” says Mark Harder, a trust and estates lawyer at Warner Norcross & Judd in Holland, Mich., who specializes in family-held firms. “In business, participation is based on success and standards. If you mess up, there’s a price you need to pay.”

To avoid confusion and botched operations, make sure every family member on the job knows exactly what’s expected at work. Define responsibilities, job parameters, goals and precisely what you mean by success. Don’t leave it to guesswork. Then, more importantly, evaluate the work with performance-based standards, not family tolerance. That means daughter Samantha can’t waltz in at 10 a.m. twice a week when everyone is supposed to be at his or her desk by 9 a.m. When you offer feedback, make sure it’s businesslike, as opposed to a family complaint. “Connect the employee’s performance to the consequence,” suggests Paul B. Thornton, author of “Leadership — Best Advice I Ever Got.” For instance, says Thornton: “Helen, when you send out a document that has 12 typos, the customer concludes this isn’t the type of company he can count on.”

2. Make sure job titles are meaningful. Hiring nephew Ted as a salesperson or even sales director doesn’t automatically give him authority over the marketing director, the accountant, the IT consultant or any assistants. Frequently, a family member feels empowered by the blood tie to make judgments in all areas. As owner, you need to rein in such turf wandering. If you don’t, at best you’ll provoke resentment in the ranks. At worst, you could face the nasty results of truly lame decisions.

3. Create transparent compensation and HR policies. Unrelated employees are commonly made to feel like second-class workers in family-run firms. Typically, no one ever says so, but non-family staff understand that advancement and top salaries are reserved for family members. That could leave you with lackluster performance and difficulty in tapping talent. You’re better off acknowledging the special personality of the company and creating ways for non-family employees to feel valued. Some owners avoid misunderstanding by announcing, upfront, that there’s a ceiling on promotion for non-family, but they extend special perks or training or other opportunities to compensate.

Other owners acknowledge that equity in the company is not possible for non-family, but outside staff can earn performance-based bonus pay or incentives that provide substantial rewards. The same goes for setting company personnel policies, such as benefits and time off. A formal written employee handbook can help with family and non-family staff alike. Non-family will be reassured that policies are in place that gives them a fair shake. Plus, points out Roberta Chinsky Matuson, a human resources consultant based in Brookline, Mass., “You can use an employee handbook as a tool to keep Aunt Sally in line.”

4. Leave work at the office and family matters at home. When brother Bob launches into a customer problem over Sunday dinner, back up, advises lawyer Harder. He suggests you respond by saying, “‘That’s a really good question. Why don’t we schedule some time during the upcoming week to talk about that.'” Likewise, when your sister shows up at the office to talk about problems with your dad, Harder recommends saying, “‘I agree it’s important. Let’s talk about that over dinner tonight or on the weekend.'”You can also create a formal arrangement to differentiate business from family outside the office. For example, Brian Brooks, 38, recently bought the 13-staff MBP Image Display Services from his parents. Founded by his mom and dad in 1974 and based in Fairfield, N.J., MBP is a video company that covers live events, from rock concerts to corporate meetings. Brooks became a full-time employee in 1998, but he first gained experience outside the company.”I worked in different aspects of production for ten years,” he says. “I needed to bring something to the table and I needed maturity to take on the responsibilities.”

Nowadays, with Brooks running the show, and part-time help from his sister, he has signed a formal contract with his parents that put them on annual retainer as advisors. They meet several times a year and Brooks calls to ask for advice about business development, strategic planning and more. “I give their advice a lot of weight,” he says. “They haven’t made many mistakes over 30 years.”

5. Depend on objective outside help. A host of consultants, specialists and resources are available to support family businesses. You can get advice on such complex issues as firing a family member, forging a comfortable bridge between family values and business practices and more. Experts can help you hammer out what works for you in the unique culture of a family firm. “Consultants with family business experience can help to sustain and maintain the company, where career, family and wealth are all tied together,” says the Family Business Center’s McCann. You might also consider an advisory board for ongoing support. “This shouldn’t include your lawyer or accountant,” says McCann.

“Look for people who know family businesses or the market you’re in, and pay them for their time so it’s a formal arrangement.” Fees for small business board advisors run about $1,000 to $2,500 per person per meeting, he says. Online resources include such member groups as the Family Firm Institute (www.ffi.org), mentioned above, and the United States Association for Small Business and Entrepreneurship (www.usasbe.org), which offer a number of benefits, including online forums where you can access experts and post questions or comments.

Don’t forget to keep talking. In the end, as always, communication that’s clear and consistent and thoughtful is the best tool for keeping the business on track. “Communication is the key to resolving issues before they get out of hand,” sums up Dan Stockdale, a leadership coach based in Beverly Hills, Calif. “Weekly ‘family’ meetings are a good opportunity for each person in the organization to talk about their area of responsibility in a non-threatening environment.”

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