For Family Businesses No Easy Answers…Only Options

For Family Businesses
No Easy Answers…Only Options

Family Ink
Spring/Summer 1997

“Each family business is unique it its makeup, its culture…each has its own vision, goals and Perception success”
      –Fredda Herz-Brown

“There are no pat, easy answers, no real quick-fix solutions…only options,” Dr. Fredda Herz Brown, a family business consultant, told the members of the Family Business Forum during asession at the Rothman Institute of Entrepreneurial Studies at FDU on March 27th.”Eachfamily,” she noted, “is unique in its makeup, its culture…each has its own vision, goals andperception of success…all of which impact the upcoming generation and the future of the familybusiness.You need to learn to deal with the issues,” she said, adding, “I have found that familiesare among the most creative in resolving issues.”

Communication within the family, Brown noted, is extremely important.”Many familybusinesses go down the drain because one spousedoesn’t talk to another.You have anargument, a problem involving your brother and you discuss it with your wife.You later make upwith your brother; after all,he is your brother, but your wife is still angry and may refuse to go tofamily functions,” she said. As family members, youneed to dealwith your emotions, communicate your feelings, anxieties, frustrations and differences. Familial conflict, whenignored, may have a disastrous effect on the business.Family members have to be able toseparate theirpersonal feelings from those relating to the business, she said.

Owners/parents, she noted, also face some tough decisions.”How do you fire your kid?” sheasked. If he’s not producing, but still remains “untouchable,” you’re doing yourself, your kid, andthe business a great injustice.Also, if you create a position where one doesn’t exist toprovide for an offspring,you’re creating what amounts to a welfare state, and no one benefits,she said.It’s difficult, she told the audience, to switch hats from parent to business owner. Family businesses, she noted,are complex, and abusinesses can just as often ruin a family asfamily relations can destroy a business.Sometimes it takes a knowledgeable outsider to bridgethe gap and mentor the upcoming generation.

There are three essential questions to consider when looking into the future and developingleadership, according to Dr. Brown.

  1. What will the next generation be trained for?What’s the business going to be like?Will therebe a business?You need to look at the industry, see where it’s going andhow it will be affectedby the new technology, according to Dr. Brown.You need to recognize and plan for change. Developing a plan for five years is no longer applicable, she cautioned.You need to think interms of 18 months, one to two years ahead, to compete effectivelyin today’s environment. 
  2. What will the training look like and who will participate?Training the upcoming generation isa key factor, Dr. Brown said.With things changing rapidly,you need to think and plan in shortersegments, and establish mentors who can guide the younger generation.There are, she furthernoted,many ways of gaining knowledge beyond schooling and the business. Working outside in adifferent industry mayprovide a broader perspective and give the child a sense of worth whenhe/she does come into the business.Young people need credibility and respect.Working outsidecan provide that credibility along with the skills and knowledge they will subsequently bring backinto the business. 
  3. How do you evaluate the business?There are several ways, she said, including non-familymanagers, paid advisors, and advisory committees. Ownership, she noted, carries a responsibility…to the employees, the shareholders, clients/customers, vendors, etc. Owners need to be ableto make decisions, measure risks, set the agenda and have the ability to sort it all out.They needto set the moral and ethical tone for the company, and be able to transfer and communicatethatspirit. She called it “important” for the business to reflect the family culture.

Owners alsoneed to teach their heirs some very basic things,early on, things about money,budgets, sharing, charity and community responsibility/involvement. In the end, she said, we(owners) are all merely “stewards, really only caretakers until the next generation.”

Some Common Myths

Dr. Brown sought to dispel some common myths; such as “non-family members will sabotage thetraining of the next generation,” calling it “the dumbest thing.”Outsiders, she said, cannot comebetween families. As for the founder being the only person who can choose thesuccessor…unless you start very early,you will run the risk, she said,of being accused offavoring one child over another.

With corporate America changing, more and more kids are coming back to the family business,according to Brown, and with a stake now in the business, they want a say in who will be itsfuture leaders. Her suggestion to owners, “don’t choose, let the kids choose (your successor).” Pick a name, instead, she said, and file I away in the drawer. When the time comes, take it outand compare it.You’ll find the kids have made the right choice, in all likelihood, the same choiceas yours, but the key here was the difference in process. They, the younger generation wasinvolved…had a role in deciding who can best lead the company.Having participated in theselection, they will support the new leadership. She called family support critical to ongoingsuccess.

Entitlement

As owners, you need to separate management from ownership, Dr. Brown told the group.Theupcoming generation may not be ready to assume responsibility for the business when you’reready to step back, she said, adding, that’s when you will need a talented outsider who can run theoperation while training your heirs.The upcoming generation is not entitled to the business byvirtue of birth. It needs to earn it, according to Brown.An outsider can help it do that withproper mentoring. But, an outsider at the helm also needs to know the facts, and to be properlycompensated for his/her efforts, according to Brown.

Offspring should be evaluated and paid based on their performance and contribution to the firm.Compensation should reflect what they do and not who they are, Brown said.She suggestedfamily councils to set the structure, define and analyze performance, establish standards andevaluate the upcoming generation.

Outside Advice

Some founders, unlike many members ofthe younger generation, may resist bringing in outsidersto help run the company, Brown said. However,professional advisors, an outside board ofdirectors, can provide a new, different perspective that will keep the business focused on thefuture, beyond the day-to-day operations. An outside board of directors can also provide aneffective bridge between the generations, as well as leadership guidance to prepare the upcominggeneration for the responsibilities that come with ownership.