“UNLEASH YOUR FAMILY BUSINESS DNA”
By REG ATHWAL, FPSA
World-Renowned Family Business Executive Advisor, Bestselling Author & Keynote Speaker; Founding Partner & MD, RTS Global Partners
FAMILY BUSINESS MATTERS with RTS GLOBAL PARTNERS :: SPEAKER SERIES
DEFINING JOB ROLES IN FAMILY BUSINESSES
One of the goals of starting a family business is to create trans-generational wealth. But, the creation of trans-generational wealth, the kind of wealth that endures from generation to generation, is possible only if a family business is able to meet certain challenges. As I mentioned in earlier articles, when I initially introduced the DNA Model, one of those key challenges is ensuring that the right people are in the right jobs.
This is a tricky proposition in any business structure, but in the family business there is an extra dimension of difficulty. When it comes to job roles, I typically see my clients struggle with four factors:
- Separating family hierarchy from business hierarchy.
- Managing “role confusion.”
- Designing fair and effective compensation structures; and
- Properly weighing skills and experience.
Separating Family Hierarchy from Business Hierarchy
Instead of choosing employees based on their competence, experience, or suitability, many family businesses fall into the trap of choosing their employees and their roles based on bloodline, birth order, or gender. The degree to which this is done will depend upon what country you live in, and the cultural trends in that country.
For example, Americans are more likely to hire based on competency, rather than on birth order, gender, or bloodlines. In Africa, Middle East and Asia, however, cultural contexts make it much more difficult to separate the family hierarchy from the business hierarchy. Organizations that have successfully managed to separate the two have very intentional, structured employment processes.
For example, Arun Bharat Ram of SRF Limited, the world’s second largest manufacturer of nylon tire cord and belting fabrics, has written a detailed family constitution that strictly regulates the family business. Though Bharat Ram’s daughter opted out of the constitution, initially it did allow for equal opportunity for the family’s sons and daughters. It specifies who can join the family business, what happens if someone dies, and how to opt out of the family business. It also gives the two sons affected by the constitution, Ashish and Kartik Ram, specific functions to avoid conflict. Kartik is in charge of human resources, quality management, and communications, while Ashish is in charge of operations and finance. Once a month, members of the committee meet to determine how things are working, and to recommend any changes.
Managing Role Confusion
Many family businesses are also the victim of what I like to call “role confusion.” Instead of having clearly delineated and defined job roles, members wear “many hats” and are unclear about their responsibilities. While it’s common and often necessary for employees in smaller family businesses to support several job functions, it doesn’t work when these job functions are loosely defined. Not only can this result in confusion, conflict, and difficulty making decisions, but it also makes it quite easy for important things to slip through the cracks, or to be ignored. This type of approach to job roles also more or less ensures that individual strengths are underutilized, as people are spread too thin and forced to put their attention on tasks or responsibilities not suited to them.
Designing Fair and Effective Compensation Structures
Compensation can also be an issue. In non-family businesses, salaries, benefits, and the overall compensation for workers are clearly defined and justified. This is not always true in the family business. In some situations, bloodlines, age, and even gender can determine how much a family member is paid, or what kinds of dividends or profit sharing they receive. In other situations, compensation is determined by tradition rather than by good management practices. In other situations, the compensation structure is simply not defined.
Properly Weighing Skills and Experience
As I mentioned in earlier published articles, family businesses are more likely than non-family businesses to hire family members who are not qualified or well matched for a particular position, or who lack the skills and experience the organization needs. This happens in non-family businesses as well. Despite even the most assiduous screening, mistakes can be made. But these situations are easily remedied by non-family businesses, by simply releasing the employee in question.
Unfortunately, when an employment mistake is made in a family business it’s not so easy to fix. To say the least, it’s uncomfortable to fire your brother one day, and then be expected to interact with him at a family gathering the next. In any type of situation at work that may potentially cause ill will, the ramifications of having those negative feelings carry over into the family unit are simply not worth it. Most family businesses attempt to live with their mistakes, or make the best of them, until serious, and sometimes very public, issues cause a breakdown of corporate infrastructure, family feuds, and other events that we’ve all seen on the front page of a newspaper.
Beware the Ramifications
When things end badly, they often end really badly. Before selling 50 per-cent of the interest in their company to a Middle Eastern investment banking firm in 1988, the Gucci family’s constant in-fighting, financial scandals, and lawsuits were plastered all over the media. Harrison and Wallace McCain, founder of McCain Foods, the world’s largest producer of frozen French fries, had a very public power struggle, ending with the ousting of Wallace, when Harrison objected to the appointment of Wallace’s son, Michael, as the head of McCain U.S.A. Could these issue have been avoided with proper employment practices and structures? I think so.
How do I coach and advise clients who come to me with issues surrounding job roles? Sometimes my clients want to ward off potential problems while ensuring maximum performance, so they address this topic up front. These people are ahead of the game. Others are in the midst of really serious issues, and want to alleviate them. Like all things, an ounce of prevention is worth a pound of cure. All businesses make mistakes along the way, and yours is likely to be no different. But your business will fare much better if you don’t start from behind. Think of your business as a football game (soccer, for American readers). If your team starts off sharp and scores in the beginning of the game, they’ll be in better shape for and will more easily weather any down periods that come later in the game. If, on the other hand, the team starts off sloppy or weak and gets quickly behind, it will take Herculean efforts to get back in the game. Having the right people in the right jobs is integral to ensuring you kick off on the right foot.
Job Roles and the DNA Model
In earlier articles, I introduced you to The DNA Model, a system that ensures all of the skills and aptitudes necessary to run a successful business are present, and that they are intertwined and interwoven to ensure a strong, enduring business.
To summarize, each business has a variety of components necessary for it to function, from marketing and sales to operations, from leadership to finance. Each component is important on its own, but they are also important to each other. When one component breaks down, it can impact the entire organization, affecting its ability to run effectively, productively, and efficiently.
In humans, DNA determines our individual makeup. The great thing about The DNA Model in business is that you can determine how your DNA is structured, and if it isn’t currently lending itself to success, you can change that structure. A person can’t alter his or her DNA to ensure that they have, say, both excellent athletic ability and superb math ability. You may be born with one or both, or neither. You can, however, change your business DNA to ensure you cover all your “bases.” Businesses with strong DNA have an unshakeable strength and operate with direction, harmony, and inspiration.
How do you build strong business DNA? There’s only one way – through your people. In an earlier article I outlined The Dream Team Model that, in a nutshell, comprises nine “building blocks” or types of people, essentially, that are necessary for a successful business operation. I suggest you go back to these articles or request for more information from RTS Global Partners, to review the nine types to ensure you are able to easily recognize the traits, qualities, and skills that make up each profile. The point of this article is not to further elaborate on the nine types or your understanding of them. At this point, you should be able to recognize and have a good understanding of the Innovator, the Planner, the Promoter, the Connector, the Mentor, the Operator, the Negotiator, the Banker and the Investor profiles. Rather, the point of this article is to set some guidelines and rules to ensure that the right person represents each role, and to help you avoid the pitfalls that many other family businesses fall into when assigning job roles. These pitfalls create a lack of balance, unwittingly place people in roles for which they are ill suited, and result in both family and organizational strife.
In the remainder of this article I’m going to introduce and explain eight important rules for defining and assigning job roles. Follow these rules and you’ll assemble a Dream Team that will not only start the game off right (to get back to our previous football/soccer analogy), but will be able to take your business to the next level and beyond. The right Dream Team will foster current success, but will also position the business so that future generations enjoy similar success.
Seven Rules for Defining and Assigning Job Roles
1. Define Roles:
One of the positive aspects of the family business is that roles tend to be informal and flexible, allowing for quick decision to be made, entrepreneurism to flourish, and innovation to thrive. It’s a rare family business member who utters the words, “That’s not in my job description.” Most workers, because their success is directly tied to the success of the business, are willing to pitch in where necessary. This is particularly true in smaller, start-up family businesses, where’s there’s simply not enough capital to carry a large staff. But there’s a fine line between informal and well…too informal. When that line is crossed job roles become unclear and confusing. There may be a lack of organization, and family members may find themselves not just pitching in here and there when absolutely necessary, but playing dual roles.
When job roles become unclear and confusing they simply aren’t performed as they should be. Family members may not have a clear understanding of what is expected of them or of others, and the result is that tasks go undone, or aren’t done in the best way. When things fall apart, there can be lack of accountability, finger pointing, and conflict.
The results are no better when workers play dual roles. In this situation, certain areas that could really thrive and contribute to the overall performance of the organization suffer. How? Let’s say you have a worker who fits the “Promoter” profile on The Dream Team. This person is in charge of marketing, communication, and public relations. But, due to undefined job roles, this person often finds himself picking up the slack in the “Operator” profile. Typically, the result is that both areas suffer. The worker is taking valuable time away from his strengths to operate in an area that’s not necessarily suitable to his personality or skill set.
To ensure that job roles are accurately defined and to increase the odds that the right people end up in the right jobs, begin by making a list of jobs required for maximum performance and success. Then, match the jobs with the nine profiles from the Dream Team Model. At this point, you should not only have a solid idea of what job roles your organization needs, you should also have a good idea of what type of person will best fill those roles.
Of course, none of the above will yield positive results unless you are able to accurately, fairly, and honestly assess the strengths and weaknesses of family members who are in or who are slated to be in certain roles. For example, does the person you are considering for the Director of Sales position fit the “Negotiator” profile? Is the current CFO a “Banker” type?
Because organizations and job roles vary considerably, there’s no one formula or prescription for matching Dream Team types with specific job roles. The roles that need to be filled, and what type of person is most suitable to fill those roles, will vary from organization to organization. However, we’ve developed a worksheet to aid you in identifying jobs and connecting them to Dream Team profiles. This worksheet, can be obtained by RTS Global Partners, and should help you define job roles and assess the strengths and weaknesses of applicants, as well as those currently in positions.
Troubleshooting: When Financial Constraints Force Small Staffing Workforces
I’m completely realistic, and I realize that some of you may be thinking that as much as you would love to have a staff member to devote to every DNA profile, it’s simply not financially feasible. In situations where staff members must play dual roles, it’s particularly important to ensure that these roles are defined and assigned. For example, in a small organization where it may be necessary for everyone to pitch in on the sales efforts, there should be one person ultimately responsible for sales. That person should know what success looks like, as well as how success will be measured. When all is said and done, that person knows, as does everyone in the company, that it is his or her responsibility to ensure that sales are on track.
2. Separate the Family Hierarchy from the Organizational Hierarchy:
When it comes to filling job roles, think less about bloodlines, age, and gender, and more about qualifications, experience, and aptitude. It sounds easy, but in reality it’s often very difficult for family businesses to put good management practices ahead of tradition. As the family business survives from one generation to the next, and the idea of how job roles are managed become more ingrained, this can become even more difficult. For example, the CEO position may always go to the first-born son of the current leader, regardless of whether that first-born son has the aptitude, ability, and interest to lead the organization.
While some cultures make it difficult to deviate from this practice, more and more family businesses are recognizing the importance of putting family members in complementary roles, instead of in roles according to their family position.
Case Study: The Cone Family
The story of the Cone family illustrates what can happen when job roles are directly related to family hierarchy. The Cone family of Oregon, U.S., began a timber and lumber company in the 1800s. Four decades later, the organization owned $15 million worth of property. When third-generation leader Edwin Cone died, he left his eldest son, R.B. Cone, in charge of the family business and fortune. In doing so he passed over his oldest daughter, Barbara, who was three years older than R.B.
But R.B. Cone proved to be unsuited to leadership. R.B. Cone had complete control of the bank accounts and voting shares, but held no formal business meetings, nor did he issue any financial or income statements to his siblings. As the business plummeted downhill, R.B. Cone single-handedly, and without the consent of his siblings, slashed the amount of interest paid to grandchildren in half, from 8% to 4%. His poor management of the organization, as well as his lack of competence, has caused his sister, eldest Cone child Barbara Sherman, to sue R.B. Cone for $2.1 million, accusing him of “dishonesty, incompetence, and gross mismanagement.” Another lawsuit filed claims that R.B. Cone paid himself a salary of more than $140,000 per year, but sometimes worked less than 10 hours per week.
The Cone family business was flush and could have easily provided for all siblings and many generations to come when Edwin died, but inadequate leadership and sibling infighting has not allowed the family business to weather U.S. economic downturns and sluggish real estate markets. Today, the Cone property is on its way to liquidation in U.S. bankruptcy court.
3. Develop an Organizational Chart:
There are several different types of organizational structures to choose from—hierarchical, horizontal, matrix. What type of organizational structure you choose is infinitely less important than the fact that you have one. An organizational chart shows the leaders, managers, and workers in an organization, and outlines their relationship to one another. In small family businesses one chart may suffice for an entire company. In larger family businesses with more complex structures, it’s important to have smaller charts for individual departments, as well as a larger chart for the entire organization.
As I mentioned earlier, one of the strengths of the family business is that the atmosphere is, typically, somewhat less formal and more flexible than that of the non-family business. While this does allow creativity, entrepreneurship, and innovation to bloom, an atmosphere that is so informal that it creates a free-for-all can be unclear, confusing, and can result in uncertainty, disappointment, and family conflict.
Developing an organizational structure, and ensuring that all workers have a solid understanding of the organizational structure—who they work for, who works for them, how different departments and job titles interact, etc., allows an organization to retain yet temper the informal, flexible atmosphere.
For examples of several different types of organizational charts, ask RTS Global Partners for some of our Templates and Worksheets.
4. Create a Structured and Systematic Program for Business Entry:
Non-family businesses wouldn’t dream of allowing unqualified, inexperienced, or incompetent workers into the fold. Nor should you.
A typical business has a large pool of applicants to choose from for any particular job, and can choose from that pool those with the most complementary qualities, skills, and experience. Family businesses are somewhat different in that the pool of applicants is significantly smaller, and determined by bloodlines rather than by qualifications.
That shouldn’t mean that employees are less qualified, but it does mean that more focus must be placed on ensuring that those entering the business fulfill certain qualities and qualifications. This can be done by developing a structured and systematic program that all employees must follow before entering the family business, in which specific education and experience levels are established. RTS Global Partners has created the FamilyMBA program as mentioned in earlier articles to enable next-gen members to learn about the family business and about themselves over a year-long structured program.
Case Study: The Murugappa Group
The Murugappa Group, a conglomerate group based in Chennai, India, is an excellent example of a family business that has developed a structured and effective grooming process. The Murugappa Group, which is a market leader in areas such as abrasives, engineering, finance, sugar, fertilizers, bio-products, and nutraceuticals, comprises 29 businesses, is 110 years old, and employs more than 32,000 workers.
Typically, children entering the Murugrappa Group must complete their studies, and in most cases work outside the business before joining it. They enter the family business at the junior executive level, and are given two mentors, an elder cousin of the family who is actively involved in the business, and the leader of the division the person is working in. The conscious structure has ensured that employees are capable, competent, and qualified for their positions, and has fostered an environment in which new generations have been able to strengthen existing businesses while also creating new ones.
5. Hire Outside Professionals to Manage, in Certain Circumstances:
Sometimes, it makes sense to hire managers and leaders from outside the family. This is true when family members lack the requisite experience, qualities, and skills of a leader, as well as when ongoing conflict among competing family members is an issue.
There are several benefits to hiring outside professionals. First of all, in situations where qualified family members aren’t available, hiring competent, qualified outside professionals to manage improves the performance of all employees. When managers are competent, the work environment improves, and mutual respect between both family members and outside employees is fostered. In larger family businesses that rely on non-family employees, it is very difficult for employees to feel valued and respected, and therefore to adequately do their jobs, when they are frustrated by lack of good management. It is additionally frustrating if the employee believes there will be no consequences for poor management—a poor manager will not be fired, demoted, or even corrected or reprimanded, because that person is “family.”
Hiring outside managers has an additional benefit: it encourages entrepreneurism. When family members, particularly young family members, aren’t guaranteed management positions and must compete for their spots in the business, the best get creative. They may develop new services or products to head up, expanding and improving the current organization. This gives the business a better chance of keeping up with changing times and changing markets, creates new revenue streams, and better positions the business for longevity.
6. Develop a Formal Review Process:
To ensure quality and competency, it’s important that every employee takes part in a formal job review process, both family and non-family employees. This will level the playing field, lead to mutual respect between family members as well as between family members and outside professionals, and increase performance. At RTS Global Partners we have a robust Performance Profile-Key Results Areas (PP-KRA) system we implement to ensure all family and non-family members are kept accountable and evaluated objectively and not subjectively.
Many family-run businesses actually go out of the way to avoid a formal review process, because they feel formal reviews may lead to emotional upheaval or conflict among family members. Indeed, in some cases they may, but the short-term cost of emotional upheaval is much preferable to the long-term cost of having poor performers in place. Other organizations forego the formal review process because they feel it’s contrary to the laid- back, flexible environment of the family business. Still other organizations simply lack the discipline to develop a formal review process. Regardless of the reason for lacking a review process, the end result is the same, employees simply don’t perform to their maximum capability when they aren’t crystal clear on what their goals are, how those goals will be measured, and what the rewards and consequences will be for meeting, or failing to meet, those goals. In addition, family businesses that don’t have formal review processes tend to have extremely high turnover in non-family employees, some of whom are integral to the business. If employees feel that family will always advance over “outsiders,” even when a family member is lazy, inexperienced, unskilled, or incompetent, there is very little incentive to remain.
Performance reviews should be structured so that an employee’s talents and strengths are the focus of future goals and performance objectives. A good rule of thumb is to focus 90% on the good stuff, and 10% on the stuff that needs improvement. Of course, that’s if you have a good performer. If you’re dealing with a bad performer, rules change.
One issue that many family businesses have is that poor performers, whether these people simply aren’t hard workers or whether they don’t have the traits, qualities, experience, and skills to adequately perform their jobs, aren’t effectively dealt with. I won’t sugarcoat it—it’s incredibly difficult to fire a family member when you realize they aren’t working out. The best way to avoid this type of emotional, conflict-ridden, family-dividing situation is to not hire those who aren’t up to the job in the first place.
If you find yourself in the unfortunate position of having a family member in the wrong job, as difficult as it is, the best course of action is to relocate, re-deploy, or terminate that individual overtime if they don’t improve over an agreed period of time. However, it is about Family First and Business Second, so if someone is departed, they should be made to feel part of the Family still, to avoid more conflicts. History is rife with examples of family-run businesses that simply didn’t pay attention to poor performers until it was too late.
7. Institute Strong Compensation Policies:
One common mistake that family businesses make is to have an “equal pay for all” philosophy, allowing family members that share a particular status—those from the same family, those of the same gender, those of the same age, etc., to share a compensation plan, regardless of their skill, education, experience, and contribution.
If there’s a more effective way to encourage mediocre performance among your most talented, and to ensure poor performance among your least talented, I’ve yet to see it. This is why we implement Grading Levels with Compensation linked to Contribution and not just face-time.
This type of equal pay remuneration policy can also create the type of conflict you are trying to avoid. In most situations, an “equal pay for all” policy is developed with the best of intentions. Leaders want the compensation policy to be seen as “fair” among all children.
Unfortunately, high performers end up feeling that it’s anything but. “Equal pay among all” can make competent employees feel as if they are “taking care of” less talented employees. This can lead to the very resentment and discord leaders were trying to sidestep to begin with.
Quite simply, compensation should be based on meeting the family values, taking responsibility and superior performance, and nothing else. Compensation should not be inflated to take care of a particular family member’s financial needs. A pay package should be directly based on what other organizations, in similar industries of similar size, are paying their employees.
A high-performing employee with heavy responsibility should be highly paid. Poor performers should be professionally departed or given lower level roles on lower salary grades. You can also benchmark the industry to ensure this is based on market rates.
The following provides a quick view of the seven points just discussed. Remember as you read the summary points, that when you put business first, you’re actually putting family first indirectly.
Good Practices for Job Roles
- Clearly defined, with solid understanding of particular jobs and what “types” of employees are needed to fill those roles.
Poor Practices for Job Roles
- Undefined, flexible, and informal. Creates issues such as dual job roles, lack of organization and accountability.
Good Practices for Hierarchy
- Based on qualities, competence, education, training, skills, experience, and strengths.
Poor Practices for Hierarchy
- Based on family hierarchy.
Good Practice for Organizational Structure
- Employees have a clear understanding of whom they work for, who works for them, and how departments and employees relate and interact.
Poor Practice for Organizational Structure
- Informal and unclear.
Good Practice for Employment Policy
- Employees must have the proper education, training, skills, and work experience for a particular job.
Poor Practice for Employment Policy
- Family members are automatically welcomed into the family business regardless of competence, and are expected to learn their jobs on the fly.
Good Practice for Performance
- Formally measured based on stated responsibilities, expectations, and goals. Employees understand how the meeting of goals will be measured, and know the consequences of meeting or failing to meet goals.
Poor Practice for Performance
- Performance is loosely measured or not measured at all. Employees have no yardstick by which to measure their performance. The result is often poor performance.
Good Practice for Compensation
- Based on competence, performance, and industry standards.
Poor Performance for Compensation
- Based on equality, family hierarchy, or individual need regardless of responsibilities and performance.
Part of developing job roles is ensuring strong leadership. We’ve touched upon that slightly in this article, and will delve into it more deeply in future articles. In future, we’ll learn how leaders and managers are identified, how to prepare the next generation of leaders and managers, and how to develop an effective succession plan.
Job Roles and the DNA Model
- Each business has components necessary to function.
- Components must stand alone and work together.
- You can change your business DNA to ensure all “bases” are covered, and to help your business operate with direction, harmony, and inspiration.
- Strong business DNA is built through people.
Seven Rules for Defining and Assigning Job Roles
- Define Roles.
- Separate the Family Hierarchy from the Organizational Hierarchy.
- Develop an Organizational Chart.
- Create a Structured and Systematic Program for Business Entry.
- Hire Outside Professionals to Manage, in Certain Circumstances.
- Develop a Formal Review Process.
- Institute Strong Compensation Policies.
©2016, All Rights Reserved, Reg Athwal, RAW Group & RTS Global Partners; Extracts from the Book – “Unleash Your Family Business DNA”.
For more information on how we can help you develop your Family Business Job Roles, write to the author in confidence: email@example.com.
About RTS Global Partners
We offer leading-edge scientific and practical advisory, consulting, education and venture solutions to family owned businesses and conglomerates, as well as large corporates with an entrepreneurial DNA. We also provide superior management consulting services for businesses who want to transform their human-capital and grow into new markets across Africa and Middle East.
As a rapidly-growing advisory and consulting firm, we have members supporting 100+ key clients in 8 countries and adding value to millions of employees with our collective knowledge capital, DNA systems and DNA processes. Our company is the creator of the ‘Unleash Your DNA’ brand and ‘The DNA Model’. 80 percent of our senior leadership team are client-facing professionals from different nationalities. We have plans to expand our Partner Network to 22 countries by 2022 across Africa and Middle East and service 22,000 clients, which is all part of our Vision 2022.
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