Running a business while managing family dynamics can create a volatile mix. Here’s how to head off disagreements before they create larger problems.
A thriving family-owned business can provide financial security and a closeness that comes from relatives working together through multiple generations. But the day-to-day mix of lifelong relationships and the stress of running an enterprise has the potential to create an emotional combination that can threaten the stability and future of a company.
There are areas for potential conflict in every business—from succession planning to profit sharing, from compensation to reinvesting for expansion, and from organizational strategies to marketing decisions. But with a family business, sibling rivalries, personal slights, jealousy and simmering feuds can further complicate even routine decisions.
“We see a lot of issues where you have gaps in communication between family members, especially intergenerational gaps. We also see a resistance to change as far as adopting new business models or upgrading technology,” says Bubba Holloway, Area Business Manager for Regions Private Wealth Management in Regions’ Jackson, Mississippi office.
But proper communication, planning and defined organizational structures can help prevent conflicts within family businesses, says Holloway.
Chain of command
As enterprises evolve and ownership is distributed among family members and non-family employees, one vital way to prevent problems is to have an established decision-making hierarchy. That’s especially important in cases where two or more family members each own less than 50% of the business—a scenario Holloway has witnessed more than once.
“Nobody has the votes to make a decision,” says Holloway. “The business is then paralyzed by gridlock. Someone needs to have the ultimate say-so. Or the business needs to be organized so there is a way to always break an impasse and get things done.”
Talk it out or write it out
Even with a structure in place, people will always have their own opinions on how a business should be run. And in families, people feel uniquely comfortable sharing those opinions, which can make conflict very difficult to avoid. That’s why Holloway recommends having an advisor outside the family to consult and mediate disputes. It can be a banker, a lawyer or just someone trusted by all the members of the family business.
Codifying a company’s business goals and philosophy with long-term business plans and clear company mission statements can also prevent family disputes. “Establishing the core values of a company and a mission statement are good ways to start defining the business and how you intend to operate,” says Holloway.
Family members should pay their dues
Bringing on new family members can also create friction, especially with non-family employees who may feel slighted or marginalized. That’s one reason Holloway advocates making all new family members start out at the bottom of the business.
“Children that come into the business should learn it from the ground up. This helps them understand every aspect of the company and also shows employees they are willing to get their hands dirty. That, in turn, gives them more credibility down the road,” Holloway says.
Not alienating non-family employees when new family members leapfrog over them is a balancing act. Clearly defining roles for employees and providing performance-based rewards are two ways to smooth things over, says Holloway. “Making an employee feel like part of the team can be as important as awarding a bonus or giving someone extra days off.”
Tough love
All companies are susceptible to making bad hires. In a family business, the pain of that bad hire can be multiplied when the problem employee is a family member. That’s just one reason that Holloway says blood shouldn’t be thicker than common sense when it comes to running any business.
“If that problem arises, you have to fire a family member just like you’d fire any other employee,” he says. “It has to be very well documented. You have to have put them on probation and have a development plan in place.”
Most employees who are fired for cause are well aware a problem exists before they are terminated, says Holloway. Those same discussions and that same process should apply to a family member who isn’t carrying his or her weight.
Plan ahead for big transitions
One common period of turmoil for family businesses is when the founder or CEO is preparing to step away. “Succession planning is not an easy subject to bring up. You are invariably talking about the death or the departure from the business of a patriarch or matriarch who is devoted to their work,” says Philip Blaylock, Commercial Relationship Manager, also in Regions’ Jackson office.
But uncertainty regarding a transition is inherently destabilizing, adds Holloway. Succession issues can often be exacerbated by the pressures that many small business owners face when considering retirement. “Owners sometimes work later in life than they want to, because they don’t have a long-term plan. In those cases, they need their business to provide a retirement income stream,” Holloway says.
He suggests three ways to create retirement income from a family enterprise: Transition the business to the next generation, with profit sharing for the retiree; arrange an employee buyout of the business; or sell the company outright—which might end the “family” part of the business.
But making any of those moves at the last minute is a dangerous proposition. That’s why ignoring retirement planning is “a big mistake,” says Holloway. “Owners owe it to themselves, their families and their employees to make those plans early—and to communicate them clearly.”
