5 Tips for Running a Healthy Family Business

 

Family-owned companies make up between 80 to 90 percent of businesses in the United States. But only 30 percent of new family businesses survive into the second generation. Here are some tips to help make sure yours is one of the those that survives to the second generation and beyond.

  1. Have clearly defined roles

Family businesses should be like others with job descriptions, goals and regular reviews. As the article “6 Steps for Maintaining a Thriving Family Business” points out, “Family firms tend to be more informal than other companies, and that can lead to misunderstandings about expectations.”

With clearly defined roles, each family member can act independently, without feeling the need to fight for territory or worry about stepping on someone else’s toes. A business can be much more nimble and responsive if everyone knows what their role is.

  1. Try to separate your business life from your family life

This can be one of the hardest things to do. It’s natural when any co-workers gather to discuss business. But when it’s a family business, that talk can tend to dominate.

Some families have rules and set boundaries. No business talk at the dinner table or at family gatherings. This can be especially important for couples who work together.

Francis and Susana V. Ptak co-own Gascoyne Laboratories, an environmental testing lab. In the article For Couples Working Together, Setting Ground Rules is a Must, she says, “Two things have helped us not kill each other. One is that we don’t do the same thing (Francis is a chemist and handles the analytic end of the company; Susana takes care of the business side), and the other is that we don’t talk business at home. In the car, yes, but once we’re actually at home, we just talk family stuff.”

  1. Make sure each family member is trained and suited to the position

Working at a family business shouldn’t be seen as an entitlement. Any family member should face the same screening and testing as any other applicant. They should also receive any training necessary to excel at their job. I’ve seen family members hired and promoted to senior positions despite their lack of necessary skills or suitability for the job.

This article, “Avoid the Traps That Can Destroy Family Businesses,” addresses the issue of family members working for a business as a last resort.

“We’ve encountered many companies that are populated by next-generation members who failed in other businesses or spent their 20s (and sometimes their 30s) as aspiring athletes, artists or musicians before signing on to the firm as unprepared 40-somethings. Despite their lack of experience, these offspring may ascend to leadership positions because of the family connection, increasing the chances that the business will fail.”

  1. Encourage innovation by having several generations involved

Research has shown that family firms are actually more innovative despite a reputation for sometimes relying on old, traditional ways of doing business. One way to encourage continued innovation is by involving members of the younger generation as soon as possible.

Identify younger members of the family who have an interest in the business and get them involved early with internships and entry-level positions. Let them rotate among different departments to see where their interests and talents are. Encourage them to work for other companies for a few years if they’d like and bring that experience and knowledge back to yours. 

  1. Have a clear succession plan 

Having an updated succession plan is crucial for any business. It is even more vital for a family business as family feuds may erupt upon the death of a business founder. In one memorable case in my career, the one I refer to as Crazy Charlie, a business owner died and his daughter became CEO as there was no board-approved succession plan in place. Son Charlie was unhappy about this, primarily because he had been stealing money from the company and we confronted him about it. He expressed his unhappiness by threatening his mother, who controlled the board of directors, with a kitchen knife.

The greatest threat to a family business is the failure to plan and manage succession well. Read more about creating a succession plan in my post Don’t Miss the Exit: Make a Succession Plan.

3 Tips on Enjoying Thanksgiving When You Own a Family Business

Norman Rockwell's "Freedom From Want."

Norman Rockwell’s “Freedom From Want.”

Everyone wants a Norman Rockwell Thanksgiving, the one depicted in his famous 1941 painting “Freedom From Want.” The painting shows a happy family seated around the table waiting for the turkey to be carved.

For many Americans, this is far from reality. Thanksgiving becomes something to dread, more of an endurance test and something to survive rather than to enjoy. And when you own a family business, there are even more topics that can cause conflict and tension.

I saw an ecard recently that read, “My favorite thing about Thanksgiving is when we all pass out and stop talking to each other.” Here are a few tips for how to enjoy Thanksgiving dinner when you run a family business, before you’ve reached that point.

  1. Make your desire to keep family business off the table known prior to dinner.

You can take a lighthearted approach to this if you are the host. When issuing the invitation, say something like, bring your favorite side dish and bottle of wine, but leave business matters at the office for the day. Or you may remind family members during a meeting or through a memo that Thanksgiving is a day off from the business.

  1. Plan an if/then scenario.

This tip comes from the Wall Street Journal article, “How to Have Thanksgiving Dinner Without a Family Blowup.” Author Elizabeth Bernstein recommends you coach yourself on how you might respond should a certain topic come up despite your request to not talk about the business. Let’s say one son blames the other son for thefts from the warehouse, and makes a snide comment as he passes the gravy. How will you handle it? One suggestion may be to quickly table it by saying, “Let’s be sure to address that Monday morning at our weekly meeting.”

  1. Privately enlist the help of the person most likely to start the drama.

Your brother Fred is typically the one to bring the tension, generally by referencing some long-ago conflict. Call Fred before the dinner and tell him, “Fred, I really need your help this year to have a more peaceful gathering. If you see any conflict start to develop, can I count on you to change the subject? Maybe tell us about your last fishing trip.”

Fred will be flattered you asked for his help, and eager to share his story. Problem solved.

If all this fails, there’s always TV. As comedian Craig Ferguson said, “I like football. I find it’s an exciting strategic game. It’s a great way to avoid conversation with your family at Thanksgiving.”
 

 

Fraud and the Family Business

Collard spring rolls. Delicious fried chicken and crispy waffles. An internationally famous singer’s name. Sounds like you’ve got all the ingredients for a successful business.

And for a long time, Gladys Knight’s Chicken & Waffles, opened in 1997, was just that. The restaurant chain had high ratings on Yelp, long lines of hungry diners and celebrities holding court in its booths. Sadly, things behind the scenes are not always as rosy.

Gladys Knight’s involvement was limited to letting her son, Shanga Hankerson, use her name. He ran the restaurant chain, which generated $8 million in sales at three locations. But he wasn’t running it too well apparently – he made national news in June when he was arrested for theft, and state revenue agents filed civil racketeering charges against him. Shanga allegedly owed $1 million in unpaid taxes and had been siphoning money from the restaurants to pay for unsavory activities. He wasn’t paying the employees and the restaurant was failing health inspections.

Shanga is out on bail and while two of the three locations have reopened, the chain made headlines again this week as it was disclosed Gladys is suing her son to remove her name from the restaurants and to stop using her recipes and memorabilia.

In addition to the financial losses the restaurant chain suffered, the Empress of Soul took another more immeasurable hit. To her reputation. Gladys has her name on seven Grammy awards, a star on the Hollywood Walk of Fame and in the Rock and Roll Hall of Fame. One place she doesn’t want to see her name is on a business mired in scandal.

Fraud can happen in any type of business and the types of fraud are similar to those in non-family businesses. According to an article in Strategic Finance magazine, “Shattered Trust: Fraud in the Family,” common fraud schemes include stealing office supplies, providing business secrets to a competitor, diverting customers to a competing entity, paying ghost employees and as happened in this case, stealing business funds.

Fraud always involves a betrayal of trust. But in a family business, that betrayal cuts much deeper. Many business owners and CEOS are happy to employ family members because there is an assumption they can trust them beyond anyone else.

An article in Forbes listed myths of family fraud. The one that caught my eye is one I have seen over and over in my career. “Our people wouldn’t commit fraud.”

Everyone wants to hire trustworthy people and continue to trust them to do the right thing. That’s one of the reasons they like to hire family members. You should be able to trust them above anyone else, right?

The bottom line is not always. Not even your own spouse/sibling/child. Here is another story to illustrate that fact.

A physician husband set up a practice with his wife in Connecticut. The business thrived and they enjoyed a nice lifestyle. One day the wife was running some errands and the husband saw an envelope on her desk from a bank he wasn’t aware of. It contained a bank statement for an account with $200,000 in his wife’s name. He learned she was planning on divorcing him, so had been stealing the money from the practice for the new life she was planning.

Other motivations for family members stealing may be addiction problems, feeling entitled or feeling underpaid and underappreciated. Whatever the motivation, the answer is the same as it is for every company. Institute strong fraud prevention policies and enforce them for everyone, family included.

For tips for setting up fraud prevention policies, please see “My Number One Tip for Fraud Prevention” and “13 Fraud Prevention Tips.”

As for Gladys Knight, it’s too late for her. She won’t be singing “You’re the Best Thing That Ever Happened to Me” to her son any time soon.

 

 

 

The 1 Question a Family Business Owner Should Ask His Children

Succession planning is critical for any business to survive beyond the current generation, and especially so when it comes to family businesses. Yet according to a PwC US Family Business Survey, 73 percent of family business owners in the US admit they don’t have a documented succession plan in place.

That’s one reason why only around 12 percent of businesses survive into the third generation. In Canada, business founders have only a 3 percent chance their business will survive and their grandchildren will run it, according to the article “Succession Planning in Family Business – Freud and Finance.”

While family business owners may assume their business will pass along to their heirs and thrive under the new owners’ stewardship, they have not taken the necessary steps to ensure a successful transfer of ownership.

If you own a family business and don’t have a plan in place, the time to start is now. As you consider what steps to take, ask your children this one question first, as suggested in the article above: Do they love the business enough to risk their own capital to buy it, over time?

If they don’t share your passion for the business and love it enough to invest their own money, as you did, they may not be the best people to manage it for growth in the future.

For more steps on passing your business to your children, please read “Should You Give Your Kids Your Business? 2 Factors to Consider.”

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.

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.”

5 Tips to End Family Feuds

There are around 5.5 million family businesses in the United States, employing 63% of the workforce, according to Family Enterprise USA, a non-profit advocacy organization. In any business, you’ll have conflict but that conflict can be magnified several times over when the emotional entanglements of family members are involved.

Let’s say a fight has started in the business, one that threatens to derail morale throughout the entire company and possibly impact productivity and profitability. How do you handle it?

Here are a few tips to get the business, and the family back on track.

1. Discuss the situation when everyone is calm

This rule applies to any conflict in your life. Nothing much productive will be accomplished when emotions are running high. Wait until the seas appear calm and people can engage in problem solving in a more rational way.

2. Allow everyone to air his or her thoughts and concerns

Make sure every member of the family has an opportunity to express their thoughts. Sometimes those who don’t speak up at a meeting are the ones who are escalating the conflict with others. And if people don’t feel that they have had a chance to speak, they become resentful. The problem will not be resolved and will resurface at a later time.

3. Define what the real issue is

This can be the most complicated part of any conflict resolution efforts, particularly in a family business. You may start solving the issue that has seemingly caused the conflict, for example that Uncle Roger has not been meeting his sales quota and the other salespeople are resentful.

But once you communicate that Uncle Roger’s largest client went under and he is slowly building his sales back up, people are still unhappy. You dig a little deeper and find out that they really resent him because he just got an expensive new office chair and the other salespeople feel they deserve one too.

Now that you’ve determined the real problem, you can begin to problem solve effectively.

4. Get buy-in on any solutions

Deciding on a solution without family members agreeing to it pretty much guarantees failure.  Make sure everyone involved has come to an agreement on what the resolution to the problem should be.

The concept of buy-in for any business is so critical that I devoted a chapter to it in my book, “How Not to Hire a Guy Like Me: Lessons Learned From CEOs’ Mistakes.” Along with communication, it’s one of the keys to success.

5. Make sure the roles for each family member for enacting the solution are clearly defined

Once a solution has been reached, if action is required, make sure each person clearly understand their role and when the action should be completed. Have someone present at the meeting write down what steps were decided on, who is going to complete them, and what the deadlines are. Have it circulated in an email, with a note thanking the staff for their participation in the problem solving process.

Despite all your best efforts, sometimes a conflict just can’t be resolved within the family. At this point, it can be beneficial to bring in a third party to mediate the real issues between the family members. A third party can often bring a different perspective and develop a creative solution, one that family members who are immersed in the issues aren’t able to do.

Some of the most successful businesses in this country are family ones. Good conflict resolution is one of the keys to help your family business thrive.