Family businesses enjoy many advantages: a shared joy of success, a common pride in tradition, stability and loyalty. Even so, there’s a flip side to the coin. Sibling rivalries, parent-child conflicts and charges of nepotism by non-family staff can interfere with any family enterprise.
Let’s discuss how to solve three common problems.
The leadership battle
• Problem: The time has come to select a leader from the next generation. Several sons and daughters want to take charge. How do you avoid creating hurt feelings among the siblings?
• Solution: “The transition to a new leader can be extremely difficult in a family business,” says Stacey A. Lundgren, a former family business owner who is now a consultant in Howell, MI (www.staceylundgren.com). “The decision needs to be based on job performance and the duties each sibling has taken on over the years.”
While that’s easy to say, the waters can be muddied by emotions as decision time approaches. “Be aware that this transition will affect the personal lives of the siblings forever, so they will be experiencing a lot of fear,” Lundgren says. “There may also be feelings of greed if siblings are concerned with how many shares of the business each will have. And this can lead to feelings of resentment.”
Interpersonal histories can also play a role at decision time. “So much depends on the dynamics that developed among the siblings when they were growing up,” Lundgren says. “Bear in mind that even with grown children it is normal to compete for the parents’ love and approval. When one sibling is chosen to lead, the other siblings can feel that person is loved more or is being selected for being smarter or more capable. That can create resentments”
Given the broad mix of emotions, it takes a tremendous amount of maturity by the parents to avoid arguments and hard feelings. They must avoid being influenced by past family events that have nothing to do with the business.
She suggests these steps:
Hold a meeting to discuss the transition. “Emphasize that you’re holding a business meeting, not a social one, and remain as neutral and as businesslike as possible,” Lundgren says.
Begin by stating the meeting’s purpose and emphasize that the transition decision must be based on business criteria. Note the importance of leaving personalities out of the decision.
Then review the past jobs held by each sibling. “A review of duties can suggest a decision that is professional rather than personal,” Lun-dgren says. “Who was doing the work that naturally produces a leader?”
Follow up by getting each sibling’s thoughts on the best candidate. “Remind them that the business will belong to all of them, so they all have vested interests in its success,” Lundgren says.
Don’t make the transition decision at the meeting, unless everyone is in agreement. “State that dad and mom will make the final choice and schedule a second meeting to announce the decision.
“Start the second meeting by obtaining feedback from the siblings,” she suggests. “You might say something like this: ‘I’ve come to a conclusion; that’s my job as the owner. But it would be interesting to see if it’s apparent to you what decision I have come to.’ Why? This shows respect for the kids. And it might be gratifying for the parents to see if the children agree with their decision.”
Bonus tip: Stay involved with the business for a couple of years, Lundgren suggests. You can play a valuable mediator role.
The nepotism charge
• Problem: Your oldest son John has proven his management capability at another employer. Now you want him to take an important executive position at your family business. But you’re afraid to alienate your veteran non-family managers who may want that job.
• Solution: “Everyone needs to see that John’s assignment to the top position is the best decision for the business – not just the result of dad being anxious to have his son join him,” says Greg McCann, a family business consultant in Deland, FL (www.mccannfbconsulting.com). “The question becomes: How do you set this up so people won’t be saying, ‘John was handed all this?’ Bear in mind that there’s always a tendency under any circumstances for people to discount the efforts of the second generation.”
How to proceed? One way is to have an independent board of directors decide on the assignment and hold John accountable for reaching specific benchmarks, McCann says. “A board can help give both the appearance and the reality of legitimacy, by requiring John to submit to a round of interviews and fulfill a job description.”
Not all family businesses, however, have a board of directors. Sometimes, the founders don’t want to cede control to outsiders. Other times, the family wants to maintain the privacy of business operations and financials. And, in other cases, owners are uninformed about the legal intricacies of establishing a board or don’t want the hassle of structuring one.
If so, consider establishing an alternative structure – a “board of advisors” consisting of independent non-family members who aren’t given any control.
“A board of advisors avoids director liability while providing your business with ideas from experienced professionals,” McCann says. “Their feedback can be very valuable.” Seek out retired business people as members; they can bring experience to the table and may be willing to serve for very little money.
Yet another alternative is a “family counsel” composed of family members who desire a voice in the proceedings. “The family counsel might help formulate an employment policy,” McCann points out. “For example, a prospective executive-level person such as John might be required to complete specific outside experience before joining the firm. Perhaps he must reach an executive level at another company – not just complete three years at a junior level – prior to joining the family business.” While a family counsel is helpful, the downside is that no independent third-party individuals are included.
Despite your best efforts to establish a professional transition decision, veteran non-family executives may well feel upset by John’s arrival. “Senior management may feel angry, confused, even betrayed,” MCann says. “It’s critical to talk with everyone and get any issues out on the table.”
If you see that senior executives are about to resign, you need to deal with the problem before it happens, McCann says. One solution is to provide additional job security. An executive might be willing to work for your son, for example, if awarded a multiple-year contract.
Bonus tip: Establish a “family employment policy” that mandates specific educational and performance goals prior to sibling employment or advancement.
The reluctant coach
• Problem. Roger is a longtime employee with tremendous skills. You feel he’d be a great coach for your child, Marty, but you’re afraid Roger might feel threatened or even think he’s training his replacement.
• Solution: “Understand that Roger will be conflicted between the two primary emotions of elation and fear,” says Tee Persad, a partner with the law firm of CPLS, PA, Orlando, FL (www.cplspa.com). “Initially, he’ll be flattered that he was chosen as teacher and mentor. However, it’s likely he’ll develop concern about being replaced and wonder if there is some ulterior motive.”
How can you encourage Roger’s cooperation without sparking anxiety? Be explicit in terms of how you anticipate utilizing the skills of Roger and Marty. By communicating your specific plans you will obviate any fears Roger may harbor.
Establish the parameters of the coaching assignment by identifying the skills Marty needs to acquire. “Make a concrete list,” Persad suggests. “Then let Roger know where Marty lies in terms of competence in each item on the list. Rank them in order from one to four, the first being the absence of any skill and the last being maximum competency.”
Develop a plan of action that identifies what Marty should know and be able to accomplish by the completion of the assignment. This plan should be reasonable in terms of time and scope. Finally, establish performance evaluations for Roger to review with Marty.
“The above approach increases the likelihood that Roger’s fears will be alleviated and replaced with a sense of importance, value and trust,” Persad explains. “Moreover, Marty will learn to respect and trust Roger and continue to see him as a mentor.”
Bonus tip: Periodically evaluate your plan’s execution to assure consistent progress. Establish measurable performance benchmarks.
Keeping the peace
Family businesses can be hotbeds of emotion that erode the bottom line. Here are some suggestions for reducing conflicts from Stacey A. Lundgren, a former family business owner and now a consultant in Howell, MI (www.staceylundgren.com).
• When discussing business matters, address the siblings as a group rather than as individuals. “Private conversations create suspicion and lack of trust,” Lundgren says. “They can lead to conversations where one sibling says ‘Dad told me you said this’ and the other sibling replies ‘No, I didn’t say that.’”
Group meetings keep conversations up front and allow everyone to stay up to date. Hold them at neutral locations. “Avoid home settings in favor of office meeting rooms or hotel conference rooms,” Lundgren says. “The environment has an influence on how people behave.” Assign someone to take notes.
Have everyone sign the document drawn up from the meeting notes to indicate they agree with what was said and concluded. That will help reduce “He said, she said” scenarios.
• Avoid dividing corporate shares equally. A parental tendency to treat everyone alike can lead to costly turf battles. Infighting can go on for years when no one person is in charge.
• Pre-plan when you can. A lot of grief can be avoided by laying the groundwork for succession years in advance. Be prepared though: The real world can throw the best of plans into turmoil. “Sometimes you do not know who will want to come back into the business at a later time,” says Lundgren.
• Avoid shop talk at family dinners and functions such as holidays and birthdays. “People can get upset when casual conversations remind them of workplace issues,” Lundgren cautions. “That can ruin family events.” ❚❚ ❚❚
Phillip M. Perry is a New York-based writer specializing in management and legal issues.