The business world is a cutthroat
place. Owners need good people
behind them — people whom they can trust no matter what. Since good
help is always hard to find, one way
companies can ensure that they’re filled
with trustworthy people is by keeping
the business in the family.
Family-owned businesses can be great
because, theoretically, family members will
always be loyal and dedicated to the company. But, sometimes, family interests conflict with business interests, opening up a
whole new set of business problems.
“Within the next five years, 40 percent of
closely held and family-owned businesses
will be changing hands and be in transition
due to the baby boomers retiring,” says
Carmen Bianchi, director of the EMC
Business Forum of the Entrepreneurial
Management Center at San Diego State
University. “The keys for these closely held
and family-owned businesses are having a
succession plan in place and creating some
kind of governance structure for the successful continuance of the ownership’s
legacy.”
Smart Business spoke with Bianchi
about family-owned businesses, what
makes them unique and how to put a proper succession plan in place so that the business stays in the family for generations.
What are the pros and cons of a family-owned business?
Being intimately familiar with the company and its staff can be very beneficial.
Having good backup and a built-in support
system around you ensures you’re never
going it alone. Also, usually families will be
more lenient when it comes to schedules,
on-the-job judgments and decisions, and
mistakes. Other advantages include long-term stability, shared values, loyalty, commitment and inherent trust. Families are
usually willing to sacrifice more for the
business.
On the other hand, personal interactions
and emotions might affect working relationships, which could lead to distractions.
Decisions on how to run the business
could be very different across generations,
which may lead to conflict. Beware of family members feeling entitled to enter the family business. Just because someone is a
member of the family doesn’t mean he or
she will be a good fit for the family business. On the flip side, just because the parents love the business doesn’t mean the
children will. Also, family businesses can
make rapid decisions, as opposed to public
companies that have to think about the
shareholders.
What are common problems a family-owned
business faces?
When close relatives work together, emotions often interfere with business decisions. In some family companies, control
of daily operations is a problem. In others,
a high turnover rate among nonfamily
members is a problem. In others, growth is
a problem because some of the relatives
are unwilling to put profits back into the
business. In the end, however, problems
that the manager of a family-owned business faces are the same as those at any
company. What makes it all complicated is
the aspect of working with relatives you
have to deal with your whole life — in and
out of the office.
Still, the biggest problem a family-owned
business will face usually has something to
do with succession planning.
What are important things to consider in succession planning?
A succession plan is as important as having an estate plan, financial plan and strategic plan. Good succession should encompass all four plans. Every family-owned
business should have an exit strategy. Is
your exit strategy written down or is it in
your head? Are you willing to sell your
company? If not, why? Could it be that
your company is your legacy and that your
dream is to perpetuate it through the generations? But, whose dream is it? If your
successor does not have that fire in the
belly, he or she won’t succeed or successfully steward the company through to the
next generation. Also, primogeniture is
passé — the most competent person
should be the successor.
Once you establish who the successors
are going to be, the next stage is leadership
development, where successors acquire
the needed leadership skills and experience and are acknowledged by employees
and clients. This will lead to a natural and
seamless transition.
Finally, you should create an ‘ethical will.’
This is a tool that will communicate the
most sensitive issues of succession, issues
that deal with retirement, death, legacies,
family values and love. These issues are
then passed on through the generations.
What are some of the structures that can be
put into place to promote success?
One thing is a family council: a platform
where family members can voice their
opinions and be heard by those who work
in the business. You’ll also need a code of
ethics or family creed — a set of values by
which a family business conducts its dayto-day business. Another structure is a family employment policy, which outlines criteria for family members in the business.
Along with that, you’ll need entry and exit
criteria, which are the rules and regulations on how family members enter and
exit the business.
CARMEN BIANCHI is the director of the EMC Business Forum
of the Entrepreneurial Management Center at San Diego State
University. Reach her at [email protected] or (619)
594-4949.
