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Spinning Wheels in a Tenured Track

"His project is complete." The words echoed ominously through the family business's meeting room. Up for discussion was the return of the owners' cousin, a shareholder shuffled into a project with one major objective: to keep him out of day-to-day operations where he had proved adept at bringing about emotional turmoil, low morale and financial loss.

The one-year make-work project had turned into five and spent $7 million. No one complained. Working with a skilled second-in-command and unable to stir up ill will among employees, he had actually accomplished something, expensive though it was. Now he wished to return to the core business and general operations, and the family leaders faced general despair that there was no new project in which to incarcerate him.

This difficult individual is actually a common type around the family business: the tenured untouchable. Loyal but problematic, these individuals gain their untouchable status through long-time affiliation, family affection and good old-fashioned chicken-heartedness. Sometimes they are related to the owners; sometimes not. In the latter case, any discussion of whether the one-person law, insurance or accounting professional is keeping pace with the needs of the company as it grows is swept away with one statement: "He was with us from the beginning."

The fact is, severing ties with the tenured untouchable would constitute an act of betrayal on the part of the family, even when it is clear this individual is undermining the intended culture of both the family and the business. He or she remains outside the law and, through incompetence or lack of accountability, holds the business, family and shareholders hostage with their consent.

Even in professionally organized family firms that have adopted governance systems and structures, dealing with tenured untouchables can cause great difficulty. One reason is that protecting loyal associates is a family survival tactic, where family leaders want to demonstrate that loyalty and service bring rewards. The fear is that if this message were to be threatened, defections couldn't be prevented and even the succession of the next generation could be in jeopardy.

There are other reasons to do nothing about the tenured untouchable. Some families may wish to operate a lifestyle business – that is, they would rather protect friends and family who might not make it in other employment. Or, if there's no one in the next generation to receive the torch, the leader may simply be on cruise control until retirement and the sale of the firm.

Other leaders actually prefer to be surrounded by lesser lights, whether family members or not, because it reinforces the "superior-me" and "inferior-you" relationships they use to support their own tenure. (These leaders unconsciously encourage underlings, especially family members, to perform at a mediocre level, even if they once had higher potential. That's a subject for another column.)

The danger in these situations, of course, lies in the fact that these leaders don't know what they're missing. Some business families attempt to compensate for the gap by hiring other specialists to provide advice and information, then have their loyal untouchables put the plan into action. While costly, this approach (most often seen at the holding company level) can work, although other owners, employees and associates may resent it. Still, it serves the intended purpose: rewarding loyalty and protecting friends of the family.

Is there a way to do things differently? Is there a more balanced way to show that being a friend of the family means more than a card at Christmas? A way to show that loyalty will be rewarded but not to the detriment of common business sense?

Balance is, indeed, the key. The answer begins with some personal reflections about how to put appropriate weight to the three words "family", "business" and "shareholder". You need a clear statement of direction and purpose for each, one that balances family commitment, shareholder strategy and business planning. You must know the character of the company you wish to build, then build the culture with the right emphasis on tenure versus performance.

How?

The choice for the tenured untouchables doesn't always have to be between a job for life and the end of the relationship. In one third-generation firm, a second-generation family member had never finished high school nor worked anywhere else. He was shunted from job to job for more than 25 years, with the unspoken but clear message that his performance was poor but his job protection was guaranteed.

The new generation of leaders, however, felt a commitment to professional management, which they enshrined in a new family and shareholder mission statement. They gained general agreement that rules of competency should apply to family participation in the business.

Perhaps surprisingly, it wasn't the end of the road for the long-time untouchable. In fact, for the first time he was treated in a dignified fashion. To everyone's satisfaction, he was provided with the opportunity for a structured career transition and now participates in a meaningful role in a related not-for-profit organization. He no longer "had" to work for the firm, and everyone was liberated when he didn't.

The lesson is that having rules for participation and tenure in a family business doesn't mean you have to be cruel to those who don't fit in. At a minimum, however, working in the family firm should be viewed as a privilege and not as a birthright or as a right based on tenure alone. Universities and boards of directors are learning all too emphatically that no one should be granted tenure without being held to standards, but just as compelling is the knowledge that the so-called untouchable could be extremely valuable in another role, perhaps elsewhere.

Acting as a sanctuary for tenured untouchables doesn't help anyone in the long run.

ALL ARTICLES PERVIN FAMILY BUSINESS ADVISORS INC.

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