Family Firms Urged to Keep Things Businesslike
TORONTO STAR – Saturday, March 3, 1990 – C3
To keep the family business in the family, hard heads are often more important than soft hearts.
Only 30 per cent of Canada's 800,000 family-owned firms last through the second generation, and it's often because emotions get in the way, a family-business adviser says.
"The trouble starts when family values and priorities overwhelm the business priorities," Aron Pervin told a family enterprise seminar in Toronto yesterday. "Most successful operations find an appropriate balance between the two, but it's essential to run a business according to sound business principles."
Pervin said owners commonly confuse their responsibilities as parents and managers and make mistakes in the interests of fairness.
"Few people in this world are created equal, and when children of different abilities are paid equally and treated equally in the firm, problems are created," Pervin said. "The principle of 'to each according to his need' is disastrous in business."
While entrepreneurs are often very good business people, he said, they are less often effective mentors and coaches for their children.
"They built the business themselves and they've developed private, even secretive work habits," Pervin said in an interview. "Teaching and training aren't stressed, because they weren't important in the beginning."
Owen Pegg, manager of the York Consulting Group at York University, agreed with Pervin's assessment.
"The average entrepreneur is fairly impatient and is not a natural mentor," Pegg said in a telephone interview. "But he usually does have the ability to develop those skills, if shown how."
Pegg said the differing values of the parents and children often create conflict.
"The children often get frustrated because their father ran the business by the seat of his pants and doesn't understand the need to use modern techniques," Pegg said. "On the other hand, the children have never done without or met a payroll and don't always realize what's required."
To set the ground rules, solve problems and clear the air, Pervin recommends that business families go on a retreat away from office. Once there, they should develop a "family creed," which outlines the role and duty of each family member in the enterprise.
Pervin said it is particularly important to formalize the line of succession in the firm.
"It's very difficult to confront your own mortality and a lot of business owners put off plans to transfer power to their successors," Pervin said. "If there is more than one child, it has to be made very clear who is going to be in charge."
The terms and timing of the owner's retirement should be clear-cut. "When the decision to retire has been made, the owner should set and stick to a deadline and back away completely from the day-to-day operation of the business. If he is going to stay on as an adviser, everyone should understand that."
About 2 per cent of the time, Pervin said, family conflicts can't be resolved and the only option is to sell the firm.