I support a lot of family businesses and regularly hear from my clients how they pride themselves on creating positive work environments for their employees where they treat everyone like family. That’s quite admirable, and I’m sure those employees very much appreciate it. The question though is what to do with all the employees who actually are family!
Family businesses by their very nature are complex organizations. It’s not just about managing and operating a sustainable business with a family business. It’s about the leadership and governance practices required to keep any family drama and unproductive relationships away from work. In multi-generation family businesses, we’re talking 20, 40, 60 and even 100 or more years of history running the company. On the personal side, that’s generations of family members living together and growing up together who need to work together to operate that same business. That can create a lot of added stress and anxiety – something that many family business leaders are poorly equipped to handle – on an otherwise viable business.
So what can we do to increase the success of these family businesses that make up the backbone of the US economy – if not global markets too? I recently discussed this very subject with a group of successful family business owners and CEOs. In addition to reinforcing their family versus more formal corporate cultures at work, they shared the following 7 strategies for success to help any family business leader succeed and secure his or her legacy from generation to generation.
- Draft a Family Business Charter – A Family Business Charter serves as the family’s constitution to define their Mission, Vision, and Values and document key business practices, like employment policies, for future generations. The Charter is a living document that can be refined over time, but it clearly communicates the strategic intentions and operating guidelines for a family and its business ventures from one generation to the next. It also provides a strong foundation for future decision-making and conflict management well before any issues do arise between or within generations.
- Convene Family Council meetings – Once the Charter has been drafted, it’s important to share the content of that Charter with any family members who have an interest in or might otherwise be impacted by the business. This might include establishing a Family Council comprised of only active business managers to meet monthly or holding an annual retreat for all family shareholders/owners and their immediate families, or anything in between. The point is to create the governance required to run the family’s business, continually monitor its performance, and keep everyone informed about how it is doing.
- Business focus at work, Family focus away from work – Some family business members regularly blur the line on talking about personal matters at work and business matters at home. While this may be effective for some, it regularly creates problems for others, so we often recommend not talking about family when at work or business when away from work. At a minimum, we at least recommend giving everyone the ability to call “Timeout!” and clarify which hats they are wearing – business or family – at any time and in any conversation. By the way, this means not using familial terms like “Mom” and “Dad” at work too. We instead recommend referring to people by their individual names as you would if they simply were professional hires, not family.
- Distinguish Ownership from Management – Depending on the terms of your Family Business Charter, it is quite common for family members to be “passive owners” of the family business rather than “active managers” in it. Passive owners might receive a monetary distribution when the company does well, but they have no say in the day-to-day management of the business. Active managers, on the other hand, have some level of operational authority whether they own equity in the business or not. This means that family members can be peers in the Boardroom but direct supervisors and direct reports at the management conference table, so it is important to make sure family members know when they need to defer to their higher-level, more senior relatives, like the CEO, versus when they may have an equal vote.
- Define Management responsibilities – Following from #4 above, it is imperative to determine who does what in the business. Sometimes, that means dividing business units among siblings and cousins. In less diversified family businesses, that often means assigning functional responsibilities (e.g., Operations, Finance, Human Resources, Sales, etc.) to one relative or another. The obvious benefit of this is that it minimizes any overlap or potential conflict between family members. Under the right circumstances though, it actually enables you to put a trusted partner in charge of running other critical areas of the business, so you don’t have to.
- Plan for your Leadership Succession – What are you doing to engage your next generation of family members in your business? Family business succession planning facilitates the handoff between generations and enables the transfer of management responsibilities – and wealth – from one leader to the next. Sooner or later, your current family business owners and leaders are going to move on. Successful family businesses, then, support their next generation in pursuing their individual passions, but they also prepare for their businesses to be multi-generation legacy businesses. With more than 10,000 Baby Boomers reaching retirement age every day here in the US, this problem isn’t going to go away by itself, so consider executive coaching programs and other leadership development opportunities to help individual family members develop the critical skills and executive presence needed to run your family business.
- “Family First” mindset – The final strategy for success everyone agreed to is that family always comes first! This can put undue pressure on the business if it means you are going to make a family member who isn’t well-qualified a manager simply because he/she needs a job. If we take a “both/and” approach to the business though rather than “either/or”, then perhaps the “Family First” mindset simply means you will offer that family member a job in a more focused individual contributor role and allow him/her to develop into a more seasoned leader. The business, many would argue, is simply a means to an end, and that end of taking care of and providing for the family takes precedent for many family business leaders over pure business results. More commonly what this really means is that family business owners will convene a family dinner or other social gathering outside of shareholder/Board meetings so that family members can still connect while prioritizing the business.
Family businesses are often ripe with relational chaos and can create emotionally-charged environments that don’t exist in other business settings, so give us a call at 310.589.4610 or email us if you have any questions about how you can better balance the complexities of your family business. You can also visit the Family Business page of our website to see how we partner with our family business clients to lay the foundation for greater success and to secure their legacy for future generations.