4 Reasons Family Businesses Have Survived

Forbes 2015 list of The World’s Billionaires recently came out and I was interested to see how many of the world’s richest people got there through affiliations with family businesses.

(#4) founded Inditex, the parent company of fashion retailers Zara, Massimo Dutti and Bershka, with his recently departed ex-wife Rosalia. They were both shop assistants and decided to try their hands at making baby clothes. They switched to nightgowns, and opened the first Zara shop in 1975 in Spain. The Inditex empire now has more than 6,000 outlets.

Charles and David Koch, tied for #6, are two of the four sons of Fred Koch who co-founded Koch Industries in 1940, which has more than $100 billion revenue annually. They bought their two brothers out in 1983 and own 43 percent of the company.

Christy (#8) and Jim Walton (#10) are also members of the Lucky Sperm Club. Christy was married to the late John Walton, one of Sam Walton’s sons. He, of course, founded WalMart, the world’s largest family firm. Jim is her brother-in-law, Sam’s youngest son.

Liliane Bettencourt (#10) also inherited her wealth from her father, Eugene Schueller, who founded the beauty company L’Oreal in 1907. In 2014, the company had sales in excess of 22 billion euros.

Family businesses are a major economic force in the world, making up 19 percent of the companies in the Fortune Global 500, up from 15 percent in 2005, according to an article in TheEconomist.com, “Business in the Blood.”

The article points to four reasons why huge companies have managed to stay under family control.

  1. Family firms were founded by a talented entrepreneur, like Sam Walton. If heirs continue to follow a successful formula and the founders’ principles, they can keep the business running.
  1. Family firms take a longer-term perspective. Businesses are often pressured to meet short-term goals to keep investors happy. Companies within the control of family members often look to the bigger, long-term picture, which can lead to greater profits.
  1. Family firms are less likely to take on debt. While this reluctance may limit growth sometimes, it can also make these businesses more resilient when the business is not going as well.
  1. Family businesses generally have better labor relations. It could be because workers are treated better or have more trust in the owners when they are part of a family and not members of a huge conglomerate who come and go.

I’ve worked with many family businesses in my decades as the Turnaround Authority, and I’ve seen the good, the bad and the very, very ugly. When a family business is well run, it can have amazing staying power, produce billionaires and become a major player in the world economy.

Unethical Tech Workers Pose Danger to Your Business

Fraud and embezzlement are two dangers to every company. I’ve written a lot about instituting policies and steps to take to help make your company safe from employee theft. These tips primarily focus on those employees who have access to your financial accounts.

But they aren’t the only employees you need to worry about. Your IT employees may also be capable of potentially causing massive damage to your company, as pointed out in a recent article in Fortune magazine, “How much do you really know about the tech worker you just hired?”

We have all read the headlines about companies like Sony, Target and Anthem/Blue Cross being hacked by outsiders. What is less common knowledge are the problems that can come from within the company. Yes, your own IT employees could be a threat. They have access to valuable information, and if they desire, can threaten to make it public if you don’t pay up. It’s the new age of blackmail.

There is really no way to know how often this happens, because like with many cases of fraud or embezzlement, the corporation often keeps it quiet so it won’t draw unwanted publicity.

And even if an employee leaves, he or she can still potentially blackmail you. It’s been reported that Nokia regularly deals with security issues, including being blackmailed by a former employee who obtained classified information. According to an article in the Helsinki Times, in 2007 a blackmailer asked for millions of euros to protect an encryption key of Symbian phones. The release of that information could have caused millions of dollars in damage.

At least he’s a charitable blackmailer — he asked for half of the money in cash and for the other half to go to charity. Nokia made the donation and paid the ransom, delivering half of it in an ice hockey equipment bag. The blackmailer took the money and ran. The crime is still under investigation.

So how do you protect your company? Your tech employees most likely have access to potentially damaging information about your business. And it can be a whole lot more difficult and complicated to prevent tech blackmailers than it is to set up checks and balances on your financial accounts.

How to prevent problems with tech employees

The key is to start with your hiring practices. Companies desperate to hire qualified tech workers have been guilty of skipping over crucial steps when selecting new employees. Ken Springer, a former FBI agent and founder of Corporate Resolutions, suggested these steps in the Fortune article: Verify everything on the resume, ask your current IT people to check their references, let prospective employees know you will do a thorough background check and reward employees for referring good tech people to hire.

In addition to these tips, I would add some of my previously recommended tips on fraud prevention that can apply here as well, including:

  • Conduct credit checks. Exercise caution in considering any employee in a dire financial situation.
  • Always prosecute fraud. Make it clear you have a no-tolerance policy.
  • Train your managers to pay close attention to their employees’ behavior and for any changes in that behavior. See More Red Flags of Fraud and The Red Flags of Fraud.

Sadly, threats to the wellbeing of your company can come from both internal and external sources. It’s worth the time and expense to make sure you are hiring ethical and honest tech employees.

 

 

How Loyal Employees Contribute to the Bottom Line

 

This is part one of a two-part series on the importance of developing and maintaining loyal employees. In part one, we explore why every company should focus on having loyal employees and how doing so contributes to its revenue. Part two offers tips of how to develop loyal employees.

When is the last time you heard about employees risking their jobs to stand up for a multi-millionaire? Or going so far as to organize a customer boycott? That was the situation at Demoulas Market Basket Inc. in Massachusetts where an ugly family feud was playing out this summer.

More than 200 office and warehouse workers walked off the job to support their ousted CEO, Arthur T. Demoulas. Artie T., as he is known to the company’s 25,000 employees, owned with other family members 49.5 percent of the supermarket chain. His cousin Arthur S. Demoulas and his family owned the other 50.5 percent and ousted Artie T. in June.

Employees protest the ouster of popular CEO Artie T. last summer. (Photo from www.bloomberg.com. Photographer: Suzanne Kreiter/The Boston Globe via Getty Images)

Employees protest the ouster of popular CEO Artie T. last summer. (Photo from http://www.bloomberg.com. Photographer: Suzanne Kreiter/The Boston Globe via Getty Images)

The company, founded in 1917, has $4.3 billion in annual sales and family members had been fighting bitterly since 1990 when there was a dispute over the transfer of shares. Lawyers have racked up a lot of fees in the ensuing court battles.

Hourly employees risked their jobs and urged customer boycotts for their boss, estimated to be worth around $675 million. Customers responded and boycotted the stores, even taping receipts from rival markets to store windows. Some analysts put the losses at more than $10 million a day.

Why? As one employee said in an article covering the feud put it: “We are a family and they messed with our dad,” said Charlene Kalivas, 57, a longtime Market Basket employee.

Artie T. won their loyalty by showing he cared about them. He did things like covering medical bills for employees’ sick family members, paying employees who were too ill to work, giving them good wages, decent benefits, Christmas bonuses and personally calling employees when a parent had died. “He’s one of us,” said a protesting employee. “He comes here and he knows everyone by name and treats us fairly.”

The decades-long family feud ended in August when Artie T. and his sisters agreed to purchase the 50.5 percent of the company owned by the other side of the family.

It was a costly, ugly family feud. And the winner was the man who had worked hard to win the devotion and loyalty of his employees.

Yet, you don’t hear too much about the need for businesses to retain loyal employees. They focus more on customer retention and spend millions on retaining them. How much do they spend on keeping loyal employees? Do they care?

They should. The long-term success of any company depends on finding and retaining qualified employees. For all you hard numbers people, consider this: researchers at the University of Pennsylvania surveyed 3,000 companies and found that if a company invested 10 percent of its revenue on capital improvements, it increased is productivity by 3.9 percent. If it invested the same amount in developing employee capital, its productivity more than doubled, to 8.5 percent.

It’s not just because treating your employees fairly is the right thing to do. It’s also the profitable thing to do.

Come back for Part Two when I’ll discuss ways to build employee loyalty.

 

 

The One Person Every CEO Needs

I love reading “The Corner Office” column by Adam Bryant in the New York Times on Fridays and Sundays. Adam talks with CEOs and other leaders about management and often asks about the lessons they learned on the road to success.

It’s refreshing how honest many of these leaders are. Yesterday, the column was about Penny Herscher, who is CEO of FirstRain, a business analytics firm. She admitted that she has a strong personality and started out too autocratic, sure she was right all the time. People told her they didn’t want to work for her, or they just left the company.

She mentions a mentor who made a big difference in her life. “He was one of the only people who would hold up a mirror to me and say, ‘O.K., that wasn’t good.’ I needed somebody who would tell me the truth. Many leaders with strong personalities never hear the truth because their people are afraid to tell them. The people who will tell you the truth are the most valuable people in your life.”

Bingo! In my career as a turnaround authority, I’ve seen so many companies in dire situations, on the brink of failure or bankruptcy. Sometimes the root of problems isn’t that hard to determine. Many of the employees knew it. Many in senior management knew it. But no one wanted to tell the CEO the truth.

Usually it’s because they fear losing their jobs, they might be punished, or ostracized, or they have tried several times in the past and their suggestions were ignored.

Every CEO or business leader has to have someone who will deliver the truth, no matter how unpleasant. You can’t fix what you don’t acknowledge.

I read an article online about a company that says it only works with “enlightened leaders.” The title of the article is “Destructive Leadership Practices: Is Your CEO in Denial?”

The author, Jeannie Walters, writes about a time she worked with a growing technology company that had a successful product and received a lot of press. But the high rate of employee turnover was hurting it and great talent didn’t stay.

Turns out, the CEO was “inflexible and demanding. They were too fearful to tell the truth about feeling overworked and under appreciated. Every new employee learned the secret code of ‘don’t ever offend the CEO,’ which also meant never critiquing his original work. This included the design of the logo (it was awful) and the user experience of the very product they were selling.”

She presented her findings about the company to the CEO, which were confirmed by the marketing director during the meeting. He didn’t want to hear it and declared all the information was wrong. Fast-forward a few months: the marketing director is gone and the company eventually shut down.

You’re most likely not going to like hearing about which areas are not working in your company, whether it’s that your management team isn’t functioning, your relationships with your vendors are not good or your business is not as well off financially as you thought it was.

Every CEO needs at least one truth teller in his or her life. You don’t have to like it, but you do have to make yourself open to hearing it, believing it and acting on it. It helps to remember that while you may go through short-term pain, it’s all for long-term gain. Don’t be a CEO in denial.

 

A Hackathon: Not Just for the Software Industry

This is a two-part series on hackathons. In the last column of my recent series on Innovation, I mentioned hosting a hackathon as a way to create an environment of innovation. In this series, I’ll cover what a hackathon is and how to host one at your company.

So what is a hackathon and why do you want to host one? Basically, a hackathon is an event that pulls together people from different departments into small teams for a limited time, generally with a specific purpose in mind.

Although hackathons originated in the software world, their purpose can be anything you’d like, and as large or small as you’d like. Maybe you’re looking for a new slogan or angle for a marketing campaign.

Shutterstock, a website for stock photos and music tracks, hosts a company-wide 24-hour hackathon ever year “to imagine, design and implement an idea they think can provide value to the company.” It awards prizes to employees for best ideas in categories like Biggest Customer Impact and Game Changer. According to the website, “the real prize is the passion and excitement that hackathons themselves evoke.”

Winners also get the opportunity to work on their hacks, perhaps developing it into a product for the company.

In a larger version of the event, AT&T is hosting its first hackathon at CTIA’s Super Mobility Week in Las Vegas next week. The theme of the two-day event is Code for Car and the Home. The purpose of the hackathon is to match developers with technical experts and give them access to a roster of sponsors.

As an incentive, the company is giving away $100,000 in cash and prizes. For example, Volvo is giving away $5,000 for the best app focused on car safety and Samsung is also giving away $5,000 for the best use of Samsung gear. Finalists are invited to stay an extra night and have the opportunity to show their app to industry professionals.

Many companies open up their hackathons to the public to encourage outside opinions and ideas. Having outside participants can also be beneficial for recruiting future employees.

Paypal is hosting a global competition in a series of “BattleHacks” this year held in 14 cities across the world. The challenge is to create code that solves a local problem and become the “Ultimate Hacker for Good.” The World Finals will be in November in San Jose, CA and finalists will compete for $100,000 grand prize and an awesome looking axe trophy.

In addition to creating excitement and possibly new products, campaigns or solutions to problems for your company, hackathons give people from different departments the chance to interact in ways their day-to-day jobs don’t provide.

One of the biggest benefits is that it allows employees the time to focus solely on one thing, harnessing the collection brainpower of several of your employees at once.

In my next column, I’ll cover the basics of how to host a hackathon to benefit your company and generate excitement among your employees. Oh, and no need to award large cash prizes either. Many hackathons are fueled solely with pizza and caffeine.

Getting the Most Out of Your Advisors

Welcome to part two of my three-part series on working with advisors. Last week, I discussed How to Find the Best Advisors for Your Business. This week I share my top tips on utilizing their expertise to foster the growth and success of your business.

  1. Be clear about your expectations and create accountability

A new advisor may have been planning on a phone call every quarter, while you envision monthly face-to-face meetings. In the article “How to Use Advisors to Supercharge Your Business,” Eli Portnoy writes about giving up some equity in his company to his advisors and getting nothing in return. “Our advisors were fantastic and really wanted to help. The problem wasn’t them, it was me. My advisors were brought on at random, and furthermore, I failed to create structure and accountability.”

Leveraging the lessons he learned the first time around, when he brought on new advisors he made it clear what he was looking for from them. He drew up a two-year contract that stated they would meet or talk on the phone every other week and have an in-person session or dinner once a quarter. If all obligations were met, they would receive equity in his company after the two-year period.

  1. Be honest with them

To get the most out of your advisors, you have to operate in an arena of mutual trust. That means you have to share the challenges you are facing and your financial situation accurately.

This may be uncomfortable at times if things are not going so well. But perhaps especially in bad times, your advisors can prove crucial to weathering a difficult situation by first forcing you to confront the issues.

I devoted an entire chapter to facing your harsh realities in my book, “How Not to Hire a Guy Like Me: Lessons Learned From CEOs Mistakes.” Failure to do so is one of the major mistakes I have seen CEOs make, time after time.

If you share your information honestly, your advisors can be the ones forcing you to face your harsh realities before it’s too late. Maybe you are having a cash flow problem and aren’t sure how to resolve it. One of your advisors may have dealt with a similar scenario and have suggestions on the best way to deal with the situation. You can’t get the best advice without revealing the true picture of the financial situation of your company.

Your advisors may have some other great ideas to share with you even when it’s not a time of crisis. Let’s say you’re having your most successful year yet. Your advisors may have ideas on how to build on and leverage that success.

  1. Listen to their advice

While this sounds like just common sense, I can’t tell you how many people I’ve dealt with who had ended up in dire financial shape and it wasn’t because they weren’t getting good advice. They just didn’t listen to it.

I read an article in the Wall Street Journal last week, “Tuning Out: Listening Becomes a Rare Skill.” The article cited a study done in 2011 in Organizational Behavior and Human Decision Processes that found that the more powerful the listener is, the more likely he is to dismiss advice from others.

You can gather the best advisors in your industry and share details about your business. But none of that will do a darn bit of good if you don’t actually follow it. These leaders are those that John Steinbeck was speaking of when he said, “No one wants advice – only corroboration.”

Finding the right advisors and working with them in the best way possible can make a huge difference in the success of your company. Eli Portnoy, the young man who made mistakes the first time around and then instituted structure and accountability, saw a huge difference in his company. “Thinknear took off within months of creating the new advisory board and structure. My personal weaknesses as a CEO became strengths and with the help of my advisors I was able to supercharge our trajectory.”

Advisors can make a big difference in your business, but there are still professional advisors you need to hire. For part three of this series, I’ll talk about those.

Joining the Team at GlassRatner

I’ve been chuckling to myself about the rumors of my retirement that I discussed in a previous column, “No Desire to Retire.” I wanted to let you know that I’m embarking on an exciting new opportunity.

I’ll be joining the well-respected team at GlassRatner Advisory and Capital Group LLC as a principal effective July 1. GlassRatner is a nationally known financial advisory services firm. I was attracted to the integrity of the GlassRatner team members, its national platform and reputation, and the work the firm has done in providing solutions to complex business problems.

They seem to be excited to work with me, too. And they love “How Not to Hire a Guy Like Me,”which of course, is an effective way to win my loyalty.

It’s funny; this opportunity just presented itself a few weeks ago and we’re off to the races already. In my work as a turnaround authority, I’ve learned to recognize good opportunities for growth and success when I see them. I am excited and honored to be joining GlassRatner and believe we will both benefit from the partnership.

Another aspect of GlassRatner I found attractive is its reputation as a collegial firm and the way they function as a team. Look for some of those team members to be guest contributors to my blog. I’m sure you’ll enjoy getting to know them as much as I will.