What Is a Family Business?
Defined simply, a family business is any business in which a majority of the ownership or control lies within a family, and in which two or more family members are directly involved. It is also a complex, dual system consisting of the family and the business; family members involved in the business are part of a task system (the business) and part of a family system.
Conversely, the business system is unemotional and contractually based. Entry is based on experience, expertise and potential. Membership is contingent upon performance, and performance is rewarded materially. Like the family system, roles in the business, such as president, manager, employee and stockholder/owner, carry specific responsibilities and expectations. And like the home environment, businesses have their own communication, conflict resolution and decision-making styles.
Conflicts arise when roles assumed in one system intrude on roles in the other, when communication patterns used in one system are used in the other or when there are conflicts of interest between the two systems. For example, a conflict may arise between parent and child, between siblings or between a husband and wife when roles assumed in the business system carry over to the family system. The boss and employee roles a husband and wife might assume at work most likely will not be appropriate as at-home roles. Alternatively, a role assumed in the family may not work well in the business. For instance, offspring who are the peace makers at home may find themselves mediating management conflicts between family members whether or not they have the desire or qualifications to do so.
A special case of role carryover may occur when an individual is continually cast in a particular role. This happens primarily to children. Everyone grows up with a label: the good one, the black sheep, the smart one. While a person may outgrow a label, the family often perceives that person as still carrying the attribute. This perception may affect the way that person operates in the business.
Family communication patterns don't always affect the business, but when they do it can be very embarrassing. Often you say things to family members in a way you would never speak to other employees or managers. This problem is compounded when your communication is misread by the family member. Often parents are surprised by a son's or daughter's negative reaction to a business directive or performance evaluation. This reaction is probably because the individual perceived the instructions or evaluation as orders or criticism from Dad or Mom, not from the boss.
System overlap is apparent when conflicts of interest arise between the family and the business. Some families put personal concerns before business concerns instead of trying to achieve a balance between the two. It is important to understand that the family's strong emotional attachments and overriding sense of loyalty to each other create unique management situations. For example, solving a family problem, such as giving an unemployable or incompetent relative a position in the firm, ignores the company's personnel needs but meets the needs of family loyalty.
Another example of conflict of interest occurs when business owners feel that giving children equal salaries is fair. Siblings who have more responsibility but receive the same pay as those with less responsibility usually resent it. In cases of sibling rivalry, it isn't unusual for one sibling to withhold information from another or try to engage in power plays, i.e., behaviors that can be detrimental to the firm.
Much of this behavior can be eliminated or managed by devising policies that meet the needs of both the family and the business. Developing these policies is part of the family strategic planning process. Before discussing them, you should make sure you have identified all the issues that need to be addressed.
Issues in the Family Business
The list below contains the issues that most family businesses face:
- Participation -- who can participate in the family business and under what circumstances.
- Leadership and ownership -- how to prepare the next generation to assume responsibility for the business.
- Letting go -- how to help the entrepreneur let go of the family business.
- Liquidity and estate taxes.
- Attracting and retaining nonfamily executives.
- Compensation of family members -- equality versus merit.
- Successors -- who chooses and how to choose among multiple successors.
- Strengthening family harmony.
All of these issues and the others you include in the Family Business Assessment Inventory can potentially cause business conflict and family stress. But there are three steps you can take to manage conflict and stress in a family business:
- Identify issues that may cause conflict and stress.
- Discuss these issues with the family.
- Devise a policy to address them.
to be continued...