By Bernard Kliska and Christopher Eckrich

Ben and his wife, Lisa, bought their orthotics business from Ben’s father three years ago. At first, the excitement of working together overshadowed any disagreements.  But after a few months, Lisa began to realize that while Ben was great with the manufacturing process, he frequently avoided the paperwork necessary to process orders. As the office manager, she began to take it personally when Ben didn’t respond to her requests to document his work.

In turn, Ben began to feel that Lisa did not respect how hard he worked to get product out the door. He wished she would stop nagging, take care of the details and let him do his work. Tensions at home mounted, and they stopped going out on their weekly dates.

Roger and Allen were in the process of taking over the business from their parents, who insisted that they each own 50 percent of the stock and get paid the same. But Roger and Allen were not equal in either ability or passion.

Roger had always been the one who developed new business, maintained relationships with key customers, and oversaw the office. In the past, Allen had demonstrated a poor work ethic and a reluctance to take responsibility for the business.

Roger was worried that once his parents are gone, the business would suffer. The equal pay despite obvious differences in commitment was making him bitter. Perhaps, he thought, he should just strike out on his own and let the cards fall as they may for his aging parents and his unfocused brother.

Family members who work together in a business know that when it goes well, being together is wonderful. But when unhealthy family conflict creeps into the family business—and there are always family challenges in a family business—failure to resolve the conflict can lead to tense days, sleepless nights, stressful holidays and a negative balance sheet.

In our experiences with family-owned businesses, we see some common conflicts. Some of them include:
 

• Tensions over money
• Struggles for control between generations (a father and his children) or within generations (two brothers)
• Feelings of unfairness when those in the business gain greater perceived or real rewards than those not working in the business
• Fears of future stability when succession issues are not openly addressed and resolved

While the conflicts may be the same, each family will resolve them in a unique way. The twist with family businesses is that how a family resolves normal and expected tensions will be heavily influenced by its own culture, family dynamics and individual personalities, not just the characteristics of the industry in which the family is doing business.

When “family” and “business” overlap
Families and businesses have different cultures. Most families consciously make decisions based on emotions. They seek stability, have unconditional love and acceptance for each other, are private, desire harmony and know they are tied together as a unit for generations. Family is always family.

Businesses operate in an entirely different world. Those who operate businesses must be open to constant change, make a profit, demand performance from employees, create a successful employee culture, enforce lines of authority, and recognize that relationships are formal and may end when the relationship no longer makes business sense.

A critical task facing families who work together is to understand which one of these systems they are working in. Normally, those entering a business understand that they need to learn a new culture and rules for performance. But in a family business, family members often experience confusion as family expectations overlap with business expectations.

In a discussion, was that comment made as a sister speaking to a brother, or as a superior speaking to a direct report? The confusion is normal, but potentially threatening to the family and the business.

Here are some of the specific challenges that emerge when these two worlds collide:

1. Business owners may promote relatives or children on the basis of family consideration (emotion) rather than on merit. An owner may be faced with keeping a child on the payroll to avoid breaking up a relationship in the family, though such nepotism can inhibit the company’s ability to retain or develop non-family employees and managers.

2. Family business leaders may have an open-door policy that invites all relatives to work in the business. This may seem like an act of love. But what happens when there are more family employees than the company needs or can support, leading to a shrinking piece of the financial pie for each family member?

3. A founder’s children may be compensated according to their personal needs rather than their job performance. Non-family employees equate this system with an allowance from mommy and daddy, and it often drives competent non-family managers to seek employment elsewhere.

4. The family value of treating children equally may result in equal rewards to children regardless of their commitment, ability or contribution to the business’ success. This socialistic practice can be seen in some of the staunchest capitalistic family enterprises.

5. Childhood sibling rivalry can continue through the years. It can become full-blown warfare in a business setting, leaving other employees distracted from the business’ goals.

6. Parent owners often pursue equality in their estate plans, but do not invest in training the sibling or cousin group how to be a team. Sometimes they don’t even communicate the plan. (“After all, we’re your parents—just trust us!”) This results in an ineffective ownership group taking over the business.

If those are the problems, what are the solutions? If a family works on establishing clear policies in the following six areas, the family business (and the family itself) is much more likely to succeed. Here are six aspects to nail down:

1. Family entry and exit. Establish a participation policy specifying who can work in the business and what qualifications are necessary for positions. Clarify that it is okay for a family member to leave the business.

2. Salaries, promotions and positions. Establish a compensation policy identifying the basis for pay, for perks, for promotions and the consequences of non-performance.

3. Equality and merit. Clarify the hierarchy in the business. Clearly articulate a basis for gaining a voice and management responsibility. Everyone in the family has wisdom and should be heard, but this must be balanced by the need to have decisions made for the business.

4. Sibling relationships. Create a “sibling code of conduct,” which is a jointly crafted policy on commitment, values, expectations and communication.

5. Communication process. Have regular business meetings, and have regular family time away from the business. Discuss and commit to buy/sell agreements in the business, and work on conflict resolution and decision-making processes as a family ownership group.

6. Leadership of business and family. Successors must earn the right to be the business leaders, but senior leaders must also prepare to let go.

Establishing the policies
The problem is, many business owners are so busy with day-to-day operations that they do not feel they can take the time to work on broader issues like the ones listed above. Unfortunately, many have found out that failure to respect the intricacies of family business can result in enormous blocks of time spent later trying to recover from matters that could have been prevented with a few days of work hammering out the differences between “family” and “business.”

Those who do work through these issues often hold a few half-day sessions to explore the owners’ beliefs and expectations, and craft them into strong policies that guide later decision-making. In our work, we have found that meeting over time is more effective than just trying to quickly put something on paper. The most effective family ownership groups we’ve seen evaluate how well they are functioning together, lay out goals for the coming year, and then assign individual family members who will take responsibility for making sure that these tasks are completed well and on time.

Families in business will always have challenges, but truly effective family businesses are defined by people who take responsibility for thinking through the normal rough spots and making plans to deal with them. The rewards include watching the family business succeed throughout several generations.

Bernard Kliska is a member of The Family Business Consulting Group. He can be reached at (312) 988-9328.

Christopher Eckrich is a principal of The Family Business Consulting Group. He can be reached at (260) 436-0045.