Managing the Family Business
There are countless articles about family businesses varying from short reports from practitioners, based on their experience, to much longer academic articles based on research. This section will begin with some practical, pragmatic advice and end with more detailed views of academics who attempt to develop “integrated models of strategic thinking for small family businesses”.
An assessment will be made at the end as to whether the more detailed and research-based academic papers have more to offer than the more intuitive, common-sense approach.
Brian Lewis cites three common mistakes made by family business owners faced with succession problems and he suggests ways of avoiding these mistakes:
• Ignoring the problem
• Not considering all the issues
• Waiting until the last minute
Ignoring the problem by not investing in any form of succession planning is seen as one of the major contributing factors to the failure of so many companies to survive succession. It may be difficult but the bullet needs to be bitten early rather than late.
Choosing a successor is just part of the problem. It needs to be related clearly to your own personal and business goals, so step number one is to set clear objectives and then consider the succession issue within this framework of objectives.
Finally, good planning can take 3-5 years so, if it is to be effective, it needs to phased in while the current business owner is still in power. Rushing will result in conflict, confusion and loss of potential benefits. The use of objective mediators to help with the transition is highly recommended.
Frank Sander and Robert Bordone give similar advice to that given above; they offer four guidelines to help make family negotiation more effective:
• Prepare for complications – this will facilitate sensitive handling of delicate situations and will avoid unnecessary pitfalls
• Strive for transparency – this makes dispute resolution easier in the long run
• Consult a neutral adviser – this facilitates the separation of emotional family issues from substantive business issues
• Plan ahead – family members should ideally agree in advance, and explicitly, the norms, standards and processes they will use to resolve processes. This will take time.
Ronald Reece is a consulting psychologist who focuses more on the emotional and psychological issues which make life difficult for family businesses. He uses an approach which he names “Emotional and Interpersonal Due Diligence”(EIDD), the most important ingredient of which is listening and the second most important communication.
If blood and business are to mix successfully, he feels, there are three key process ingredients:
• Regular, planned family meetings
• A strategic business plan
• An outside board of directors
Business owners typically dislike involving outsiders but Reece feels strongly that, like non-executive directors on the boards of larger companies, they help to give objectivity and are able to bring in new ideas. They, and any business consultants used, are not there to give pat answers to problems but genuinely to oil the wheels of discussion such that the family can move from conflict resolution to consensus and to a forming of a vision which can be the beginnings of a new strategic plan.
A Simple US Case Study
Kirk Jackson (KJ) is the current CEO of a family business (heating and air-conditioning) in the US which he took over from his father 20 years ago. It was a first generation transfer as Jackson’s father had inherited the business from his own father.
Jackson had worked in the company in a variety of capacities before and after going to university. His position before the transfer was that of General Manager of the service business. He was totally committed to the company but this level of commitment does not seem to have been realised by the father, who decided to sell the company without discussing matters with the son and other members of the family.
Because of the angry intervention of KJ the sale did not go ahead and eventually he became the CEO, but without an equity stake. Ownership and control remained with the father and there does not appear to have been any intention on the father’s part to transfer ownership and control to his son. The son very much wished to build equity for the future benefit of his own family and threatened to leave the company if his father would not grant this.
At the suggestion of an independent financial planning adviser a meeting was set up with the father, KJ’s brother, KJ and the consultant – who acted as facilitator. This was the first family business meeting the family had ever had and it had taken a dramatic threat from son to father to bring it about. The meeting brought to the surface that fact that KJ’s brother was not interested in remaining with the company or playing any future role in it. This was not realised before the meeting – clear demonstration of the fact that there had been no listening, no communication and no transparency between father and sons in the past – at least concerning the business.
The brother was paid off, KJ received transfer of ownership on an instalment basis (as his father had from his father) and the transfer was a happy and financially successful one.
The case reinforces one point mentioned in the various articles: involve a third party. What was missing was any sort of plan. The father ran the risk of losing his son, and possibly the business, by not clearly listening to, or communicating with, him and his brother. A more carefully planned transfer with family involvement and the involvement early on of consultants would have reduced the obvious conflict that ensued.
Tags: business goals, common sense approach, family business owners, family businesses, pragmatic advice, strategic thinking, succession planning, succession problems
