By Mike Henning


Henning will be presenting Increasing Performance, Profits and Peace in the Family-Owned Business at WQA Aquatech 2006. The following is a preview of his presentation.


Introduction
Many families in business together tend to be unhappy in specific ways. If they fail to resolve their conflicts, they may not be in business together for long.

While every story is different, the fighting and feuding usually revolve around one of two things: Money, which really means power and control, or personalities.

Stories have been published about well-known or successful business-owning families in just about every one of the nation’s periodicals and magazines. I’m certain that you could come up with a few examples of your own within your business community with the same dramas and the same problems.

In fact, as a business advisor focusing on the unique needs of family-run companies, when I begin to discuss succession planning there is another problem that almost always arises. It is common that those who do not work in the business day-to-day may offer comments having no knowledge of the family enterprise and are not involved in any way and those who do work day-to-day could not agree with them any more on any issue. Yet, money and personalities affect the entire family whether they work in the company or not.

Understanding the system
Normally, members of a family become business educated for many purposes, of which one is to earn enough money to support themselves and a family. To do that, most will work for someone else’s company, become self-employed or create or join an existing family enterprise.

Once a business-owning family is established and has a record of financial success for many years, those who participate directly or indirectly need to understand the system in which they are involved in order to anticipate pitfalls.

Family systems will impact business systems
Most families consciously make decisions based upon their emotional climate; conversely, businesses operate with a different set of circumstances. For example, those who operate businesses must be open to constant change, make a profit, demand performance from employees, be competitive in nature, subject to authority, know that relationships are formal and that the company has a limited life span—none of which are common to a family.

Recognizable areas of overlap

  1. The promotion of relatives or children on the basis of family considerations rather than on merit is common. Thus, owners can often be faced with keeping a child on the payroll to avoid breaking up a relationship in the family; such nepotism often inhibits the company’s ability to retain or develop non-family employees and managers.
  2. Business owners often follow an open-door policy that invites all relatives to work in the family business. This frequently results in more family employees than the company needs or can support, which leads to conflict and shrinking pieces of the financial pie per family member.
  3. Children may be compensated according to need at home rather than performance on the job. To the outsider this equates the compensation system at work as an extension of the allowance process at home. This tends to drive competent outsiders elsewhere to seek employment.
  4. One family value often implies that children be treated equally and this value is often carried over into the business, resulting in equal rewards to children regardless of their commitment or ability.
  5. Childhood sibling rivalry can blossom into full-blown warfare in the business setting.
  6. Many parents/owners follow the equality route in their estate plans, leaving their children with equal shares of the business regardless of their contribution or desires.

Family business advisors have clearly identified seven family/business overlapping situations that are recognized by the nearly 22 million private companies in the United States as the biggest issues that must be addressed and resolved if they are to succeed over time. (see Table 1).

Accountability and accountability
Studies in the field of family business succession1 continually indicate that three boards and committees should be in place to assure the best percentage of success for generations to come. The first is a Business Strategic Planning Committee that will meet for a couple of days each year to align the goals of the company in harmony with the owning-family’s values and direction and determine what everyone is going to do to support and achieve these goals. Second is a Family Forum that meets formally twice per year to discuss policies and procedures where the family will impact the business systems.  They will discuss business matters that may relate to them in some way, discuss processes to solve conflicts and have plenty of fun together. Last is a Board of Directors with Outsiders which will govern the business, hold management accountable for achieving their goals, lend support and a sympathetic ear, ask questions and mentor potential successors.

Discussing money and personalities in their relationship to the family and the business is clearly a competitive advantage for business-owning families. Formal meetings to discuss and implement policies dealing with areas where family and business overlap is a must to assure long-term business success.

References

  1. Mass Mutual, Loyola University-Chicago, Kennesaw State University-Georgia, American Family Business Survey 2000.

About the author
Mike Henning is the founder of the Henning Family Business Center, established in 1985, a management and consulting firm specializing in business growth, change and future leadership headquartered in Effingham, Ill. Mike will be presenting a program focusing on issues encountered by business owning families this year at the WQA convention.  He can be reached at www.mikehenning.com or via email at [email protected] or  (217) 342-3728.

 

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