Maintain Your Family Business - management
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Maintain Your Family Business

WRITTEN BY MARY SEDOR

Article Date: 01-01-2007
Copyright (C) 2007 Associated Equipment Distributors. All Rights Reserved.


How to keep your family business viable for years to come.

Family businesses have unique challenges that most businesses don’t face, and nearly 70 percent of family owned businesses fail during the second generation. Of those that do last, nearly 88 percent close their doors during the third generation and 96 percent are out of business by the fourth generation.

 

On the flip side, 20 percent of second generation family businesses are doing something right. How do they survive while others fail?

 

According to Laura Michaud, third generation owner of Beltone Electronics and author of “From the Kitchen Table to the Conference Table: Family Business Communication,” family businesses with good communication skills and the ability to work through relationship issues survive.

 

When family members are not communicating adequately with each other, business concerns become major problems. Eventually the major problems get of control, says Michaud.

 

Typical family business concerns include:

  • Financial concerns: Everyone has a different idea on business finances and family member compensation.
  • Estate concerns: For the business to continue into future generations, an estate plan is necessary. Unfortunately, few family business owners want to address their own mortality.
  • Succession concerns: While the senior generation wants only the most qualified people to lead the business, they often have a difficult time choosing between family members.
  • Family concerns: Challenges often arise in the family and in the business when a clear boundary is not drawn between the family system and the business system. Some family members bring problems from home into the office or vice versa. Doing so creates unnecessary stress as family members feel they never have a break from the office.
  • Organizational concerns: Family business owners often build the company without a solid blueprint in mind. As they bring more family members into the mix, defining who does what job gets clouded. That’s why defining roles and assigning jobs carefully, along with delegating authority and assigning accountability are vital.
  • Communication & Behavioral concerns: Sometimes family roles cross over to business roles when they shouldn’t.
“Regardless of the challenge, you can resolve the issue and move on provided you have sound communication in place,” says Michaud. “The real secret to family business success is being able to communicate effectively.”

Schedule Family Meetings

One sure-fire way to promote healthy communication is by scheduling family meetings.

 

In addition to the formal meetings required of business, such as board of directors, shareholders and day-to-day operations meetings, Michaud recommends families also hold specific meetings just for family members.

 

All family members should attend these meetings to discuss family and business issues. Whether you schedule the meetings daily, weekly or monthly, creating a space for family members to discuss the business and the family will help improve any business concerns you may have.

 

“Regardless of how often the family decides to meet, it’s best to schedule the meetings on a regular basis,” says Michaud. “When the meetings are built into the business routine, the family begins to rely on them for information and development.”

 

When establishing a family meeting, it’s important to clearly state the purpose and location of the meeting, what you hope to accomplish, who should attend and how often you will meet.

 

“The purpose of a family meeting is to enlighten the family on the business, review and educate members on financial statements and deal with family and business issues,” says Michaud. “The family meeting is an important tool to keep the lines of communication open, ensure all family members are on board with current goals and objectives, and keep relationships among family members strong.”

 

At the Berry Companies, based in Wichita, Kan. , a family owned dealership that was started by Fred and Paul Berry in 1957, family meetings are a regular occurrence.

 

“If we’re not communicating well, we have to caution ourselves not to assume everyone is on the same page,” says Walter Berry, president of the Berry Companies. “As family members, you make more assumptions than you would if you were in a formal meeting.”

 

One of the disadvantages of working with family is that if one family member has a work-related problem with another family member, it might not be easily resolved.

 

“We’re not a big corporation so we can respond to issues differently and be more flexible,” says Berry . “Resolving issues between family members goes back to communicating.”

Take Time For Learning

Authors Craig E. Arnoff and John Ward of the Family Business Institute, in “How Successful Business Families Get That Way,” go one step further and recommend that families not only schedule meetings but also set aside time to regularly learn together:

 

“Successful families invest in learning skills together, often by hiring a consultant or by attending seminars. The most common topic they study is family communications – including listening. They learn about the business together, including its heritage and how to interpret its financial performance.”

Write A Mission Statement

Family values are the basic foundation upon which all decisions should be made. Successful family businesses have written mission statements and follow them.

 

According to Arnoff and Ward, successful families are bound by strong values and shared business ownership: “Rather than letting the business run their lives, they identify how business ownership helps strengthen and perpetuate important family values. Their family mission is to perpetuate those values, with or without the business.”

 

Creating a family mission statement or value proposition forces communication about what could be difficult topics.

 

“The creation of a Family Values Statement forces the family to think about various scenarios and potential situations that can lead to family disputes,” says author Edward D. Hess in “The Successful Family Business: A Proactive Plan For Managing the Family and Business.” “It forces families to discuss beforehand the important values to be followed and applied in those situations.”

 

Understand Your Power


As a member of a family business, you hold a certain amount of power within the organization. For instance, in Michaud's case, she was 24 years old when she started working for her father's company. She worked under the COO, a non-family member, who at the time was threatened by her. The COO's job was to expose Michaud to the inner workings of the family company. After six months on the job and countless remedial tasks, Michaud says she finally realized her power. The COO was intimidated by her because she had an "in" with the boss.


This situation could have been resolved through communication. Paul I. Karofsky, director of the Northeastern University Center for Family Business in Dedham, Mass., suggests handling these types of situations with a three-step approach:
n Interview all the players and ascertain their feelings about the family member's appointment.



"Have open discussions that clarify the company's policy and your entry criteria for family members," says Karofsky.

"Emphasize that family members must jump higher hurdles. It's extremely important that family candidates be more qualified than others for a position."

  • Explain the need for the position to be filled by the family member.
"If it's not a demonstrated need, you're asking for resentment," says Karofsky.

  • Break the ice by having that family member work with others right away.

"Create project task forces that require the interaction of the family member with key non-family executives to help build relationships," says Karofsky. "Maintain a continuing dialog among top managers regarding family business dynamics, emphasizing that family members are respected not for who they are but for how well they perform."


Finally, having a good understanding of yourself is important to understanding how your behavior affects others. Michaud recommends completing an assessment, such as the Myers Briggs Type Indicator or the DiSC Personal Profile System, to identify your personality and behavioral type. Then do the same for the people you work with.


"When we learn to understand behavioral differences between people," says Michaud, "we can discover practical ways to work with the differences and to utilize each style's strengths, thus enhancing family business relations."


Understanding how your behavior affects others is important to maintaining a successful family business. For instance, if the owner's son leaves early or takes long lunches, his department will soon follow suit.


"Employees traditionally take their bosses lead," says Michaud.

Match Family Member To Job

Match your family member's strengths with your dealership's openings. Don't just fill in the gaps with an available family member.

Arnoff and Ward describe this as "selective family employment."

The oldest family companies have policies that limit jobs to those family members who are very qualified. Over time, these families have found that to do otherwise chases away the most talented leaders in the family and erodes the effectiveness of the business.

"Selective employment clarifies that working in the business is more an opportunity than an obligation," say Arnoff and Ward. "When family members feel obligated to work in the family business, they lose motivation. Selective family employment also reinforces the importance of merit in compensation and promotions for everyone."

The Berry Companies complete an assessment of a family member or new employee to ensure they are in the right jobs.

"You have to make sure you're doing a good assessment of their people skills so you get them in the right spots," says Berry. "You don't want square pegs in round holes."

Freedom To Sell The Stock

Family members not employed by the business may question your decisions in order to protect their dividends. Family shareholders who feel locked into their ownership can become mistrustful or turn into harsh critics of the business. This situation also calls for communication.

"Even if management is making wise decisions, outside family members need to feel they are a part of the business," says Peter Baudoin, a Lafayette, La. family business advisor.

Baudoin recommends educating outside family members about what's going on, establishing policies about which family members can participate in the business and finally providing a vehicle for selling shares in the business.

At the Berry Companies, Walter Berry has two siblings that aren't involved in the business. He says making sure they have all the information they need regarding the business is the best bet.

"If you have owners that aren't involved with the day-to-day business, you're more likely to have different desired outcomes," he says. "As an involved owner, you have a better understanding of the industry, your place in it and whether or not you're successful. An outside family member might be looking at the family business as an investment and have desires to sell at the wrong time."

Succession And Estate Planning

Twenty-five percent of senior generation family business shareholders have not completed any estate planning other than writing a will. Eighty percent want the business to stay in the family and 20 percent aren't confident of the next generation's commitment to the business.

To combat this dilemma, it's important to create an estate plan. Not only will family members then benefit from the same knowledge, but you're also insulating your business from surprises that might result from not having an estate plan, say Arnoff and Ward.

Find out now how your children really feel about taking the reigns of your business. If you wait, it can spell disaster. More than half of all succession breakdowns are attributable to relationship problems among family members.

"It's important to separate family leadership from business leadership," say Arnoff and Ward. "Both jobs are important, demanding and different. Both need continuity.

"Successful families ensure that there is a well prepared successor to family leadership, whether it's one person or
a family committee or council."


Successors are often afraid to admit they want to go into another line of work. It's important to talk to your kids now.
Berry's oldest son Adam is 23 and recently joined the company. Berry says he's just starting to give succession planning some thought.


 


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