Blood Ties & Business
BUSINESS NEWS – Spring 1995
A family business offers many advantages, as long as you know how to avoid the pitfalls.
Mike Johnson was steaming. He'd just discovered that his partner (and younger brother) was out doing a training session for a client whose account was several months in arrears. Jerry's reluctance to cut off deadbeats had been a recurring source of friction since the launch of Johnson Computer Consulting 18 months earlier. When his soft-touch sibling returned to the office, Mike lit into him, right in front of their astonished receptionist. Then both brothers went home and complained bitterly to their wives.
Next morning, Mike apologized for his outburst and he and Jerry went over their credit policy together. Everything was fine – or would have been, if only they'd remembered to tell their wives they'd made up. When the two women bumped into each other that afternoon, they had a huge argument, each defending her absent husband.
Though the names have been changed, this story is true, but not unique. Many business people struggle to keep the strains of family business life from overwhelming the advantages.
Family firms are a vital part of the Canadian economy. They account for about 80% of all our businesses, operate in all sectors, generate almost half of our GNP and employ hundreds of thousands of people, including many nonfamily members. They also face unique challenges. Sibling rivalries, children's struggles for independence from their parents, marital disputes and friction between in-laws can all contaminate a business and drag it down. And, even if nobody is acting out unresolved childhood issues at work, kinfolk who are in business together still must struggle to keep their personal and professional roles straight and make sure that nonfamily employees don't feel like second class citizens.
It isn't all strain and struggle, however. Owner/managers of family businesses often enjoy more independence and a stronger sense of purpose and accomplishment – not to mention greater financial rewards and job security – than their counterparts in other organizations. Furthermore, there are dozens of quiet success stories for every headline about feuds like the one between Harrison and Wallace McCain that rocked the McCain Foods empire.
"The bad news comes from those who haven't thought enough about what it means to be a family in business together," says John Cowan, president of the Ontario chapter of the Canadian Association of Family Enterprise (CAFE, pronounced "cafe") and of Markham-based Cowan Co. Inc. (a Christmas tree import firm that has flourished through three generations and several changes in business focus).
The good news is that there are simple, inexpensive steps that you, as an owner/manager, can take to make sure your family business stays happy and healthy. For starters, recognize that your firm's family orientation brings its own special benefits and challenges.
You may want to "professionalize" your firm by creating formal channels of communication, job descriptions, employment and compensation policies and succession plans. You might set up a family council, a safe forum for discussing family matters that affect the business and business matters that affect the family. And you can always turn to CAFE: the organization sponsors seminars and peer support groups to help members implement these measures and deal with trouble-spots. If you need extra assistance, CAFE can also provide names of consultants and conflict mediators.
The Family Factor
The first thing most founders and owner/managers of family businesses need to do is a little consciousness-raising. That means dropping any pretence that your company operates on the same principles as Northern Telecom or Imasco, says Cowan. All family businesses have a different atmosphere and culture than prevails elsewhere. If you don't acknowledge that fact, you won't be able to recognize and deal sensibly with the complications it creates.
Cowan figures at least part of the reason Cowan Co. has survived is that his forebears didn't make any bones about the firm's family orientation. That freed them to deal in a forthright way with hazards such as sibling rivalry and disaffection among nonfamily members.
When grandpa eventually brought his two sons into the business he had started, he minimized the potential for conflict between the brothers by assigning each of them separate, well defined areas of responsibility, and by making sure they respected each other's turf. A generation later, the same precautions smoothed the entry of Cowan and his cousin.
Furthermore, it was always acknowledged that family members had special status. Cowan's father openly groomed him to take over, moving him around to expose him to as many aspects of the business as possible. Meanwhile, nonfamily members were hired to fill specific jobs, and told (before they signed on) that their career prospects were limited. They could expect to be treated fairly, but not the same.
"Family members who are also owners are never equal to other employees," Cowan says. "If you're open about it, you can set up different rules for different people. You might, for exam-pie, decide to compensate nonfamily members for their lack of career opportunity through enhanced profit sharing or salary."
Professionalize and Prosper
When relatives who are in business together behave in counterproductive ways, it isn't necessarily a sign of deep, dark dysfunction. More often, it shows that the people involved aren't making enough distinction between the dining room table and the boardroom table. When the casual, spontaneous quality of home life is transferred to the business, it breeds disorder and – ultimately – discord.
Suppose you ask your spouse to mail some personal letters for you, and he or she forgets. It's annoying, but not disastrous, right? Now suppose that you've just opened a children's boutique together, and the letters contain cheques to your principal suppliers. In this context, the same innocent little mistake could threaten your business (not to mention your marriage).
According to Suzanne Park of the Vancouver-based management consulting firm Park Vandal & Associates, such failure to follow through on commitments is endemic to family enterprise. "The sort of contract that exists between boss and employee or colleagues just isn't there between relatives," she says. "That's why the work relationship needs to be professionalized."
That usually means sitting down together to hammer out the company policies, procedures and controls that will create accountability. You might, for instance, prevent further problems with unpaid suppliers by assigning responsibility for mailing cheques to one spouse – and including this duty in a written job description.
Such formality may seem artificial at first. Ted Pound, president of the Calgary chapter of CAFE and vice president of McArthur Furniture, recalls asking his in-laws what he was supposed to do when he joined their retail business eight years ago. "Well, you work," they answered. "At what?" he asked. "This furniture store," came the astonished reply. "There were no job descriptions, no accountability for personnel, no forward planning, no formal communications," says Pound. "People made decisions by checking out what Mom and Dad thought, rather than on merit."
Pound didn't know much about selling furniture but, based on his experience in the broadcast industry, he did have some idea of how things worked in the outside world. His contribution was to help develop a business structure for the company that was independent of family relationships and traditions.
At first, just putting a decision into memo form was a major step. But his in-laws were convinced of the merits of professionalizing their operations once they saw the results: employee turnover declined; the quality of feedback and information from the store floor improved; so did their ability to respond to business conditions and opportunities; and profits began to rise.
Today, ownership of the business has been transferred to the second generation, and Pound and his two brothers-in-law (all three of them vice presidents) have a shareholders' agreement that sets down conditions for participation in and departure from the business. Their goal now is to create an employee share ownership plan, while retaining family control.
Of Councils and Counsellors
Aron Pervin – president of Pervin & Co. Inc., a Toronto consulting firm that specializes in family business issues – likes to tell stories about how family conflicts can sabotage a business. One of his favourites concerns a father who took his three children into his agricultural business. He gave each one an individual budget and territory, but retained control over corporate matters such as the colour of the trucks.
One year, while the father was on vacation, one of the sons gave the trucks a makeover. Naturally, there was a big fight when dad got home. But it was only nominally about the colour of the trucks. "The son was really trying to get his father's attention," Pervin explains. "The ensuing argument soon left trucks far behind and got into 'You never spent time with me when I was growing up', 'You always favoured my brother,' and even 'My first marriage broke up because you didn't like my wife.'"
When family members replay the roles they learned at home during office hours, or are too busy settling old scores to do their jobs, precious resources are wasted and decision-making breaks down. It usually happens because communications at home are poor – either people are working too hard to talk, or perhaps they place too much value on maintaining an appearance of harmony.
CAFE recommends that every family that's in business together form a family council to (among other functions) hash out interpersonal problems in a safe, separate forum. It's a good idea to hire a consultant or counsellor to moderate the first few sessions, or provide impartial expertise during a crisis. The moderator need not be the usual accountant or lawyer, notes Pervin. Because family business problems are often rooted in family relationships, a social worker or therapist who is knowledgeable about business may do the job just as well.
To be effective, the moderator must be truly independent and objective. "I was working with a lawyer once, helping a family business do some succession planning," Pervin says. "Everybody had agreed on the terms, but the lawyer couldn't get the patriarch to sign the shareholder agreement. The lawyer had been with the family a long time, and it was just as uncomfortable and difficult for him to push a point with the old man as it was for the children. I finally told him to go in and say, `Look, I'm not your son, I'm your lawyer. Sign this thing!" Pervin laughs. "It worked!"
SANDY FIFE is a Toronto-based writer and editor who specializes in business issues.
STEPS TO AN EFFECTIVE FAMILY COUNCIL
Family councils are invaluable for airing interpersonal problems before they poison the business. But they are more than an emotional safety valve, says Aron Pervin, president of the consulting firm Pervin & Co. Inc. They can be the forum for discussions about how to mesh family and business values. They can be used to prevent subterfuge and interference by family members who aren't employed in the business, by giving them a formal voice in it. And they can be the place to determine matters such as educational requirements for entry into the business, guidelines for departure and a succession plan.
Pervin offers these tips on setting up a family council:
- Don't wait for a crisis to form your council.
- Meet on a regular basis.
- Choose a neutral meeting place (neither the workplace nor a family member's home).
- Hire a management consultant, lawyer, accountant, therapist or social worker to moderate the first few meetings. If you can't afford a professional, ask an impartial family friend who understands the business.
- Invite family members who are not active in the business, as well as those who are.
- Circulate a written agenda a week before the meeting.
- Appoint a chairperson to run the meeting, and a secretary to take minutes. Meetings needn't be a depressing duty. Some families Pervin works with combine business and pleasure by meeting at a resort for a long weekend, or by bringing the kids and building some family fun into the schedule.