November/December 1988
Family businesses require more than fatherly boosts and children eager to eventually assume control. Many complex issues must be faced and handled delicately for working relationships between relatives to work and for the company to succeed.
By Paul Green
Paul Green is director of membership services for the Institute of Scrap Recycling Industries, Washington, D.C.
The family-owned business is hardly a novelty in the scrap industry. Yet its unique strengths and problems seldom are addressed. Not long ago, the study of family businesses was characterized by the haphazard approach taken by few known experts. Fortunately this gave way to an expanded expertise represented by a more disciplined examination by an army of sociologists, psychologists, attorneys, accountants, and management specialists. This article looks at unique challenges family-owned businesses must deal with and offers guidelines to help you keep your legacy alive.
Strong Ties
In past family corporation seminars sponsored by the Institute of Scrap Recycling Industries (ISRI), participants were asked to define the strengths of family businesses. The answers varied. Some participants cited the importance of a stable company philosophy. Others felt success lay in strong customer loyalty. Many believed the family unit makes a highly successful sales team. Some noted that the grounding children get in day-to-day operations gives them an experienced edge when they take over in management. Participants also mentioned that the personal stake in the family business inspires harder work and that family companies incur less bureaucratic red tape, so innovations can be implemented faster.
But are these strengths tough enough to tackle the issues businesses will have to deal with in the next few years? Facing increasing competition, many family enterprises will have to increase capital in order to stay in the game. Additionally, the pressure means that certain management positions will have to be filled with personnel outside the family.
Some challenges are more specific to the unique combination of business and family. Handling emotionally charged family issues within the context of business was one problem that seminar participants recognized. The family company faces more complex transition problems, too, as leadership moves from one generation to another.
Family Feud
Familial rivalry and parent-child schisms provide a formidable challenge to the family firm. I know of one family-owned company fortunate to have not one, but two sons interested in the business. It is an added bit of luck that one boy enjoys the inside work while the other favors outside operations. Yet, problems surfaced within this seemingly ideal situation. While the father remained active in the business, critical issues, such as succession and definition of roles and responsibilities, were ignored. As the father lessened his role, tensions between the brothers mounted. Each brother viewed his role in the company as the dominant position, carrying greater weight and importance, and the company had no vehicle in place for conflict resolution. This case is not an isolated example; it actually is indicative of the competition found within family businesses.
The competition widens with other issues: How does the company head ensure equitable division of the business among the children? How does the company head pass along his experience--teach all the nuances and complexities of the business--to his children for a steady climb up the management ladder? Working through these solutions creates trying times for all involved. The emotional output alone is exhausting. Who should inherit the leadership? What about a solution of equal power? What do you do about children not active in the business? How do you ensure the financial stability you now enjoy as owner when you turn over the reins of power?
The younger generation has challenges as well. How can you gain authority and responsibility without severing relationships? How do you prepare for the increasingly difficult responsibilities as you climb the company ladder--responsibilities that can have a profound effect on the business and the family? How will you resolve current or potential differences with brothers, sisters, in-laws, cousins, and other relatives?
The stress and strain regarding decisions and plans for the family business do not concern themselves with just one generation or the other. They cut across the boundaries of the entire family, whether a member is an active participant or has only a passive interest.
One Good Question Deserves Another
How does the family business cope with these challenges? Can the strengths compensate for the problems? Can you actually apply the strengths to solve the problems? Answers to these questions can't be determined without close examination of your own family company. John L. Ward in his article, "The Special Role of Strategic Planning for Family Businesses" (Family Business Review, Vol. 1, No. 2, 1988), recommends starting with a few basic questions:
Why continue the business?
How does the company view itself and the family in the years ahead?
How will the family build strong relationships and resolve conflict?
What are the steps required to achieve both business and family goals?
Once you've answered these questions and determined the direction you want to take, Ward offers another set, designed to further clarify your goals and priorities:
Family commitment. Are the skills for the present and the future intact within the firm?
Assessment of business health. Has the family allocated adequate resources for the continued health of the firm as a business entity?
Identification of business alternatives. Are you selling to the right markets? Are there other markets or products to consider? Are decisions being made for the status quo or for growth?
Consideration of family and personal goals. Do the goals of the family match the current and future ability of the business? If not, can the goals be brought into line?
Selection of a business strategy. Can you select a strategy that will yield business and family goals each year?
Obviously, there are no easy answers when moving the family business into the future. The challenges are emotionally and intellectually daunting. But in this world of buy-outs, mergers, and megacorporations, the questions are well worth considering carefully, for the integrity and legacy of the family business are well worth preserving.
Family businesses require more than fatherly boosts and children eager to eventually assume control. Many complex issues must be faced and handled delicately for working relationships between relatives to work and for the company to succeed.