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Family Matters: Part 1 – The Corporate Conundrum

20 Under 40 20_3This is the first of a three-part series on running a family business profitably and equitably. Over the past 27 years, I’ve worked with hundreds of family businesses. Even though the industries differ, the challenges surrounding them are very common. In the next three columns, I will draw attention to the three most critical topics that all family businesses need to address for both profitability and family bliss.

Corporations use boardrooms to create initiatives, develop strategies and settle disputes (among other things). Family businesses frequently use kitchen tables, backyard decks and hospital waiting rooms to do all of those, including determining perpetuation and ownership. The biggest problem I’ve encountered in working with countless family businesses — regardless of success level — is that they don’t treat themselves as a corporation, but rather an amalgamation of family members that all have an interest (and often an agenda) for the family business. Without a process and culture of a corporation, at its best it’s adequate, but not as efficient as it could be. At its worst, it’s a dreadful comedy of errors that merges the Corleone family and Modern Family.

Family businesses are typically founded by someone with skill and passion around a service product and the courage of entrepreneurship. At certain points in the life cycle of the business, spouses, children, siblings and in-laws are inserted into the mix. Frankly, that’s one of the ways that this country has grown and prospered. The problem is that, unlike major corporations that require it, the process of developing and implementing “rules of engagement” around succession, company shares, employment, and individual rights gets tossed to the back of the priority list. They tend to rear their ugly heads at the worst possible moments, leaving the family members scratching theirs.

So without belaboring this issue any further, allow me to dive into ways that any family business can rapidly improve the easily fragile dynamics of their business. It simply falls under the heading of “going corporate.”

Far too many family businesses treat the business — and each other — like family. That’s fine for the Thanksgiving gathering but not for the non-family member employees, the customers, and the partners. Here are my Seven Simple Rules for Converting From Family to Company:

1.    The CEO rules. In any corporation, there is a boss: the CEO. Your family business requires a boss. It’s where the proverbial “buck stops.” It’s the final say; the vision; the voice. It might also be the father, brother, sister, son or daughter. Everyone must disengage the familial relationship and respect the position and person in charge.

2.    Family members must get a job. The best dynamics I’ve seen are when family members must get a job outside before being eligible to join the family business. This improves diversity of thinking; reduces entitlement; accelerates skill development; and improves profitability.

3.    Create a clear path for perpetuation. This is all about “inheritance.” There must be clarity around succession. Having this conversation in the midst of a crisis hurts the entire company. Because this can often be an emotional and difficult conversation, I recommend hiring a facilitator to help with the process.

4.    Never talk about the family outside of the family. Don Corleone made this clear in his family business; you should, too. None of the employees care about the family dynamics. In fact, it makes them uncomfortable. Someone should be able to walk into a business and not be able to identify that it has multiple family members.

5.    No perks allowed. My wife worked for a family-owned bank 30 years ago. She recalled to me the founder/chairman’s wife being incensed when her adult son was properly charged overdraft fees, and then insisted they be waived. I’m pretty sure that advocacy was never passed on to the other customers. While this example sounds extreme, what seemingly unobtrusive perks are taken in a family business that can lead to discontent from employees or customers?

6.    Preparation for the separation. Ever see the founder “retire” but keep coming back and giving “suggestions?” The irony is often the successor to the patriarch takes the company to greater heights! There must be corporate rules about interference from retired family members, regardless of what their role was. The company must prepare and set policy on this and then communicate it.

7.    Perfect the balancing act. As much as “going corporate” relates directly to the business environment, likewise it pertains to family time. There should be a clear delineation and rules about what is appropriate in family gatherings. Just like employees don’t want to hear about your family issues, family members not involved in the business don’t care to hear about the business. In addition, everyone needs a break from the business to secure a strong life balance. Employees get to do it; so should you.

Bonus: You can still enjoy a “family atmosphere” by acting like a corporation. In fact, it’s more likely to be achieved that way!

It doesn’t matter if you’re five or 50 employees in a family business. Do yourself, your employees and your profitability a favor by acting like a corporation. You might be amazed at the results of reduced drama, increased engagement, less strife, improved employee morale, and more enjoyable family gatherings. Owning a family business is a wonderful thing as long as its shadow doesn’t own you.

Next month: Family Matters, Part 2: Why you hate your boss

© 2016 Toro Consulting, Inc. All rights reserved

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