Family Governance
Preserving Family Harmony
Separating family from business relationships
As a family business owner, you may want to bring your children or other family members into your business. You may have already done so and discovered it’s been a bumpy ride. How do you do work with family members and still protect family relationships?
When family members work together, the boundaries between work and family time becomes blurred, and the relationships overlap. Families need to think through how to separate the parent/child relationship from the owner/employee relationship.
Separating family from business relationships
As a family business owner, you may want to bring your children or other family members into your business. You may have already done so and discovered it’s been a bumpy ride. How do you do work with family members and still protect family relationships?
When family members work together, the boundaries between work and family time becomes blurred, and the relationships overlap. Families need to think through how to separate the parent/child relationship from the owner/employee relationship.
Why is it important to separate family relationships from business relationships?
It’s pretty clear that you can’t run a business like a family, and you certainly can’t run a family like a business. So when family members work for you, it can get very complicated. Family relationships are based upon unconditional love and acceptance. Business is all about performance and accountability. So how do you hold your family members accountable to performance without getting it confused with love? How do you demote or fire a family member without destroying your family? It is naïve to think that your company’s employee handbook will be sufficient for these complicated issues.
The Family Council
How to successfully approach planning decisions with family members
One of the best venues to discuss the business of the family is in a “family council.” What we’ve learned is that people should separate family gatherings from family business discussions. A more formal setting encourages a more professional and organized approach, often by having advisers and a facilitator present to help explain things in a way that won’t upset or confuse.
Unmet expectations or anxiety about the unknown can seriously undermine family harmony. Whether there is conflict or not regarding the succession plan or the division of assets you can side step potential years of tension and upset by tackling these tough discussions step by step with the guidance of a trained facilitator. Knowing, even if you don’t like the answer, is most often better than being in the dark.
Making important decisions related to your financial and business future, can easily tie a couple and family into emotional knots. Differences in leadership, communication and decision-making styles can threaten even the best of families when discussing sensitive issues.
There are many things that families can do to become more effective communicators (and listeners) and in turn, to improve the quality of their relationships. One of the tools we use to help couples and families understand each other better is through the PDP Personality Styles Survey®. Understanding the four basic behavioral personality traits and how these traits influence behavior under stress can be an effective tool to enhance family communication.
The PDP ProScan® Personality Styles Report offers insights into predictable behavior patterns, leadership styles, communications styles, motivational factors, and back-up behaviors, which are likely to intensify in stressful circumstances. It is important to understand these differences so that family members can work and live together in a more effective and harmonious way.
How should stock ownership be handled in a family business?
Stock ownership qualifications can be built into a stock ownership policy — just because you’re a family member and in the business doesn’t mean you’re qualified to own stock. Those in the business should have controlling or voting stock, while those not in the business can own non-voting or restricted stock because they likely won’t understand the decisions that need to be made. Having a stock ownership qualification policy can include provisions to prevent unnecessary battles between active and non-active shareholders.
How do we create family governance policies?
Your attorney will draft the legal language of these policies, but the family, owners and your succession adviser determine the intentions or principals of the policy. You’ll determine the intention, how it will work in certain scenarios and talk through topics in an open way to get an outline. Your attorney will confirm the principals, point out the ramifications of certain provisions and formalize the language. The outline typically becomes an addendum in the shareholders agreement and presented to the next generation family member, along with the family employment policy and expectation agreement.
How are personal and professional relationships best maintained?
As in any partnership, clarifying your vision, objectives, expectations and measurable outcomes is fundamentally important with any family member coming into the business. As you’re determining an equitable workload, the functions can be so different that one can feel as if one is getting the mine and the other is getting the shaft. Determine the best way to work together, how often you’ll meet to talk about the business, how you’ll support your personal relationship and handle differences of opinion. Talk about both business and life objectives so you can support each other in life and work.
It’s important to establish boundaries. One couple working together determined that at the end of the day they would meet, review the day and set up for next, then stop talking about business. It changed their relationship. Family business coaching can help establish these boundaries.
Stock ownership qualifications can be built into a stock ownership policy — just because you’re a family member and in the business doesn’t mean you’re qualified to own stock. Those in the business should have controlling or voting stock, while those not in the business can own non-voting or restricted stock because they likely won’t understand the decisions that need to be made. Having a stock ownership qualification policy can include provisions to prevent unnecessary battles between active and non-active shareholders.
How do we create family governance policies?
Your attorney will draft the legal language of these policies, but the family, owners and your succession adviser determine the intentions or principals of the policy. You’ll determine the intention, how it will work in certain scenarios and talk through topics in an open way to get an outline. Your attorney will confirm the principals, point out the ramifications of certain provisions and formalize the language. The outline typically becomes an addendum in the shareholders agreement and presented to the next generation family member, along with the family employment policy and expectation agreement.
How are personal and professional relationships best maintained?
As in any partnership, clarifying your vision, objectives, expectations and measurable outcomes is fundamentally important with any family member coming into the business. As you’re determining an equitable workload, the functions can be so different that one can feel as if one is getting the mine and the other is getting the shaft. Determine the best way to work together, how often you’ll meet to talk about the business, how you’ll support your personal relationship and handle differences of opinion. Talk about both business and life objectives so you can support each other in life and work.
It’s important to establish boundaries. One couple working together determined that at the end of the day they would meet, review the day and set up for next, then stop talking about business. It changed their relationship. Family business coaching can help establish these boundaries.
Preparing the Next Generation for Leadership
What will it take to get the future leaders ready for succession in your business? While many family-owned organizations do a good job of creating wills, trusts and a buy/sell agreement, too few formally prepare the next generation to lead and succeed in the businesses they will be inheriting. Too many succession plans assume the owner will be able to schedule his or her own passing, and so they forego developing a backup contingency plan, which can sometimes have tragic consequences. If you are a business owner hoping to pass your business to your children, the transition of leadership is far more complicated than simply transferring formal ownership.
When family is involved in your business it can be a wonderful thing. However, the lines between professional and personal can blur if relationships are not managed properly. For example, what do you do when your nephew graduates from college and your brother calls to ask if you can find a job for him in your company? This can put a lot of pressure on that relationship, as well as the managers in your company who will be responsible for your nephew.
How can a family member be brought into the business successfully?
Develop and adopt a family member employment policy before young family members are ready to enter the work force. The policy establishes the criteria for a family member to qualify for a job at the company. It sets the level or type of education, the desired skill set, mandates that no job will be invented for a family member unless it’s needed by the company and determines that pay scales will be commiserate with those of non-family members.
Your managers will appreciate your family employment policy, as it will address the complicated family issues before they happen. It also clarifies with family the qualifications and the experience they’ll need to work at your company.
How do you set expectations for managers of family members?
Bring your key managers in as mentors to define how you want to handle your children’s professional development, as well as the predictable bumps and challenges. Triangulation can be a really big problem in family businesses.
Develop and adopt a family member employment policy before young family members are ready to enter the work force. The policy establishes the criteria for a family member to qualify for a job at the company. It sets the level or type of education, the desired skill set, mandates that no job will be invented for a family member unless it’s needed by the company and determines that pay scales will be commiserate with those of non-family members.
Your managers will appreciate your family employment policy, as it will address the complicated family issues before they happen. It also clarifies with family the qualifications and the experience they’ll need to work at your company.
How do you set expectations for managers of family members?
Bring your key managers in as mentors to define how you want to handle your children’s professional development, as well as the predictable bumps and challenges. Triangulation can be a really big problem in family businesses.
What In-Laws should know before going to work in the family business?
As an in-law coming into a family business, you’re stepping into one of the hardest working environments imaginable. A family member is held to a higher standard than regular employees, but an in-law has to work even harder than a family member. It takes someone with vision, purpose and patience to overcome the extra challenges. If you lay the right groundwork, establish clear expectations, and work with an adviser familiar with the challenges that will occur, it can be a productive and joyous experience.
Properly addressed at the beginning, in-laws (and out-laws) can successfully enter the family business and thrive.
Case study: an in-law had been a successful a sales manager making six-figures before he was downsized. Now, he’s in trouble financially, and the family is worried. Bringing a successful in-law into the family business, which might be in another industry, can be a great solution, but beware of jumping to the top of the stairs. He shouldn’t start as the VP of Sales. Bring him in appropriate to his experience and provide an opportunity for him to learn the business and earn his way up the corporate ladder. If parents are still concerned about the financial gap for the short term, they can consider gifting additional monies from outside of the business as parents, not as an employer — to help until he earns his way up.
What challenges do in-laws face when coming into the family business?
The hardest thing to overcome is perception. It doesn’t matter if you have an MBA from Cambridge or a Ph.D. from Harvard. When it comes to in-laws, the fact that you married into the business downgrades any credentials in the eyes of non-family managers or employees. People will tend to judge you harshly, so be patient and don’t take it personally.
The position, pay scale and responsibility must match the in-law’s experience and education. Thrusting an unqualified in-law upon your business team, no matter how great he or she is, makes it a much harder road. Engage your management team into the process of interviewing the in-law candidate to gain support.
Does the manager please the boss and spoil his son, or does he try to be a good manager and hold his employee accountable?
Case example:
The manager is asked to train and manage Dad’s son, Sam. But Sam is acting up, coming in late and overall not doing a very good job. The manager chastises Sam and gives him specific instructions for modifying his performance. Instead of taking the correction as an opportunity for growth, Sam complains to Mom who then goes to Dad saying Sam is being treated unfairly. This forces Dad to ask the manager why he’s being unfair to Sam, putting them both in an awkward situation. Does the manager please the boss and spoil the child, or does he try to be a good manager and make sure the job is done right, standing up to the boss and saying his son is not doing a good job?
The manager is asked to train and manage Dad’s son, Sam. But Sam is acting up, coming in late and overall not doing a very good job. The manager chastises Sam and gives him specific instructions for modifying his performance. Instead of taking the correction as an opportunity for growth, Sam complains to Mom who then goes to Dad saying Sam is being treated unfairly. This forces Dad to ask the manager why he’s being unfair to Sam, putting them both in an awkward situation. Does the manager please the boss and spoil the child, or does he try to be a good manager and make sure the job is done right, standing up to the boss and saying his son is not doing a good job?
What do we do about “triangulation”?
The best thing you can do is talk about triangulation before it happens. Sit down with your managers and define how you want to interact with them. If a situation arises, who decides the course of action? You need to build a bridge of communication so the owner, parent, manager and incoming family member have the opportunity to talk these things through before relationships get tangled up.
If a family business hasn’t planned up front, is it too late to make changes if a next-gen family member is already working at the company?
It’s never too late. A succession coach can help you begin to untangle the knots that have people tied up. Next-generation family members can exhibit entitled, blasé or even toxic behavior at any age. Don’t think you can turn a blind eye to it if you want to have a smooth and successful leadership transition. The situation can be turned around if you address it with determination and commitment.
The best thing you can do is talk about triangulation before it happens. Sit down with your managers and define how you want to interact with them. If a situation arises, who decides the course of action? You need to build a bridge of communication so the owner, parent, manager and incoming family member have the opportunity to talk these things through before relationships get tangled up.
If a family business hasn’t planned up front, is it too late to make changes if a next-gen family member is already working at the company?
It’s never too late. A succession coach can help you begin to untangle the knots that have people tied up. Next-generation family members can exhibit entitled, blasé or even toxic behavior at any age. Don’t think you can turn a blind eye to it if you want to have a smooth and successful leadership transition. The situation can be turned around if you address it with determination and commitment.
Why is having a succession coach valuable?
Engaging a coach who specializes in succession transitions to help employed family members can smooth the predictable challenges along the way. Family employees, including in-laws, need a safe place to talk, and guidance to strategize through the maze of issues that will occur. The coach also can facilitate a family business council, which provides a venue for family members to talk about business related topics, questions and issues that would normally feel inappropriate to bring up in a productive environment.
Engaging a coach who specializes in succession transitions to help employed family members can smooth the predictable challenges along the way. Family employees, including in-laws, need a safe place to talk, and guidance to strategize through the maze of issues that will occur. The coach also can facilitate a family business council, which provides a venue for family members to talk about business related topics, questions and issues that would normally feel inappropriate to bring up in a productive environment.
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