Getting Family-Owned Businesses Right: Ten Principles That Will Make Every One's Life Easier

I thought it might be timely to publish a list of helpful ideas for Family-Owned Businesses. since I have worked a good deal within that discipline for many years. Many of the same problems reoccur, and successes should be built on as well. Here they are:

1) Most employees do not understand the needs of the family and what it wants to get out of the business. Bringing these out, in a professional manner, is a good solution: communicate. Owners are entitled to set the goals. There shouldn't be anything to be ashamed about, and if there is, maybe it should be re-visited.

2) Similarly, many owners, particularly 2nd and 3rd generation, don't understand how their goals might be threatening to the employees. If , for example, children are to be groomed for future responsibility, that can be a great thing for the organization. At the same time, it can look like less opportunity for the average employee who wants to get ahead.

3) To maximize morale, promotions should be earned not given. Don't misunderstand, the owners have every right to promote themselves first, they just need to realize that there will be consequences in loyalty and camaraderie if they do so. Sargento does a great job with this. Lou Gentine openly states that the family member will get the nod if 2 people are very close & competing for the same position. At the same time, much is expected of the family member, and excellent performance will be rewarded in everyone.

4) There has to be a plan. So much of the time, things just happen within the family. I have seen children promoted with little or no training or preparation. Perhaps someone left the company and the hole was plugged with a family member. However, if the person is untrained, or perhaps doesn't even want the position, it can be very painful for everyone involved, especially the family member. Plans create confidence, individually, and in the company.

5) Training is a must. We've already seen how Family Owned Businesses can be misunderstood by everyone. A sound training program, for the employees as well as the family members, will put everyone on the same page. No frustration, no misunderstanding, & no disappointment; it's all out in the open. It might be disagreed with, but it still will be respected.

6) There should be a written agreement for the business entity. If this document is well designed, it can help ensure that the owners understand their obligations to each other and the organization, their duties within, and their rights. It should include things like how the business will be managed and controlled, buy-sell provisions, and how distributions will be made to the owners.

7) There needs to be a strong, documented compensation plan for the company. Job descriptions need to be created for all positions, then rated, and then pay grades established. This is a good thing for all organizations, but especially Family Owned Businesses. This is what will establish standards and how people are paid, which in turn will relate directly to the owners, if they work within the business.

8) After #7 is established, it sets the table for what the working owners will make, and eliminates the horrible morale issues that can occur if family members are paid differently. Let it be distinguished here that owners are absolutely entitled to distributions from the business, but these MUST be separate from what is earned from their work.

9) Strategic Planning, involving the owners, is very helpful. Unless the owners, especially 2nd and 3rd generation, are very well versed in the business, including the history, they should probably have more of an observer role than be on the Strategic Planning team per se. This will allow them to learn as well as buy into the process. Knowing where (and why) the company is moving in a particular direction is critical for the owners.

10) Succession Planning is critical. Because this may be an unpleasant subject, it is often delayed. If so, the consequences can be staggering. It must be laid out to allow for no misunderstanding and disputes. It needs to be done BEFORE retirement, or death, primarily to have all the players present and in good mental and physical health. To have mom or dad present at the time these decisions are made also often adds more stability to the situation.

This is not an all inclusive list by any means, but one I've found to be helpful. My hope is that you have found it so. Please feel free to add any items you see fit, in your comments below.