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SUCCESSION PLANNING
AND YOUR FAMILY BUSINESS

If you ever start feeling like you have the goofiest, craziest, most dysfunctional family in the world, all you have to do is go to a state fair. Because five minutes at the fair you'll be going 'you know we're alright. We are dang near royalty.' Jeff Foxworthy

Question from one of our readers: “When it comes to succession planning in our Family Business what are the top challenges we need to address early in the process?”

When it comes to succession planning, many family businesses will begin by handling incorrectly a number of issues. Three very common challenges that are avoided are:

· The lack of identifying the role each family member could play in the company.

· Not having compensation policies that identify position, skills sets and market place average wages.

· A mindset that the family can “cure” the interpersonal issues that arise.

Remember, two thirds of family businesses don’t make it through the second generation. We have found that the failure to address the emotional issues surrounding position, title and authority are top reasons for those failures.

Here are some “quick tips” for addressing these three common challenges:

Identify a potential role for each working family member by defining in writing their position, duties and responsibilities. There must be a true clarity of role for each working family member. Lack of this clarity is a frequent problem. If everyone in the family does everything in the business (which is not unusual) then when something falls between the cracks, everyone can point a finger at someone else, finding fault. Arguments start, nothing gets done and no one wins except the other employees who love to see the family fighting because when the family fights, no one is watching them!! Clarity of the role for each family member in business MUST include:
1. The ability to do and/or learn the position.
2. The desire to do or learn the position.
3. Defined responsibility and accountability.
4. Clarification of contribution to the “big picture.”
5. Understanding of what it will take to move to the “next” role in the company.

Leave any one of these out of the equation, and sooner more than later, conflict will take place.

The realization that employment in the family business is NOT a perk of being in the family. A leadership position will not be filled because of who you are must be understood by all working family members. If pay is tied to the emotion of any of the working generations, than how much a family member is paid will be related to being loved. Here is one suggestion on what NOT to do and one suggestion on what TO do:
1. Paying someone less because they don’t have kids yet or still live with mom and dad rather than compensating them based on their contribution to the business is a sure way to “dig up the personal issues that will eventually sink the company!” A lower pay may result in feelings of not being treated fairly and give rise to jealousy, resentment or bring on feelings of deprivation among family members.
2. Pay the family member for their performance and the overall contribution that they make to the success of the family business.
Mom and dad will always be mom and dad. The kids will always be “the kids” no matter how old they get! Working on getting each generation to view one another as equals must be a common, understood goal. Keeping the business focus is essential to the success of each family business but it must also be blended with the emotion of the family. One without the other ends up in a win/lose situation. Either the business wins at the expense of family relationships or the relationships win by giving up good business practices.

Here is one suggestion on what TO do and one suggestion on what NOT to do:

Get outside advisors; people who are successful in their own right; people who can be objective when it comes to the family. These people are decided upon by the entire working family, not just by one person. Choose people who will “talk straight” and not “pull punches.” They will offer advice for the good of the family and for the good of the business. One without the other will not work. Interview the prospects just like you would a key employee joining the company (ok that is 2 suggestions!).
Attorneys, bankers, insurance representatives that you are currently doing business with, should not be on your board. They have a vested interest in the decisions you make. You already pay them for advice and someday your board may recommend that it may be time to move on to someone more qualified to meet your growing needs.

There you have it, a few quick tips with “how to” action steps. All you have to do is make it happen. You can start by talking about this with your other working family members. Your family relationships and your business will both profit from it!!

WHAT DO YOU SAY ABOUT YOUR FAMILY??

Question from one of our readers:
Our family struggles with talking negatively about other family members to employees and sometimes customers. Any advice you can share?

            You are not alone in this concern. Nothing will change until each family member involved in the business truly understands the negative impact that this habit can have, not only upon the business, but also upon the interpersonal relationships of the family members.

            To illustrate this impact I recall a story that may be the right illustration for you and your family to consider. We will call this family the Jones family. Dad Jones is an extremely competitive person. When he started the company over 40 years ago his personal motto was, “I will work harder, sell more, and be better than the competition” and he usually was. He expected his two sons both who joined him in the business to do the same. He wanted both of them to be the aggressive salesman he had always been. He would constantly tell his sons that the only way to succeed in business was to be tough and never let anyone “take advantage of you.” Dad was constantly telling his sons, often heard in the halls of the company, what they were doing wrong and why they needed to be more like him. He expressed to others how his sons were “slow learners” when it came to being ready to take over the business.

            When he went to the bank for new loans the conversation always turned to how hard of a time he was having getting his boys to really understand the business. Dad pitted the sons against one another by telling one and then the other how his brother was holding them back. The sons have been involved in the business for over twenty years, have obtained solid, profitable, customers but just didn’t sell the way dad does. Dad kept many business relationships and a lot of the company information as part of his duties as “the boys needed more selling experience.” The sons began to resent one another as they begin to believe what Dad was telling them about their brother holding them back. This resentment passed on to the spouses as when they looked at what each possessed it appeared that one brother may be making more than the other. Resentment continued to grow.

            Six months ago Dad was in a car accident. Business began to take a dive with one of the reasons being the current economy. Because Dad was no longer actively involved in the business, and may never be again, some of their old time customers began to leave. The sons began to blame one another for not living up to Dad’s expectations. The old customers were leaving because they heard over and over again how neither one of the sons were ready to take over the business. The bank shut off the line of credit because Dad was not there to keep things running and the sons “certainly were not ready” as they had been told by Dad. The bank was not going to risk dollars on inept sons running the company. The brothers fought more and more. Some of the key employees also believed what they use to hear and left the company to go with competitors. Decisions were not being made and employees were lining up with the brother they thought would eventually come out on top. In six months the business revenue had dropped 55%! In a survey completed with past clients that accounted for 80% of the reduced revenues, these clients mentioned two issues that influenced their decision to change suppliers. One was that Dad was no longer involved in day to day operations and the second was they did not believe that the sons were qualified to take over the business.

            This may be an extreme case but it is amazing how many families continue to “talk down” about one another to employees, vendors and even clients. What you say to others who your father, brothers, sisters or other family members are is believed by those that are listening. Even family members begin to believe that you are what they have been told about you by other family members. “He is lazy”,   “She is irresponsible”, “He never listens to anyone”, “She is holding you back”, and other like statements can hurt the business and drive wedges between family members.

            This is a good time of year to reflect and possibly change how we describe our family members in business to others. This must be discussed in an organized, open family meeting. If you need help doing this, get it. It is too important to leave unaddressed. As a business matures, as economic times change, who you say the other members of your family business are, if negative, can create havoc on the family and business relationships as our story illustrates.

            Now is the time to for every family member to commit to protect the reputation of the family and the business. This does not mean that you have to lie, as some of you may be thinking. It means that you will not pass on or allow to be passed on negative stories about the family or business. If you hear it from others address them by stating, “We do not appreciate anyone talking negatively about a family member. If you have a problem with that family member you go talk to them about it, not everyone else.” Stop the negativity. Even your non-working in the business spouse can spread a lot of negative feelings toward the family business if they do not understand the impact this can have on their life because of reduced business. If there is a problem with a family member in business the working family members must deal with it outside of the ears of the employees, vendors, suppliers and customers. Only by showing a unified front to eliminate discussions of family issues in front of others will the family and the business achieve successful growth.

            Don’t put it off. Take this newsletter and make copies for each family member. Ask them to read the newsletter and if they believe that it sounds like your family, join with you in setting the stage to address this now. Delay, even more in today’s environment, will cause severe damage to the business and the lifestyles of each family member.

            If you and your family need help in addressing and resolving this issue, contact us and we will help find the right solution for your family and your business.