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Turning a difference in family business into opportunity

THE EXECUTIVE’S DESK

Kathy Wiseman, Working Systems Inc.

According to the U.S. Census Bureau, family firms account for 90 percent of all business enterprises in North America, 55 million in the United States alone. They contribute 57% of our GDP and employ 63% of our workforce, a whopping 98 million people in all.

Unfortunately, statistics for the longevity of these family-run businesses are not so positive. Thirty percent of all family-owned businesses make the transition into the second generation, while only 12% are still around in the third, and a mere 3% of all family businesses survive into the fourth and beyond.

This, in spite of family owners wanting them to. The data – eight out of 10 family businesses have no succession planning – would suggest that although eager for their business to go on, these family owners are not willing to plan for it. This fact has continually intrigued me, so I have spent years talking to clients about it, trying to make sense of it.

What I have concluded is that family business change from one generation to another is often seen as a thorny process, one that highlights differences and leads to emotional conflict, a process better left alone. But the willingness to address and deal with differences, especially in family business, is absolutely essential to the evolution of the enterprise, not to mention the well-being of the family. Planning for generational change requires it.

As we know, differences of opinions and interests inherent in family-owned businesses are heightened by the intersection of family and business systems and often lead to conflict. In fact, many of the most pressing issues straddle the concerns of both, often blurring the boundaries between the two.

With this overlap, there are opportunities for synergy to emerge out of this conflict, providing an opportunity for family and business interests to blend productively. More often than not, however, family leaders tend to focus on possible differences with a concern toward an outcome of discord when personal and professional assumptions collide. Their fears are not unfounded.

On the family side, relationships that have inevitable tensions are made more acute in the business setting – parent/offspring; siblings; spouses; gender; second marriages and blended families; cousins; loyalty to past generations; and issues of fairness.

On the business side, the usual challenges are often sharper and more difficult in the family context – leadership, advancement, compensation, growth, acquisitions, sale, and especially succession and planning for change.

Even with all these opportunities for differences and, therefore, conflict in family business, there are structured ways to think about and approach both so that they become starting points for exploration and discussion, rather than anger.

After almost 30 years of working with family enterprises both large and small, I have seen examples of one person in a family willing to set the stage for planning with simply the conviction that differences and conflict are predictable processes in all human relationships. They then found ways to highlight the differences so that they could be addressed openly and successfully.

Below is a list of topics I have found helpful as a way to move forward in planning for the future of the family business as well as a way to help reduce one’s anxiety in thinking about it.

From this list, number the issues you believe need to be discussed, starting with the easiest to talk about through to the most difficult. The geography of issues in family business is quite predictable, but the variations from family to family are complex. Take your time and think through each one. Take notes, being sure to capture facts as well as assumptions. These notes will serve as a starting point for structured/timed discussions with family members who have done the same. This is the beginning for turning difference into opportunity.

Issues

• Employment in the business, including compensation, criteria for performance, compensation and governance.

• Intergenerational problems over leadership succession, advancement in the business, inheritance, power, and compensation.

• Sibling competition and rivalries over differential advancement, compensation, appreciation.

• Legacy and history, as both benefit and burden.

• Business development – the balance between directing profits into growth, reserves or dividends.

Liquidity needs of family members at different stages of life — home purchases, health needs, funds for retirement.

• Information sharing – is there full access to information about the business? Is it easy or difficult? Do some branches of the family feel excluded?

• In-laws and extended family – Do spouses become owners and/or employees? How to deal with cousins (generally in the third generation)? What happens to shares of ownership stock and employment arrangements in the event of divorce, second marriages and blended families?

You can learn more at the UNM Parker Center for Family Business Summer Dinner Thursday, June 27th, at the Sandia Resort Golf Center, 5:30 p.m. Contact: robin@rdoconsultants.com.

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