“UNLEASH YOUR FAMILY BUSINESS DNA”
by REG ATHWAL, FPSA
World-Renowned Family Business Executive Advisor, Author & Keynote Speaker; Founding Partner & MD, RTS Global Partners
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TYPES OF FAMILY BUSINESS MODELS
The types of family businesses and how they are structured, are as varied as families themselves. Every family comes to a business with a different number of family members, who have different skills, values, work ethics and relationships with one another. As the family business survives from generation to generation, the structure may go from a sole proprietorship to a sibling-run business, and then to a business run by cousins. These factors significantly impact the business and how it is managed, whether it is successful and whether it is able to endure. Relationships are important in all businesses, but they are particularly important in the family business. Family relationships affect how a family business is structured, who leads and who follows and how decisions are made on a much deeper level than non-family run businesses.
Business and Relationships
When Carly Fiorina was brought to the helm of U.S. computer company Hewlett-Packard in 1999, she was expected to re-assess, re-organize and re-invigorate the organization, which had become somewhat of a lackluster runner-up in the industry. HP’s management style, under its initial founders William Hewlett and David Packard, was based on open doors and open communication, ground-level decision making and family values. Critics claim Fiorina changed all of that, making herself a lot less approachable than the founders while instituting a top-down management style. When Fiorina decided to merge HP with Compaq the move was opposed by the son of William Hewlett, who criticized Fiorina for having a complete disregard for the “HP way.” The merger failed. HP stock plummeted and for the first time in its history, thousands of employees were laid off.
Critics said Fiorina had difficulty grasping the importance of a certain management style and didn’t understand how integral it was to the happiness and performance of employees and therefore to the ultimate success of the business. There were probably many of reasons why HP experienced this bump in the road, and Ms. Fiorina, who is a skilled and experienced CEO with a stellar career, shouldn’t be blamed for all of them. But disregarding relationships and ignoring conflict can harm any business. When it comes to family businesses, the results can be even more devastating, as these relationships are extremely personal and they are also impossible to change. When push comes to shove you can change someone’s supervisor or work team. But you can’t change blood relations. Understanding and honoring relationships is more important than ever in the family business.
Relationships and Family Business
Those in family businesses almost always have an easier time grasping the past, present and future of their businesses. But they aren’t necessarily any better at understanding the impact of or managing relationships. Sometimes, due to history, relationships in families are pretty messy, which can lead to interesting, seemingly unsolvable conflict at work. When relationship issues happen in the workplace, it’s really easy to ignore them if that’s been your habit at home. Or it’s easy to let them careen out of control if that’s been your habit. Neither is a good idea. Before I go any further in this article I want to state the obvious. All relationships are different. Because of that, dynamics between different personality types and how they affect the work environment are well beyond the scope of this article. In this article, we’ll examine three common types of business models based on relationships: parent and child, and sibling and cousin, and will discuss the strengths and weaknesses of each relationship.
I hope that by the end of this article you are able to better understand the dynamics of your particular family business model and in doing so are able to capitalize on the strengths, and avoid the pitfalls.
Family Trees and Gene Pools
If you think it’s difficult to experience an ongoing work-related conflict with a colleague or co-worker, just imaging having to sit across from that person at your next holiday dinner. What’s that? You can imagine that quite well? Chances are, you’re involved in a family business. Imagine this. On Friday afternoon, you make a mistake and miss a deadline, which has a major impact on the co-worker who was ultimately responsible for this particular project. As your co-worker stomps her feet and claims that “you always ruin her life,” your first reaction is to grab her by the arm, head to the nearest washroom, and indulge her in a “swirlie.”
To make matters worse, you must spend your lunch hour buying this person a present, because tomorrow you’re celebrating her birthday with her family and closest friends and there’s no way you can get out of it. On your way out, the CEO pulls you into his office not to discuss the huge acquisition you’re overseeing, but to let you know that your co-worker could really use a new teapot, and to remind you that gag gifts are strictly verboten.
What kind of nut house are you working in, anyway? The CEO is your father. Your co-worker is your sister. And to make things more complicated she’s your younger sister you know, the one you used to tease relentlessly. Sometimes, you still do. I use the above exaggerated parody to illustrate that all families have pecking orders based on the family tree. To think or to expect that these pecking orders aren’t going to infiltrate the family business is simply naïve. Instead, it’s best to understand and accept family trees and the types of relationships they yield, so you can better manage them in the workplace.
The Parent Child Model
We’ll start with the parent-child family business model, as this is, in theory, the easiest to understand and manage. In a typical family, the parents set the rules for their children’s behaviors and actions, and the children are expected to follow those rules. It’s widely accepted, by both parents and children, that the parents are in charge and the children are the subordinates. When it comes to transplanting this relationship into the family business, it’s usually fairly black-and-white. The parents “run” the business, while the children are expected to carry out the duties as assigned. Differences of opinion may arise just as they do at home, but when push comes to shove the parents’ word is final. It sounds fairly easy, until you really start thinking about how parent-child relationships develop and grow. Parents have the upper hand until a child reaches toddlerhood, at which point they begin to assert their independence.
As a parent you believe the terrible twos are truly terrible until you hit the teen years. At that point, kids really begin to test their boundaries in terms of their actions, behaviors, philosophies, ethics, and morals. If you thought you were winning the battle in toddlerhood, get ready to lose some battles in the teen years, especially when your teen feels that you are wrong and he or she is right. Thankfully, this phase passes, and if we’re lucky our adolescents grow up to be responsible, mature, reasonable adults. At this stage children often recognize the wisdom and experience of their parents, and may ask for help and advice in matters concerning finances, education, and love. As adult children age and mature a phase of mutual respect settles in, a comfortable phase in which both parents and children value the other’s input, ideas, and knowledge.
This phase of mutual respect lasts until parents hit old age. At a certain point, adult children believe that they are more equipped and knowledgeable to manage the modern world than their older, less hip parents. While they may respect their parents and what they have done with their lives, they no longer fully trust them to make the types of decisions that are best. At some point, there is a paradigm shift and parents start asking their children for help and advice. So how do these stages affect the family business? Families that employ their teenaged children typically do so in temporary, part-time, and introductory manners. Some families think with the right approach it’s possible to introduce responsibility, as well as a true connection to the business, during the adolescent years. Other families with businesses think it best that their teens get their experience and foster a sense of accountability and responsibility elsewhere, at other businesses where they are less likely to fail to show up, talk back to the boss, or show minimal effort.
Whether or not you hire your adolescent will depend upon your particular business, as well as your relationship with your adolescent, how mature he or she is, whether or not he or she is interested or wants to explore other areas, etc. With parents and adult children, the relationship is, in theory, less complicated. While adult children may have large jobs with lots of responsibility, and may be in a position to make big decisions, ultimately the parents manage the business. With this type of model, both parent and child are usually equally invested in the business both feel accountable and personally connected with the success or failure of the business.
Before you start thinking that the parent-child business model is a piece of cake, you should be aware that parent-child relationships ultimately come with some degree of baggage which will, to some level, infiltrate the business. For example, a child may feel that he can never measure up to his parent’s expectations, which can affect his happiness, and ultimately his performance. Parents and children who are able to open up the roads of communication, be honest with one another, and who are committed to understanding and discussing the complexities of their relationships will be more successful at banishing this baggage in the workplace.
As both adult children and their parents age, the dynamic in the business changes again. The child may take over more responsibility, while the parent takes on more of a figurehead role. At some point, the parent will relinquish leadership to the child. If some rules and guidelines aren’t laid down, or if the transfer of leadership is murky, it can lead to misunderstandings and problems. The best way to ensure a positive transfer of power is to create a succession plan. We’ve devoted a good portion of our book to creating an effective succession plan; please read our other articles to delve more deeply into this important subject.
The Sibling Model
Most family businesses employ two or more adult children, who will eventually be in charge of the business when the parents pass on their leadership. The roles and positions they take on in the business often mirror those at home. First-born children, for example, are typically authoritarian, more conservative than their later siblings, and very comfortable taking charge. Later children, on the other hand, tend to be more free-spirited, relaxed, open-minded, and less prone to worry. In many traditional family businesses, older children gain more responsibility, and therefore climb the organization’s ladder more quickly, than younger children. In keeping with their birth order, they are more frequently given the task of making important decisions for the company. They are often given jobs that require them to be meticulous or detail-oriented. They may have more seniority than younger children, and may serve as their supervisors. Just like home, right? Of course, you can’t force your younger brother to complete a task at work by sitting on him or twisting his arm behind his back in the boardroom.
Older children sometimes have first rights at succession, as well. Of course, there are many exceptions to this rule. Sometimes, not all children in a multiple-family household enter the family business, or have the same amount of interest in it. Gender can play a role in many cultures, and younger brothers may be given jobs with more responsibility, or rights to succession, over an older sister. Other times, younger children are simply better equipped with their skills and personality to take over high-ranking jobs than their older siblings are. Regarding this last point, I’m a strong believer that primogeniture succession that relies solely on where the child falls in the birth order is never a good idea. Think of it this way. A non-family business wouldn’t dream for a moment of hiring a candidate just because he or she had a few more years on another candidate. Talent, education, leadership abilities, temperament, and historical performance should be the factors that determine who your firm’s leader is.
Sibling Rivalry and the Family Business Sibling rivalry is an issue in any family. When you have a family business, the effects of unchecked sibling rivalry can be incredibly high. Koch Industries (USA), the massive oil, gas, and agriculture firm, experienced first-hand what happens when sibling rivalry goes unchecked. Sons of founder Fred Koch, Frederick and William, filed a lawsuit in 1983 contesting that the $700 million price their twin brothers, Charles and David, paid for their share wasn’t fair.15 When they lost after a 13-year battle, William filed yet another lawsuit claiming Koch stole oil from Federal and American Indian lands and earned whistleblower fees to boot. In 2001 William, Charles and David settled out of court. Part of the settlement stipulated that neither party would ever again sue the other. Of course, the settlement did not include the other dissident brother, Frederick, so perhaps more effects of sibling rivalry are yet to be seen. We can only imagine the dissonance in the Koch household when these four were growing up.
If you’re looking for advice on how to stem the flow of sibling rivalry, I’m sorry that I can’t help you but do have solutions. If I had all the wisdom, I would be making lots of money writing a totally different kind of book. Sibling rivalry is, and always will be, an integral part of sibling relationships. Conflict is necessary in the work setting. If everyone always agreed, we would miss out on the new ideas and new approaches that keep vibrant, successful businesses changing for the better. The problem with sibling conflict is that sometimes, out of habit, siblings handle conflict with aggression or allow anger to balloon out of control. The result is that they injure each other, sometimes permanently, without solving the conflict. The conflict may become less about the issue at hand than it is about past hurts. In addition to the siblings and other family members suffering when unresolved conflict occurs, so does the business.
In order to best manage the conflict that will, unavoidably, occur at work, siblings should take heed in how they express and control their feelings. It’s better to encourage siblings to express and talk about their differences, and to keep fights out in the open and honest. If siblings are told to repress their feelings, it will lead to poor communication and dishonesty, which is a prime breeding ground for out-of-control rivalry. Sibling rivalry is just one kind of conflict seen in the family business. I’ll be discussing family conflict in more detail, and how to manage it, in other articles.
The Cousin Model
As family businesses go from one generation to the next, the ties that bind family members become less immediate. A parent-child model moves to the sibling model, which inevitably moves to the cousin model. I believe that this transition, when the sibling model goes to the cousin model, is one of the most complex and difficult to understand. That being said, organizations like Estee Lauder and The New York Times prove that businesses run by the “cousin generation” can be done so successfully. In the cousin model, leadership roles, management roles, and responsibilities are handled by more than one branch of the family.
One of the challenges in this model is that the number of family members with interest in the business has grown substantially. It becomes a challenge simply to find roles for these people, and some smaller family businesses simply can’t take the financial strain of supporting more than one family. Financial issues are stressful and cause discord and fighting, neither of which is good for a business. Like the sibling model, those in the cousin model must come up with a way to share power and control, and to manage conflict. Unfortunately, this is a greater challenge in the cousin model than it is in the sibling model, due to the simple issue of values. Siblings who grow up in one household are introduced to the same values.
The values in a cousin’s household, however, while they may be equally good, are most likely different. When values differ, values about performance, work ethic, money, communication, behavior, reconciling the differences can be difficult, and adds another layer to the discord. One of the keys to ensuring that different values don’t ruin a third-generation is to know that they exist, to recognize them and not get too worked up when they arise, and to make an effort to resolve them.
Find Your Own Road
When it comes to concrete answers about how to handle your particular family business model, or the transitions between models, I’m afraid there isn’t one. Each family and each business will have to find their own way, depending upon their particular family dynamics and situation. Parent-child models should, in theory, have the fewest challenges, as it’s generally accepted that parents lead and children follow. There will be a shift with time, but proper planning can ensure that this is done respectfully and effectively. The most successful sibling models don’t try to squelch or shift the roles they play at home, but rather recognize them, accept them, and use them to the benefit of the business.
Proper management of conflict, which is necessary in any business, is critical in the family business. Finally, the cousin model has the greatest challenge of not only identifying the correct roles and responsibilities for all, but also of rectifying and managing different values. Again, recognizing that these issues exist, and following up with honest and open discussion, will go far toward resolving relationships issues and other conflicts that arise. In the future articles we’ll discuss a challenge that all family businesses face at one time or another securing family interest and participation.
Business and Relationships
❑ Management styles are important to employee health and happiness, and therefore to the overall success of the business.
❑ Relationships among co-workers are highly personal in the family business.
Relationships and the Family Business
❑ Messy family relationships can and often do cause conflict at work.
❑ Understanding and accepting family trees and the relationships they yield will make them easier to manage in the workplace.
The Parent Child Model
❑ Parents are in charge and children are subordinates.
❑ Some families introduce their children to the business during their adolescent years, while other families believe their children should get initial work experience elsewhere.
❑ Parents and adult children typically feel equally invested in the business.
❑ Some issues associated with the parent-child relationship are bound to infiltrate the business; open communication and honesty is key.
❑ As parents age and children take more responsibility, the business dynamic changes.
❑ The best way to ensure a positive transfer of power is to develop a succession plan.
The Sibling Model
❑ Two or more children are in charge of the business when the parents pass on leadership.
❑ The roles and positions siblings take often mirror those at home.
❑ Not all children in a multiple-child household enter into the business, or have interest in it.
❑ Think twice before developing a succession policy that relies on birth order.
❑ Talent, education, leadership abilities, temperament, and historical performance should be the factors that determine who your firm’s leader is.
❑ Sibling rivalry can be an issue in the Sibling Model, and must be properly managed in order for the family business to succeed.
The Cousin Model
❑ Leadership roles, management roles and responsibilities are handled by more than one branch of the family.
❑ The number of family members with interest in the business has typically grown substantially.
❑ One challenge can be finding roles for all of these people.
❑ Those in the Cousin Model must find a way to share power and control, while managing conflict.
❑ It can be difficult to reconcile the differences in values among cousins, making this model one of the most challenging and complicated.
Find Your Own Road
❑ Each family and model will have to find a way to operate successfully, depending upon their unique dynamic and situation.
❑ Recognize, accept and use roles to the benefit of the business.
❑ Practice proper management of conflict.
❑ Recognize that issues exist and follow up with honest discussion.
©2015, All Rights Reserved, Reg Athwal, RAW Group & RTS Global Partners; Extracts from the Book – “Unleash Your Family Business DNA”
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