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.

 

 

Family Businesses That Have Thrived and Survived

During my long career as the Turnaround Authority, I’ve worked with many family businesses. The particular challenge of working with family members as opposed to just co-workers is that they are emotionally connected to each other, which has led to some rather, well, let’s say interesting interactions. Like the time a disgruntled son pulled a kitchen knife on his mom. Fortunately, family disputes don’t generally involve weapons. But the fact is it can be difficult to keep them running. Seventy percent either fail or are sold before the second generation and just 10 percent survive to the third. That’s a lot of companies when you consider that about 35 percent of Fortune 500 companies are family controlled. And family businesses account for 50 percent of the gross domestic product of the U.S. But many family-owned companies not only survive, they thrive.

Laird & Company owns the first liquor license distributed in the United States. The company remains family run.

Laird & Company owns the first liquor license distributed in the United States. The company remains family run.

We are familiar with many of the large, well-known family businesses that include Wal-Mart (Walton family), Mars (Mars family), News Corp. (Murdoch family) and Comcast (Roberts family). Here are a few interesting family businesses you most likely haven’t heard of, one from each of the past three centuries, that are still thriving. • Laird & Company owns the #1 liquor license distributed in the United States. Alexander Laird began producing Applejack in 1698 for his friends and neighbors. One of his descendants built the Colts Neck Inn in 1717 and sold Applejack, with the first commercial sale recorded in 1780. The company even survived Prohibition by producing brandy for medicinal purposes. Seems a lot of people were feeling poorly during those 14 years. • Rogers Funeral Home in Frankfort, Kentucky, has been helping people say goodbye to dearly departed loved ones since 1802. It is now owned by Mary Anna Rogers, whose daughter Doherty Rogers Reynolds and her husband Tim operate the home. They are the seventh generation of the Rogers family to own the business. • The Butt family still operates H.E.B. Grocery with 300 stores, primarily in Texas. Florence Butt opened the first C.C. Butt Grocery Store in Kerrville in 1906 with an investment of $60. Last year the company had $20 billion in revenue and was listed as #14 on Forbes list of America’s Largest Private Companies. I’d say that investment paid off. Death, alcohol and food. Maybe it helped that these businesses deal with products and services with a constant demand. So I was curious to see what the country’s oldest family-owned restaurant is, considering the high failure rate in that industry. The National Restaurant Association reports that 30 percent of new restaurants fail in the first year, with another 30 percent closing in the next two years. The distinction of the country’s oldest family-owned restaurant goes to Antoine’s Restaurant in the French Quarter of New Orleans. In 1840, Antoine Alciatore, a native of France, made his way to Louisiana where he felt at home among the French speakers there and began serving French-Creole cuisine. His son Jules ran the restaurant after his death and invented the famous Oysters Rockefeller. While the odds may seem against family businesses, many do survive into the third generation, and beyond. Of course, a business can increase its odds by hiring trusted advisors to help them navigate difficult times. In my next two posts, I’ll discuss how to find the best advisors for your business, and then how to make the most of their participation in your business.

It Takes Finesse to Fire a Family Member

Mitchell Kaneff, the CEO of Arkay Packaging, told the story of firing his father in the article “Why I Fired My Father From the Family Business.” Although his father had made him president, his dad remained as CEO and still made a lot of the decisions.

Their completely different styles of management came to a head one day with the COO claiming he was resigning as he found it impossible to work with two men with such different styles.

So Mitchell called his dad and gave him a choice — he could either buy Mitchell out or Mitchell would fire him. Expecting his father to be angry and hurt, he was stunned when his father instead replied, “I am so proud of you. You’re right. It’s time for me to leave.”

Any kind of situation that involves letting someone go rarely goes that smoothly. Unfortunately, as the turnaround authority, I’ve been in the situation many times of having to fire people. It’s never more difficult than when it’s a family member.

Once you have terminated a regular employee, your ties are severed and both the company and the employee can move on. Not so with a family member, where heated emotions and resentments over the termination can affect the family dynamic for years.

That’s why it’s so critical to handle firing a family member in the correct way, as an article in this week’s Wall Street Journal pointed out, “You’re Fired … But I hope to see you at the next family reunion.”

Because ties with this person are not severed and you will continue to see each other, it takes a lot of planning and delicacy to terminate a family member the right way.

The article quotes Raymond Lucas, senior vice president of financial planning and training for Integrated Financial Partners, who said, “Remember: When all is said and done, you need to be able to sit at the Thanksgiving table together.”

The first step is to work with the family member to see if the situation can improve. Perhaps he or she could be moved to a different position or get more training to be more effective in the job. But when it reaches a point that it’s apparent it is not going to work out, there are a few things to do before meeting with the employee.

First, document the reasons you are taking this step. Then try to get agreement on the termination from other family members working in the business so you have a united front.

When it’s time to terminate the employee, meet with him privately. A crucial step is to let him know that you value his happiness and you realize he is not happy with the current situation. Make it clear you will support his efforts to find another more suitable position. Another important step is to listen to his side and make him feel heard about his situation.

It’s never an easy situation to handle, but doing it the right way can make a huge difference in your family. For more tips on handling this delicate process, please read my column “How to Fire Grandma and Still Get Invited to Sunday Dinner.”

You Work Together, You Play Together: Surviving the Holidays

I saw a funny card recently that read, “My family is temperamental. Half temper and half mental.” The actor Jim Carrey once said, “Maybe there is no actual place called hell. Maybe hell is just having to listen to our grandparents breathe through their noses when they’re eating sandwiches.”

Yes, we love our families. But sometimes the holidays can mean a little too much togetherness, bringing more opportunities for family conflict. A recent survey on the travel website Hipmunk showed that 18% of people travel during the holidays to avoid their families.

Keeping peace on earth during the holiday season can be particularly challenging when you own or work for a family business. Problems can arise when difficulties around the conference table make their way to the dining room table and tensions emerge during family get-togethers. It can be tough to leave the working world behind.

Here are a few tips to keep the holidays merry and bright and ensure you enjoy your family, even those you see every day at the office.

1. Agree to Keep Certain Topics Off the Table

The last week before the holidays, during a meeting or through an email, suggest that the family agree to not engage in certain discussions until work resumes in the new year. Acknowledge that while some pending issues may be important, the holidays are a time to take a break from work.

If anyone attempts to bring up potentially divisive topics, defer them. Food is always a good distraction. Say something like, “Let’s discuss that in the office on Monday. How about we get a slice of Aunt Martha’s coconut cake?”

2. Plan Outdoor Activities or Group Games

If you have a large family and everyone is stuck inside for long periods of time, people may become irritated from the close quarters. If possible, take the action outside where kids can run around and the adults are able to move freely without knocking over a plate of appetizers. Buy a small fire pit and gather people around that for warmth. We all feel better if we can spread out a bit and engage in physical exercise if possible.

If the weather is not conducive to going outside, try some group games like charades or one of my new favorites, Telestrations. This one is guaranteed to get the group laughing. Rather than griping over the sloppiness of Uncle Fred’s expense reports, you can laugh at his sloppy drawings during the game.

3. Spend Some Time on Home Improvement

No, I don’t mean head to Home Depot and start working on those shelves in your basement. This suggestion comes from a quote by businessman Bo Bennett, who said, “Spend some time this weekend on home improvement; improve your attitude toward your family.”

You may not be able to change your family, but you can resolve to change how you react to them. Try not to let their annoying habits or complaints get you down. One thing is for certain, every family dinner eventually comes to an end and you’ll be able to go home again.

Remember what Lee Iacocca said: “The only rock I know that stays steady, the only institution I know that works, is the family.

Tips for Handling the Coddled Family Member on the Job

You hired your cousin Peter as the sales manager for your family business. He has not been meeting his quotas, and even worse, doesn’t seem to think it’s important, and the company is suffering. Or you hired your daughter right out of college as Director of Merchandising because you were desperate to fill that position and she needed a job. But she’s far more interested in how the packaging looks than in working with manufacturers and customers.

In my last post, “The Peter Principle at Work in Family Businesses,” I wrote about how the principle that employees tend to rise to the level of their incompetence is often true in family businesses. This often happens because a family member has been coddled at the business. The column included a quiz so you could tell if you are in this situation.

So you took the quiz and may have determined that you do have a family member who has been enabled, and you now understand that situation is damaging to your business. So what do you do about it?

You have three options:

1. Provide training or education

If the family member truly does care about the business and its success and wants to continue in his position, providing additional training so he can perform better could be your solution. Your brother may have been promoted to a management position but has never had to manage people before. Let him know you are interested in helping him grow professionally and part of that involves getting more training.

Ask him to find some classes or seminars he can take to sharpen his skills as a manager. If he truly does want to succeed, he will be happy to take advantage of your investment in his future.

2. Reassign the family member to another more suitable position

Sometimes a family member is just not suited to handle her job responsibilities. In the case of the daughter in the merchandising area, her major was in graphic design and she really has no interest in setting budgets and developing the skills she would need to be successful in merchandising. She is unhappy in her position because she doesn’t have the skills and really has no interest in acquiring them. To keep someone in a position that they have no interest in and can’t handle is a disservice to both the employee and the company.

If you have a design department and could use her help there, then discuss the situation and reassign her. If there is not a position available, you can suggest she go to work for another company to gain valuable experience, then return to yours when you do have a space for her. Make sure to let her know you do have her interests at heart and want her to be happy.

3. Terminate the family member

Sometimes it becomes clear that the family member is just not going to work out, for whatever reason. He isn’t motivated, she doesn’t want to be there in the first place, he is unable to acquire the skills necessary to work in the family business. It’s a tough call, but often it’s the only course to take if the first two options aren’t a possibility.

Firing a family member is a delicate process. You’ll want to consider giving the family member a generous severance, allowing him to save face by “resigning” and possibly funding out placement services so he can find a new position.

For more tips on how to do this, please read my post, “How to Fire Grandma and Still Get Invited to Sunday Dinner.”

It is possible work with family members that have been coddled or enabled and turn them into an asset, rather than a liability for your company. But if that doesn’t work, the best thing for everyone is to terminate them.

The Peter Principle at Work in Family Businesses

Perhaps nowhere is the Peter Principle more prevalent than in a family business. Lawrence J. Peter and Raymond Hull wrote about the principle in their 1969 book “The Peter Principle,” which stated simply is “Employees tend to rise to the level of their incompetence.”

I thought about the Peter Principle when I was reading an article on the Harvard Business Review Blog Network about the effect enabled family members could have on a business. Keeping incompetent or unskilled family members as employees can be devastating to a business and can ultimately cause it to fail.

I’ve seen it so many times. Uncle Joe runs a division of the company because he invested a couple thousand of dollars when the business was formed 20 years ago but he doesn’t have a clue what he’s doing. A couple starts a business and their son takes over and runs it when they retire. But he’d spent most of his time playing golf and traveling, stopping by occasionally to pick up a check and flirt with the women in the sales department. The only thing he knows how to manage is his account at the country club.

Even if they don’t know how to do their present jobs, they sometimes continue to be promoted. And the business suffers.

The authors of the article, Josh Baron and Rob Lachenauer, co-founders of Banyan Family Business Advisors, included a quiz so you can determine whether you are coddling a family member. If you answer yes to four or more of these questions, then you probably are overindulging him or her. Here are their questions:

1. Has a family member worked exclusively in the family’s business?

2. Has he reported within his parent’s span of control for most, or all, of his career?

3. Has she never received 360 feedback on her performance?

4. Is the family member paid above the market-based compensation for his position?

5. Has the family member been promoted beyond his capabilities?

6. Is the family member’s behavior often outside the boundaries of acceptable value-based behavior of the company?

Do these scenarios sound familiar to you? Coddling a family member does no good for anyone. The business suffers if someone is incompetent to handle his or her job. The individual often knows he or she is not performing the job the way it should be done and is ashamed or may be embarrassed. Morale at the company suffers when the other employees witness the family member receiving preferential treatment and not handling their job responsibilities.

In a previous column I gave five tips for successful family businesses. If you have a suspicion you may be coddling a family member, I suggest you pay particular attention to one of these suggestions: Put the right people in the right jobs. I don’t care if Uncle Joe gave you seed money to start a division of your company. If he doesn’t know how to manage a department don’t put him in charge of it. Don’t let the Peter Principle be at work in your family business.

For tips on how to handle the situation of a coddled relative, please read my next post. 

Should You Work for a Family Business?

The title of a recent Wall Street Journal feature caught my attention: “The Upside of Being an Outsider in a Family Business.” As an interim CEO, I know a lot about being the outsider in a family business. But my position is different from the start — I have been brought in as the boss at a critical time, with power and authority to weigh in on decisions about the future of the company.

What about executives that chose to go to work for a family business, knowing from the beginning that they are outsiders? They would naturally have doubts about their ability to move up in the company. Will they be eligible for promotions or will those automatically go to family members, who may be less experienced and less qualified?

If you go to work for a family business, are you limiting your career and opportunities for future growth? Will you be caught up in family squabbles?

While those potential disadvantages of working for a family-owned business are ones to consider, there are actually several advantages to working as a non-family executive in a family-owned business.

You may be more respected for bringing in an outside perspective.

In many family-owned businesses, the family members’ experience is limited to just that business. You are bringing a wider spectrum of experience and more knowledge about the market. Every business needs a fresh perspective and new ideas.

Competition for executive jobs may be less.

Forbes Insights released research in the spring that showed 47 percent of executives from private companies perceive that their upward mobility will be limited if they go to work for a family-owned business. Fifty-five percent of people that run family businesses reported that this perception harms the talent pool. While it isn’t always the case that a family member will be considered over any other applicant for a promotion, that perception may keep qualified people from seeking out the position in the first place.

• You may be given more responsibility and enjoy more flexibility than in a publicly owned company.

If a rigid, corporate lifestyle is not for you, you may find more flexibility at a family-owned business where rigid policies don’t have to be enforced. And because family-owned businesses tend to be smaller, you may actually move up the ladder and take on more responsibility faster.

• Family-owned businesses rely on outside talent and may do more to keep you on board.

Family members in a family-run business tend to be more loyal to the company as it is in their family and they may also have an ownership stake. But if you are hired as an executive and prove yourself to be a valuable employee, that company will have to work harder to keep you in a senior position. In a recent article on Fox Small Business Center, consultant Mary Hladio, president of Ember Carriers Leadership Group in Cincinnati, Ohio addressed this issue.

“In today’s competitive market, family-owned businesses have to be mindful of how non-family talent can benefit their business,” she said. “Businesses need to be prepared to offer fair compensation, competitive benefits, a growth track and perhaps some non-traditional benefits.”

Those benefits may even include an ownership stake in the company. Other family-run businesses like RDG Concessions, which operates several luggage and apparel shops at San Francisco International Airport, tries to retain senior employees by treating them like family and involving them in operational decisions.

Working in a family business as a non-family member may not be for you. But you may not want to automatically rule it out, either.

Encouraging the Next Generation to Join Your Family Business

Maybe you’ve started a family business. With a lot of hard work, you’ve built it into a successful one. Your hope is that one day your children will want to take it over and run it and even pass it down to their children one day.

While it’s never a good idea to force a child into a family business, there are steps you can take when they are younger to encourage them to think about the possibility.

1. Don’t make comments assuming they will take over.

Yes, it may be your greatest hope. But it may not be theirs. Or even if it eventually is, they would prefer to have it be their idea, not yours. They want to feel like they have a choice and that joining the family business is not their only option.

2. Be careful what you share about the business.

When we get home from work we often want to vent about all the negative things that happened during the day. We tell our spouses about the shipment that went wrong, the manufacturer that messed up, the client who yelled at us. But if those are the prevailing type of comments your children hear growing us, they will most likely want to go work anywhere but at your business.

Let them hear you mention the positive aspects of your business as well: the rewarding relationships you have with the customers, how proud you are when your product is selling well, how valuable your company is in the community.

3. Share your passion.

Tell your family the story of why you started the business and what it means to you beyond just the moneymaking side of it. When they are younger it may not be apparent why you take pleasure in running a video production business or manufacturing company. Take them to the office and show them some of the videos or products you produced and how they help people and other businesses. If you have testimonial letters from customers, share those as well.

4. Offer them a summer job in the business.

If possible, tailor it around an area they have shown an interest in. If one of your children shows an affinity for numbers, they may want to work in the accounting area. Or if one is an extrovert and loves talking with people, he or she may enjoy a customer service position.

5. Let them use your business as an example for assignments in school.

If they have to interview someone about a job, let them pick someone who works for you. If they have to write a business plan or work on a case study, offer your business as an example.

If keeping the business in the family is a goal for you, offer it as an option. Just make sure that option looks like an attractive one to your children. In future posts, we’ll discuss other issues with children taking over a family business, like what do you do when there are multiple siblings?

Sometimes Family Business Should Be Sold

It was shocking news. After eight decades of ownership, the Graham family sold The Washington Post to Amazon founder Jeff Bezos for $250 million. The announcement stunned everyone, from The Post employees to the media industry.

You have to hand it to them. They kept their courtship of several potential buyers and the impending sale a secret, despite employing some of the best investigative reporters in the country.

Publisher Katharine Weymouth, who is Katherine Graham’s granddaughter, wrote to the staff, “This is a day that my family and I never expected to come. The Washington Post Company is selling the newspaper it has owned and nurtured for eight decades.”

bezos_washingtonpost_0805Her uncle, Donald E. Graham, Chairman and CEO of The Washington Post, said, “I, along with Katharine Weymouth and our board of directors, decided to sell only after years of familiar newspaper-industry challenges made us wonder if there might be another owner who would be better for the Post (after a transaction that would be in the best interest of our shareholders).”

It takes courage to admit that you may no longer be the best person to run any business, much less one that has been in your family for generations.

It’s a hard truth and one I’ve had to relate to some of my turnaround clients who have nurtured family businesses for years. It’s tough to tell them that the best thing they can do for the family business is to let it go. It doesn’t matter how many years the family has owned it, how much it meant to Grandpappy, or how tough it is that your generation is the one to lose it. Sometimes if you want a company to survive, the best thing to do is sell it.

It may be time to sell if the heirs that are available in the next generation of management either do not want the responsibility or do not have the capability to run the business successfully. Maybe you’ve received a large offer, one that really is too good to refuse. In both cases, it’s a win for the family to sell the company.

Sometimes the current ownership of a family business just isn’t able to handle the changes in the industry and can’t find a way to keep the company financially viable.

That seems to be the case for the Post. In the first half of 2013, the company lost $49.3 million. Circulation has declined for seven years in a row. The Post has been slow to embrace the digital revolution. It has the fewest digital subscribers and lowest ratio of digital subscribers to print subscribers of any of the top 10 U.S. newspapers, according to an article in Mashable.com.

Bezos may be just what the company needs. Associate Editor Bob Woodward, the Pulitzer-Prize winner for his exposure of Watergate, said in an article in thedailybeast.com, “It’s very sad. But if there’s somebody who can succeed, it’s Bezos. He’s the innovator, he’s got the money and the patience, so we’ll see. I think in some ways, this may be the Post’s last chance to survive, at least in some form of what it was.”

As Donald wrote in the letter to staffers, “The point of our ownership has always been that it was supposed to be good for the Post. As the newspaper business continued to bring up questions to which we have no answers, Katharine and I began to ask ourselves if our small public company was still the best home for the newspaper …. We were certain the paper would survive under our ownership, but we wanted it to do more than that. We wanted it to succeed.”

That should be the goal for any company. Not just to exist but to succeed. And sometimes the best way to ensure that success is to hand it over to someone else.

5 Tips for Successful Family Businesses

You’ve heard the definition of a dysfunctional family? One that has more than one member in it. How about if you take that dysfunctional family and try to run a successful business with it? Getting a new business off the ground is difficult enough, and adding the complications of family relationships can only make it that much tougher.

According to the Family Business Institute, only about 30 percent of family businesses survive into the second generation. About 12 percent are still around for the third, but only 3 percent make it to the fourth generation.

Here are a few tips to help your family business survive to the next generation.

1. Put the right people in the right jobs

This is a key component for the success of any business, but becomes particularly true for running a family business when you may feel pressured to hire Uncle Marvin for your open sales position because he just got laid off.

What if Uncle Marvin’s background is in accounting and he’s known as the family introvert? Just because a family member needs a job doesn’t mean they should have one in your company. Make sure you find the best people with the right skills for any position.

2. Hire outside help

In addition to needing an outside perspective on occasion, outside consultants can help with conflict resolution between family members and offer an unbiased perspective on needs the company may have. You’ve heard the expression, “Don’t air the family’s dirty laundry.” Well, that’s exactly what you need to do with consultants.

Don’t be afraid to tell them about your brother Joe’s absenteeism due to his alcoholism if he or she needs that information to make decisions about the future of your business.

3. Communicate regularly

Again, communication is critical for any business to success. Perhaps in family businesses you run a greater risk of miscommunication of key information if employees aren’t properly informed, as they are seeing each other outside of the office. Make sure that all employees understand the long-term goals and vision of the company and are well informed of any developments.

You may want to set up weekly or monthly company-wide meetings as a means to communicate and allow for questions.

4. Have the same standards for everyone

Nothing demoralizes co-workers faster than having different standards for employees. If your company has non-family members working for it, you especially need to pay attention to this one.

Don’t allow your son to take off every Friday afternoon for his ski lesson while others are left to cover for him, or promote family members at a quicker rate than others in similar positions. Have the same vacation policies and compensation guidelines for everyone.

5. Have a succession plan

I’ve written about this before in a previous column:  the greatest threat to a family business is the failure to plan and manage succession well. I can tell you from personal experience how important this one is. I encouraged my dad to take an offer of $5 million to sell his company. He refused. Fast forward ten years and dad, who now had dementia, had been swindled out of money and the company ends up being worth nothing.

For more tips on how to pick a successor, see my previous blog post on Filling Your Own Shoes.

Family businesses do thrive. In fact about 35 percent of Fortune 500 companies are family-controlled. You just need to pay attention to how your family members contribute to the success of yours.