Saving a Family Business from Emotional Dysfunction

“What do you think is the best way to deal with my father? What can I do to convince him that there are better ways of running the business? I have been trying to get him to accept my ideas, but he is a poor listener. I really do wonder how much he values my opinion. What grates on me is that he refuses to accept that the world is very different from the time when he started the business. If our family business is going to survive, we need to do things differently.”

These were the disgruntled words of Joseph (not his real name), who had come to me for help on how to “manage” his father. Joseph was the son of an entrepreneur who had created a massive enterprise. But times were changing. The digital world was having a significant effect on the business, and in spite of Joseph’s pleas for new managerial approaches, his father persisted in his familiar ways. To all who were familiar with the situation, it was very clear that their disagreement on how to take the company forward was affecting the business. Moreover, his father had a pervasive habit, when he felt cornered, of playing Joseph’s brother and two sisters against one another. And Joseph needed that like he needed a hole in the head.

Family businesses dominate and are the backbone of many countries’ economies. They are also the lifeblood of job creation. Families control about 85% of the large (worth more than $1 billion) businesses in Southeast Asia (with the notable exception of China), and 65%-75% of large businesses in the Middle East, Latin America, and India. According to the Family Firm Institute, about two-thirds of all business around the world are family-run, a figure that some estimates put at 90% in the United States. And the world is full of scions like Joseph, who find themselves frustrated by business problems that have become entangled with messy emotional issues.

The saying “Wealth doesn’t last more than three generations” reflects current family business statistics. Only three out of 10 family businesses survive into the second generation, and only one out of 10 are handed down to a third. The average life span of successful family firms appears to be 24 years (which coincides with the average time that the founder is associated with the company) according to the Conway Center for Family Business.

Although all organizations have to deal with power struggles and conflict, these challenges can be especially tough to manage in family businesses because they’re so emotional. Therefore, successfully handing on a family business requires mastery not only of the business but also of the self. The most persistent complaints I hear are that members of the senior generation refuse to share power with their adult children; that there are family members put into management positions for which they are not qualified; and that it is impossible to have a truly professional relationship with someone in the family (father, mother, uncle, aunt, brother, sister, or cousin). And all too often, the powerholders in a family business fail to address such problems effectively.

The question becomes what the family can do about it. How can they prevent these interpersonal grudges, misunderstandings, and frustrations from festering, to the detriment of the business and the family?

Focus on the Future

What I’ve found helpful as a way to begin to address the problems is to have the powerholder(s) reflect on scenarios for the future. Do they prefer to act as Louis XIV: après moi le déluge, with no regard for what happens after they retire or die? Or would they like to preserve the business for the following generations? If the latter, they need to take a number of steps to ensure continuity. To move forward, however, they must have the courage to face general business issues (which all companies have to deal with) and deal with the complex emotional and relationship issues that underlie family dynamics. In a family business you need to have both a family that works and a business that works.

Focus on Fairness

The powerholders in well-functioning family businesses need to demonstrate concern for fairness in their plans and decisions, as that will be the cornerstone of trust. Actions that are perceived as fair are more likely to be accepted and supported if they follow a number of concrete practices:

  • Give everyone voice, creating the perception that everybody in the family can make a difference
  • Provide clarity, offering timely and accurate information about family and business issues
  • Be consistent, applying the rules in the same manner to all members of the family

When a family business grows in complexity, the family will do well to reexamine the nature of its participation and engagement as a group. One important recommendation is to hold regular family meetings, which (over time) should evolve into a formal family council. Such a structure can help make people like Joseph feel less alone in their efforts to induce change.

Write a Constitution

One of the early essential tasks of these family councils is to help develop and approve a family constitution. In creating an explicit, transparent constitution, family members need to ask themselves what is the unifying purpose of having a family-controlled business in the first place. What are their values and vision? In my experience, some form of family philanthropy can be a highly effective way of binding families together. To focus on something that transcends the company — implying that there is a mission of serving others beyond merely securing the financial well-being of the family members — can provide the glue needed to maintain family unity through the generations.

The family constitution should also address issues such as training and development, how conflicts will be resolved, and decision-making practices. In addition, it should address the critical question of how family members can pursue careers in the family business. Is everyone welcome to work in the company, or are there requirements for specific educational and outside experiences? Rules of entry and exit should be made clear and explicit, along with how business ownership should be handled and how to ensure fairness and prevent or manage conflict constructively. Pursuing a successful career outside the company before entering the family firm does wonders for a family member’s sense of self-esteem.

Build a Strong Board

As the company continues to grow, a strong board of directors is needed. Effective boards of family businesses differ from the boards of public companies; they play a critical bridging role with the family council, balancing the needs of the family and the corporate system. To be an effective board member, the person selected needs a deep understanding of the relationship between the family’s values and goals and the company’s culture. Such a person can be helpful for serving as an arbiter between people like Joseph and their parents.

The family members working in business would be wise to ask themselves: If today were the last day of their lives, would they still be working in the family enterprise? If not, they would be wise to do something else. But if they love being part of a family business, people like Joseph succeeding will take much courage and soul-searching.

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