How to Avoid Roadblocks in Family Business
Know how to steer clear of family business challenges. Here are some common family pitfalls as well as solutions to avoid or alleviate them altogether.
Being a member of a family and working in that family's business can present some challenges. And, it's not without pitfalls.
During our 19 years of working with families in business, we have observed a common list of issues that can cause outbursts, the cold shoulder, high blood pressure and out-and-out conflict. Among issues are compensation, benefits and perks, employment, and time spent on the job.
Common compensation pitfalls and challenges include:
- Giving everyone with the same last name the same compensation package.
- Compensating family members who do not work in the business.
- Giving secret bonuses or perks to favorite relatives.
- Keeping everyone's compensation levels a big secret.
- Giving raises and bonuses regardless of performance.
- Automatically including family members on company-sponsored trips, while other employees must earn their way.
Among predictable pitfalls and challenges involving benefits and perks:
- Ruling that company vacation policy applies only to certain relatives, but not to yourself. You can use all the time you need with pay.
- Making sure Uncle Bob, who is a dentist and owns company stock, receives distributions regularly.
- Letting all family members drive company-purchased automobiles ... well, almost all.
- Allowing personal use of company equipment and vehicles.
- Personally leasing/renting company equipment to outsiders and keeping the cash.
- Letting only one person, other than dad or mom, attend the annual convention.
Employment pitfalls and challenges include:
- Putting to work immediately any relative in need of a job.
- Ignoring a family member's past employment record or interests and, if he needs a position, hiring him based on cousin Jim's recommendation.
- Protecting family employees with little talent from challenging jobs (i.e., collections).
- Putting family members in jobs they cannot handle and then making decisions for them.
- Compensating family members for a lengthy time after they leave the firm.
- Firing a family member while in a state of anger.
- Having as company policy a rule that family members cannot be fired.
Time spent on the job can also pose problems and raise questions, such as:
- "Why does my spouse always have to work on the weekends?"
- "Why does Judy always leave early?"
- "How come Jimmy gets to leave every day at 2 p.m. to pick up his children from the sitter?"
- "Why do we have to attend all these late-night meetings?"
- "Why do we have so many overnight stays and late-night returns from the road?"
- "Who needs these early-morning meetings?"
- "Why does a family member need to be the first one at work and the last to leave?"
Among other predictable pitfalls and challenges:
- Allowing company loans that are slow in being repaid to go unpaid or forgiven due to the lack of ability to pay.
- Tolerating unethical behavior such as misrepresenting company products or pricing, turning certain checks into cash for one's self, or disobeying the law.
- Letting one person only in the firm receive publicity, as if this person made the company successful all by himself/herself.
- Making sure one person attends all conventions, industry share groups and business-sponsored trips - traveling and staying in first-class accommodations ... always!
- Having a separate business on the side that may or may not support or sell to the primary company, allowing no one else to participate, and possibly stealing time from the main company to be a part of that business.
- Taking company products home for personal use without paying for them.
- Having one family member spy on another and then reporting the findings to dad.
All of the above can lead to members of a business getting even with each other, not speaking and ... eventually ... going out of business. But it doesn't have to be that way. These pitfalls can be avoided. All it takes is for everyone to meet and plan with great clarity exactly how they will operate the family business today and in the future.
Following are some suggestions from families that have experienced the very same challenges and problems you have but who are committed to doing something about them. They recommend:
- Employing patience and skill to resolve conflicts.
- Defining the problem first (don't begin by presenting a solution).
- Proving you understand the person's concerns by restating them and asking if that understanding is correct.
- Putting all your energy into debating the issue and not allowing yourself to get personal ("attack the problem, support the person").
- Brainstorming more alternatives if resolution comes slowly; asking others to propose new alternatives without initially evaluating any of them.
- Taking a break if the going gets tough, coming back to the topic the next day and, in the meantime, resist dumping
- Remembering that how you address a problem will be long remembered ... eternally, in fact.
Some families we know clearly understand that the best way to become and remain a winning family and business is to proactively plan for the predictable problems.
These families realize that operating from memory of how dad or Uncle Joe handled a similar problem in the past is likely not to be remembered. Thus, the family gathers to document informal understandings and the ways that were used in the past to work together amicably.
Common agreements might address themselves to issues not covered within legal documents - such as family employment policy, code of how family members are expected to get along with each other, guiding values to be followed, compensation philosophy, time spent on the job, evaluations, and qualifications to be a leader.
Members of successful family-owned businesses meet in an organized fashion to discuss and formulate suggested policies where family matters will impact the business.
Policy examples might include compensation levels and boundaries for family members, employment guidelines and time spent on the job.
Compensation levels and boundaries for family members might include policies that ensure:
- Salaries have fair market value.
- Bonuses are performance-based.
- Ownership is based on dividend distribution.
- Gifts are identified as to whether they stem from employment or are being awarded simply because a person is a family member.
Employment policies might require:
- Being properly educated for a position.
- Ensuring that a position is indeed available.
- Having a minimum of two years of successful work experience outside the family operation.
- Applying for a position just as a non-relative would.
- Giving preference to a family member over a non-family individual when they are equally
As for time spent on the job, it's good to:
- Write and implement job descriptions.
- Share, with spouses, clarification of responsibilities and time requirements.
As your family continues to meet, consider such processes as writing a family mission statement, a purpose statement and a family creed citing specific points regarding how your family will work together for order, peace and harmony.
The bottom line is this: If you have a problem, attack it before it becomes serious and prevents you and other family members from achieving your goals. The business-owning families who survive the horrible failure rates over the generations are the same ones who take time to clarify their values, then - based on these values - spell out in writing clear agreements that all can understand and live and work by.
Editor's note: This article is one of several management articles that will be contributed to AutoInc. this year by Automotive Management Institute (AMI) instructors. To learn more about AMI, its courses and instructors, visit www.AMIonline.org.
Mike Henning is the founder of the Henning Family Business Center, which was established in 1985. The management and consulting firm specializing in business growth, change and future leadership is headquartered in Effingham, Ill. Henning is the author of the "Family Firm Advisor" newsletter, now in its 17th year of publication. To receive a free copy of his newsletter or to find out more about his consulting services, call (217) 342-3728 or visit www.mikehenning.com.
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