Recently on a trip to Italy, we struck up a conversation with a couple in their 50s from the Ivory Coast in Africa. Chit chat led to learning the husband runs the family’s paint and steel distribution business. Once he found out what I did for a living, he laughed and said, “I am sure we have many concerns alike although our countries are very different.” When I asked him the one thing that he struggles with the most in his family business, he replied, “Ah, that would be my uncle. Every time I send him out the door, he comes back in through a window.”
During our conversation, I found out that his “little family business” has more than 3,000 employees. In family business, it doesn’t matter the size or type of business, or the country—managing a business while managing family relations can be hard. The adage that “family relationships drive business decisions” comes front and center in so many ways. The values and behaviors that make for a great business are usually just the opposite of those that make for a great family. Differentiating family first decisions from business-first decisions is the critical skill needed for both the business and the family to succeed.
Communicate More
Succession planning is often placed on the back burner and delayed, and becomes a mess of spoken and unspoken intentions, expectations and misperceptions. So, what’s the way out of it? Start talking: the earlier the better. Whether it’s two family members deciding to get into business together, or a family business that’s been around for generations, the stakeholders need to find alignment on these most important issues: how will this business operate successfully; who owns the business; who will make the ultimate decisions; and how will they, when the time comes, part company?
Take the scenario that a family member wants to join the business. How can the business set up standards and policies to make what the business needs the priority, not what that family member wants? What are the conditions and expectations of both sides? It helps to take the emotion out of it. Objectivity, contribution and competence must primarily drive the ultimate decision to hire, not genetics.
Succession Planning Can Get Tricky
Ownership succession in a family business is perhaps the most common place where emotions and treating all of one’s children equally sneak in. Will it be decided by merit or by guilt? Who should own and/or run the family business becomes the issue that often divides the family.
A common challenge often starts with two parents who own a business together and have multiple children with varying levels of involvement and interest in the business. One adult child has been working with them and doing well, learning the business from the ground up and contributing hard work, strategic thinking and business savvy. However, the couple also has another adult child who worked with them briefly but left years ago, and a third child who never worked in the business and never showed any interest. As the couple plans their retirement, they have confidence that child number one is clearly the logical successor. However, their biggest fear is that the other two children will be hurt.
Succession planning around the business’s success and assets should be made responsibly for the good and long-term health of the business and the family. There are many ways to redistribute shareholder stock. The concept “fair is not equal” rules in these situations.
Family and business communication about these types of issues and expectations can help preserve both family harmony and business viability.
The successful passing to the next generation is done by family business leaders who are willing to explore the different ways to get there and those who vigilantly maintain alignment and respect for both the family’s and the business’s needs, values and characteristics. It’s hard and, yes scary, work at times. However, not talking about it only kicks the can down the road and makes those conversations ever harder, puts the family more at risk and the makes the business more unstable.
Find Good Resources
There are answers out there. The classic “Every Family’s Business” by Thomas William Deans takes the reader through the many crucial decision-making points for families. It demonstrates the importance of family members sitting down periodically through the years to ask each other, “Are these things we have discussed still true?” and “Are we still aligned?”
Beyond the plethora of books, there are many resources available to help families through these important conversations in a careful and objective way. The Center for Family Enterprise provides many resource partners for family businesses. Just as every business needs legal and financial counsel, a family-owned business, at some point, needs outside counsel to assist with communication and alignment issues. Doing so can not only save the business and the family; it can also make the work of their presiding attorney, CPA and bank that much clearer.
As I told the Ivory Coast couple, with timely, honest and vital conversations, and the right people on their bench, every family business can find a way to keep that uncle from climbing back in through that window.
Michelline Dufort is the director of the CEO & Family Enterprise Center, which is associated with the Peter T. Paul College of Business & Economics at the University of NH. For more information, visit paulcollege.unh.edu/ceo-family-enterprise-center.
Current Issue - April 2024