Family Firms Learn to Share Power
THE GLOBE AND MAIL – MANAGING – REPORT ON BUSINESS – Friday, June 25, 1999
When Paul and Michael Higgins go to work at their family-run company, there is no argument about who is boss. They both are.
A new study suggests that family-run businesses are keen, among other things, to develop innovative leadership structures to get around favouring one child over another.
The brothers have been co-chief executive officers since they took over Mississauga-based Mother Parker's Coffee and Tea Inc. from their father a decade ago.
That shared leadership makes them part of a growing tendency in the family business field, says consultant Aron Pervin, whose Toronto firm Pervin & Co. Inc. has just published a study on trends that are affecting these companies.
Family businesses are often interested in innovative leadership structures to get around favouring one child over another, Mr. Pervin says. It is a good way to accommodate more than one capable individual, but it is not for everyone, he cautions.
To be successful, the people involved must define how leadership will be shared. In the Higgins' case, 48-year-old Paul Jr. handles finance, administration and operations, while Michael, 46, focuses on sales and marketing.
They work together with other executives, none of them family members, on general management. Their father, Paul Sr., 86, remains president and chairman but is no longer active in the day-to-day business. Their three older sisters are not involved in the company.
The Higgins' sharing goes further than some: The brothers, who are 14 months apart in age, started work at Mother Parker's the same day – July 3, 1974. They think their father deliberately engineered that as part of his concern about treating them fairly.
"I think he recognized that one potential problem in any family business is that if there is a hierarchy and there isn't a level of cooperation, it can be very destructive to the business," Paul Jr. says.
The other thing their father did was deliberately not employ any other family members. Having come through the Depression, Paul decided that more people would lead to possible complications. He expressly mapped things out so only two of his children would be involved.
Today, the brothers say their relationship works partly because they are also friends outside the office and don't want to jeopardize that.
One other growing trend for family-owned businesses is the holding of family meetings or councils, Mr. Pervin says. These will become crucial, he predicts, because there is an expanding need for collaboration in such businesses.
It stems from what he describes as "accidental partnerships," which are becoming more numerous and complex. Accidental partnerships occur when family businesses include both active and inactive shareholders.
Sometimes this is done for tax reasons, Mr. Pervin says. In other cases it is for dynastic reasons – keeping the door open for the children of siblings in the current managing generation who don't choose to be active.
Whatever is behind the accidental partnerships, they require greater communication to keep the different shareholders up to speed.
The Cator family, who run Cardinal Meat Specialists Ltd. in Mississauga, have been holding family councils for 15 years. In their case, the meetings include not only chairman Ralph Cator and his two sons – both of whom are active in the business – but a total of 11 family members, including spouses. "We even included prospective spouses," says president Mark Cator, 39. Mark's younger brother Brent, 36, is vice-president for operations. Three of the council members are inactive partners in the company.
The meetings, which generally run three hours, are held seven to nine times a year and usually end with a joint meal among council members. While there's no formal agenda, there's an agreement that urgent matters will be handled first. In fact, business issues have probably never occupied more than half the time, Mark Cator says.
He adds that in a family business, the personal issues can become a bigger threat than business problems. "If a family member is dealing with a crisis, it often can have a negative impact on the business." They have even used the council meetings to talk about the challenges of raising children.
Mr. Pervin, who has spent 20 years advising family businesses, began his survey because he sensed things were changing but couldn't put his finger on what those changes were. Other surveys had tracked numbers, but "I wanted to get at the nuances."
He commissioned a survey firm to do lengthy telephone interviews with managers at more than 450 family businesses. They were asked how their needs were changing. Then he compared the data with that gleaned from a series of other surveys of family businesses done in the past decade. Among his findings:
- More professional business practices are becoming the standard. Although it isn't yet a common practice, more family-run companies are opting to use strategic plans and formal governance systems. They are also setting up multiple structures to separate business, shareholder and estate decisions.
- There is a shift away from the unilateral control by an autocratic leader to more participation and accountability. That, in turn, tends to lead to structures such as boards of advisers and the family councils which become necessary if information is to be shared more widely.
- The value of having an outside board is still not widely recognized, and some companies confuse boards with the family meeting process.
- Business families are focusing on preventing problems before they occur rather than ignoring them. They are fighting the instinct to sweep sensitive issues aside, Mr. Pervin says, adding that this increased willingness to deal with conflict appears to come out of more collaborative ownership styles.