Succession Planning -Part 9: Family Member Needs a Job.

Your Brother-In-Law (or Cousin or …) Needs A Job?

One of the most common problems in a family business is the hiring of relatives who do not have talent. But what are you to do when your sister or another close relative says, "Bob needs a job badly"? The emotional aspect of such family relationships is hard to fight. But try to go into it with your eyes open. It will be hard to fire Bob if he turns out to cost you more money than his presence is worth, that is why in Succession Planning -Part 9: Family Member Needs a Job we discuss guidelines when hiring family.

The main thing is to recognize the talent or lack of it. Suppose your brother-in-law, for example, has little or no ability as far as your company is concerned, Perhaps you can put him in a job where in spite of his weaknesses he can make a contribution and not disturb other employees.

The major concern is not necessarily the relative but how he or she affects other employees. In some cases, a relative can demoralize the organization by his or her dealing with other employees. For example, he or she may loaf on the job, avoid unpleasant tasks, take special privileges, and make snide remarks about you and other relatives.

If you are stuck with such a relative, try putting him or her in a job where he or she will have minimum contact with other employees, out of the mainstream of decision making. For instance brother-in-law Bob might be placed in a sales office in another city some distance from the company's headquarters where he will be under the supervision of a top producer. Another alternative is to change his attitudes by formal or informal education.

The key is to see that the non-talented relative does not affect the relationship that you, the manager, have with other members of your staff. Other employees will respect you for keeping relatives in line.

Strange things sometimes happen. There is always the chance that the non-talented relative may be under your direction and turn into an asset for your company.

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Succession Planning - Part 8: Different Opinions

Different Opinions

Different opinions do not always produce discord, but sometimes they cause the sparks to fly -especially in a family-owned company. Emotion is an added dimension as brothers and sisters, uncles and aunts, nephews and nieces and fathers and children work together in such a small business.

For the individual who must head such a company, the important thing is to recognize this dimension of emotions and to make objective decisions that are difficult to come by in such situations.

Many times when members of a family are active in the business, it is hard to make objective decisions about the skills and abilities of each other. For example, one says about another relative, "He was lazy when we were kids, and he's still lazy." Or a disgruntled wife says about an aunt. "What does she know about the business? She's only here because of her father's money."

If such emotional outbursts affected only the family, the manager might "knock a few heads together" and move along. But often it is not that easy. The quarrels and ill feelings of relatives have a way of spreading out to include non-family employees.

Then the manager's problem is to keep the bickering from interfering with work. You cannot afford to let the company become divided into warring camps. You have to convince non-family employees that their interests are best served by a profitable organization rather than by allegiance to particular members of the family.

Another aspect of the emotional atmosphere is that often non-family employees tend to base their decisions on the family's tensions. They know how their bosses react and are influenced by this knowledge.

Is the Manager Really in Control?

The president of a small company is not always necessarily the person in charge. In many family-owned businesses, the elder statesman of the family becomes president or chairman of the board of directors. But day-to-day management is in the hands of other members of the family.

In some cases, even the best hands are tied as the family member tries to manage the business. For example, the ceiling on the amount of money that can be spent without permission from the rest of the family may be too low for the situation confronting the company. Having to clear operating expenditures may mean missing opportunities for increased profits, such as taking advantage of a good price on raw materials or sales inventory.

In other cases, a manager may be in a bind because of emotional involvement. For example, you may feel that you have to clear routine matters with top family members because "Uncle Bill never lets you forget your mistakes." Personalities and emotional reactions create bottlenecks that work against an efficient operation.

Efficiency may be reduced also by relatives who indulge in excessive family talk during working hours. The manager should set the example and insist that relatives refrain from family chit-chat on the job.

In some family-owned companies, the day-to-day manager may be a bottleneck. You may be a bottleneck because you do not have the ability to delegate work and authority. You may be the manager because of age or the amount of capital you have in the business without regard to your qualifications. In other instances, you may hold up progress because you do not listen to others in the company.

One solution is for other members of the family to persuade such a manager to let someone else run the day-to-day show, perhaps a hired manager.

If a member of the family has to be in charge of operations, he or she should be capable of using efficient management techniques and be thick-skinned enough to live with family bickering and tough enough to make his or her decisions stick.

One way to obtain objective control in a family-owned business is to hire an outside advisor to help advise on, and implement changes needed to the day-to-day operations. An efficient hired advisor will see to it that all employees - family and non-family alike - know to whom to report at all times and that emotions are kept from effecting the profitable operation of the enterprise..

Definite lines of authority are even more important when a member of the family manages operations with other relatives filling various jobs. The responsibilities of family members should be spelled out. "Family employees" should discipline themselves to work within the bounds of these lines of authority. Even then, it is wise to have a non-family employee high in the organization so that he or she can be involved in operations and help smooth out any emotional decisions which family members may make. If this is not possible…. Hire an outside advisor to perform this fuction.

The manager's authority to suspend or discharge flagrant violators of company rules should also be spelled out. Management control is weakened if special allowances are made for "family employees".

An important question connected with authority is: Who takes over when something happens to the family member who heads the business? A position may be "up for grabs" if the family hasn't provided for an orderly succession. This need is especially critical when the top family member is approaching retirement age or is in poor health.

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Problems in Managing a Family Business

Problems in Managing a Family Business are somewhat different from the same problems in a non-family business. When close relatives work together, emotions often interfere with business decisions.

In some family companies, control of daily operations is a problem. In others, a high turnover rate among non-family members is a problem. In still other companies, growth is a problem because some of the relatives are unwilling to plow profits back into the business.

When you put up your own money and operate your own business. You prize your independence. "It's my business," you tell yourself in good times and in bad times.

However, "it's our business," in a family company. Conflicts sometimes abound because relatives look upon the business from different viewpoints.

Those relatives who are silent partners, stockholders, and directors see only dollar signs when judging capital expenditures, growth, and other major matters. Relatives who are engaged in daily operations judge major matters from the viewpoint of the production, sales, and personnel necessary to make the company successfully. Obviously, these two viewpoints may conflict in many instances.

Family members who have no talent for money or business can aggravate this natural conflict. Sometimes they are the weak offspring of the founders of the company-sons and daughters who lack business acumen-and sometimes they are in-laws who must be taken care of regardless of their ability or the company's needs.

Basically, the management problems that face the manager of a family-owned business are the same as those that confront the owner-manager of any small company. But the job of the "family manager" is complicated because of the relatives who must be reconciled to the facts of the market place, the business, and the future.

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Successon Planning Part 6: Family Strategic Planning

In Successon Planning Part 6: Family Strategic Planning the emphasis is to develop a framework that allows a family business to be well run and to understand the structure that is needed to address the issues specific to the family owned business.

Objectives and Goals

You should set reasonable objectives for the firm, based on the mission statement, to ensure accomplishment of the firm's mission. Objectives should be clearly stated, realistic, measurable, time specific and challenging. Objectives can be created for:

ü revenue growth,

ü earnings growth,

ü sales and market share growth,

ü new plants or stores, and

ü product/service quality or corporate image.

Strategies

Strategies are determined by your answer to the earlier question: "What will the firm be like in the future?" Your strategic options include the following:

1. Stability--success is derived from little change (rare).

2. Profit strategy--sacrifice future growth for profits today.

3. Growth strategy--growth may be achieved through vertical integration (expansion from within), horizontal integration (buy a competitor), diversification, merger or retrenchment (turnaround or divestment).

Action Steps

Once the strategy is selected, action steps should be specified that will guide the firm's daily activities. An example of an action step is creating a budget to project the costs of a strategy. This process also is known as tactical planning. The steps in tactical planning should be practical and easy to implement and account for; their purpose is to convert goals into manageable, realistic steps that can be individually implemented.

Family Strategic Planning

The entire family should develop a mission statement or creed that defines why it is committed to the business. By sharing priorities, strengths and weaknesses, and the contribution each member can make to the business, the family will begin to create a unified vision of the firm. This vision will include personal goals and career objectives.

Important issues to consider are how to set priorities for the family and the business, i.e., decide which will come first the family or the business. How you answer this question will influence your planning. Some family members will opt for the business first, reasoning that, without a business, there will be no financial security for the family. Others will opt for the family first, reasoning that no business is worth the loss of family harmony. A third alternative is to serve both family and business perhaps not equally, but as fairly as possible. Under this alternative, all decisions are made to satisfy both family and business objectives. For example, a family may have a policy that any family member may join the business, but he or she must meet the requirements of the job. You may find this is the best alternative because it forces a commitment to both the family and the business.

The Family Retreat

Trying to plan a business strategy during normal office hours is almost impossible. Plan a family business retreat to discuss the goals of the individual family members and the goals of the business. The first retreat should focus on reviewing the firm's history, defining family and business values and missions, creating a statement about the future of the business and reviewing areas that need more attention.

The purpose of the retreat is to provide a forum for introspection, problem solving and policy making. For some participants this will be their first opportunity to talk about their concerns in a non-confrontational atmosphere. It is also a time to celebrate the family and enhance its inner strength.

A retreat usually lasts two days and is held far enough away so you won't be disturbed or tempted to go to the office. Every member of the family, including in-laws, should be invited. Begin plans for your retreat about six weeks in advance. Note: If you have a trusted business advisor have them work with you on your agenda and planning

Once you have picked a time and place, establish a tentative agenda. Your actual agenda will be tailored to meet the unique needs of your family and business. Usually families will identify some of the following issues for discussion at their first retreat:

q A family creed or mission statement.

q Management succession.

q Estate planning.

q Strategic business planning.

q The reward system.

q Performance evaluation.

q Communication within the family.

q Preparing adult children to enter the business.

q Transition timing.

q Exit and entry policies.

You may consider using a retreat facilitator. The facilitator helps identify issues for discussion before the retreat and keeps the atmosphere non-confrontational during the retreat. The facilitator does not solve the family's problems but guides the family in doing so.

The retreat is the beginning of a process. When a consensus is reached by the participants, policies should be set, courses of action planned and responsibility for implementation assigned. When agreement cannot be reached, further discussions should be planned, possibly with the continued assistance of the facilitator.

One important outcome of the retreat should be plans for periodic family meetings and retreats in the future, so the dialogue will continue. Open communications will enable the family to come to grips with problems and issues while they are fairly easy to solve. Once family members have reached a consensus on the continuity of the firm and their roles in it, you can begin planning for succession.

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Balancing Family and Business Goals

When conflict occurs in the family business, it can be traced to a disparity in the goals of the individuals, the family or the business. Balancing Family and Business Goals is one of the hardest things to accomplish.

Perhaps a family member works in the business out of economic necessity, not because he or she wants to. Or perhaps the potential successor has plans for the business that differ from current management plans--different generations usually have different goals. Whatever the cause, the conflict must be addressed and resolved to avoid and prevent more serious problems later.

One way to define and align family and business goals is through business and family strategic planning. In these plans, you will create a mission statement for the business and for the family that allows each element to complement the other. Once you have completed this task, set goals for the family business that will allow the family and business to prosper. Next, develop a strategy to accomplish these goals and, finally, formulate policies and procedures that control the family's involvement in the business.

Business Strategic Planning

Strategic planning for family-owned businesses requires that you integrate family issues, such as:

· What are the long-term personal and professional goals of family members?

· What is the family mission?

· Why are you committed to establishing and operating the business?

· How do you envision the firm in the future?

· Will family members be active in management or will they be passive members?

· How will issues such as compensation, benefits and performance evaluation be handled?



The answers to these questions will affect the business strategy and should be resolved before strategic planning begins.

Strategic planning involves analyzing the business in its environment and devising a process for guiding its development and success in the future. This process involves assessing the internal operations and the current external environment (i.e., economic, technological, social and political forces) that affect the business. To begin this process, identify internal strengths and weaknesses that may constrain or support a strategy.

Components of this assessment include:

(1) the organizational structure,

(2) the culture and

(3) the resources.

Make a list of the opportunities available (growth, new markets, a change in regulations) and the threats (increased competition, shortage of raw materials, price-cutting) to your business. This should give you some insight into the current situation and provide a strategic direction. (See Appendix for SWOT Analysis)

Next, list the objectives of you and your family, identifying personal needs and risk orientation. Many of these objectives and goals (See Appendix for Forms) will be addressed in your family strategic plan. Also, you will find that your personal objectives will affect the strategy you choose. For example, if there is a great opportunity for growth in your market but you have a low risk orientation and a high personal need for security, you probably should not pursue high growth. It would be not only risky but also expensive. Growth consumes cash, and cash must be generated internally or financed externally. Your personal objectives should mesh with your strategy.

Once you have identified opportunities in the industry, assessed the strengths and weaknesses of the firm and listed your personal objectives, you can proceed with the strategic plan. This will involve:

ü developing a mission statement,

ü setting objectives,

ü developing strategies to meet objectives, and

ü developing action steps to implement the strategy.

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Succession Planning Part 4 - UNDERSTANDING THE FAMILY BUSINESS II

Succession Planning Part 4 - UNDERSTANDING THE FAMILY BUSINESS II

In Succession Planning Part 4 - UNDERSTANDING THE FAMILY BUSINESS II we will explore the nature of the family business as a dual operating system, and will identify issues of greatest concern to family business owners, as identified by family business owners across the country. As you review these issues, you will see that, although you and your family are unique, the challenges you face are not, because almost every family business shares the same problems.

The first rule for successfully operating and transferring the family firm is…share information with all family members, active and non-active. By doing this, you will eliminate problems that arise when decisions are made and implemented without the knowledge and counsel of all family members.

Also, perspectives of the individuals involved in a family business will be presented. We tend to confuse personality with perspective--understanding the viewpoints of the different actors involved in the family business (active and non-active) can help alleviate conflicts that may arise.

What Is a Family Business?

Defined simply, family businesses is any business in which a majority of the ownership or control lies within a family, and in which two or more family members are directly involved. It is also a complex, dual system consisting of the family and the business; family members involved in the business are part of a task system (the business) and part of a family system. These two systems overlap. This is where conflict may occur because each system has its own rules, roles and requirements. For example, the family system is an emotional one, stressing relationships and rewarding loyalty with love and with care. Entry into this system is by birth, and membership is permanent. The role you have in the family--husband/father, wife/mother, child/brother/sister--carries with it certain responsibilities and expectations. In addition, families have their own style of communicating and resolving conflicts, which they have spent years perfecting. These styles may be good for family situations but may not be the best ways to resolve business conflicts.

Conversely, the business system is unemotional and contractually based. Entry is based on experience, expertise and potential. Membership is contingent upon performance, and performance is rewarded materially. Like the family system, roles in the business, such as president, manager, employee and stockholder/owner, carry specific responsibilities and expectations. And like the home environment, businesses have their own communication, conflict resolution and decision-making styles.

Conflicts arise when roles assumed in one system intrude on roles in the other, when communication patterns used in one system are used in the other or when there are conflicts of interest between the two systems. For example, a conflict may arise between parent and child, between siblings or between a husband and wife when roles assumed in the business system carry over to the family system. The boss and employee roles a husband and wife might assume at work most likely will not be appropriate as at-home roles. Alternatively, a role assumed in the family may not work well in the business. For instance, offspring who are the peacemakers at home may find themselves mediating management conflicts between family members whether or not they have the desire or qualifications to do so.

A special case of role carryover may occur when an individual is continually cast in a particular role. This happens primarily to children. Everyone grows up with a label: the good one, the black sheep, the smart one. While a person may outgrow a label, the family often perceives that person as still carrying the attribute. This perception may affect the way that person operates in the business.

Family communication patterns don't always affect the business, but when they do it can be very embarrassing. Often you say things to family members in a way you would never speak to other employees or managers. This problem is compounded when the family member misreads your communication. Often parents are surprised by a son's or daughter's negative reaction to a business directive or performance evaluation. This reaction is probably because the individual perceived the instructions or evaluation as orders or criticism from Dad or Mom, not from the boss.

System overlap is apparent when conflicts of interest arise between the family and the business. Some families put personal concerns before business concerns instead of trying to achieve a balance between the two. It is important to understand that the family's strong emotional attachments and overriding sense of loyalty to each other create unique management situations. For example, solving a family problem, such as giving an unemployable or incompetent relative a position in the firm ignores the company's personnel needs but meets the needs of family loyalty.

Another example of conflict of interest occurs when business owners feel that giving children equal salaries is fair. Siblings who have more responsibility but receive the same pay as those with less responsibility usually resent it. In cases of sibling rivalry, it isn't unusual for one sibling to withhold information from another or try to engage in power plays, i.e., behaviors that can be detrimental to the firm.



Much of this behavior can be eliminated or managed by devising policies that meet the needs of both the family and the business. Developing these policies is part of the family strategic planning process. Before discussing them, you should make sure you have identified all the issues that need to be addressed.

Issues in the Family Business

The list below contains the issues that most family businesses face:

· Participation--who can participate in the family business and under what circumstances.

· Leadership and ownership--how to prepare the next generation to assume responsibility for the business.

· Letting go--how to help the entrepreneur let go of the family business.

· Liquidity and estate taxes.

· Attracting and retaining non-family executives.

· Compensation of family members--equality versus merit.

· Successors--who chooses and how to choose among multiple successors.

· Strengthening family harmony.

All of these issues and the others you include in the Family Business Assessment Inventory (See Appendix) can potentially cause business conflict and family stress. But there are three steps you can take to manage conflict and stress in a family business:

1. Identify issues that may cause conflict and stress.

2. Discuss these issues with the family.

3. Devise a policy to address them.

Who Are the Actors?

The next consideration in understanding the family business is to understand the perspectives of those involved. Without this understanding, managing a family business will be difficult.

The actors in the family business can be divided into two groups:

(1) family members and

(2) non-family members.

Each group has its own perspective and set of concerns and is capable of exerting pressures within the family and the firm.

Family Members

Neither an Employee nor an Owner - Children and in-laws are usually in this group. Although they may not be part of the business operations, they can exert pressure within the family that affects the business. For example, children may resent the time a parent spends in the business. This creates a problem because parents usually develop guilt feelings as a result of their neglect and the resentment expressed by the children. In-laws, on the other hand, are viewed either as outsiders and intruders or as allies and therefore are usually ignored or misunderstood. For example, a daughter-in-law is usually expected to support her husband's efforts in the business without a clear understanding of family or business dynamics. She may contribute to family problems or find herself in the middle of a family struggle. The son-in-law faces similar, if not worse, problems. He may be placed in a competitive situation with his wife's brothers. If he isn't involved in the family business, he can still exert pressure on the business in his role as his wife's confidant.

An Employee but not an Owner - This family member works in the business but does not have an ownership position. For this individual, conflict may arise for a number of reasons.



For example, if he or she compares himself or herself to the family member who has an ownership position but is not an employee, a sense of inequity may result. The member may voice his or her resentment: I'm doing all the work, and they just sit back and get all the profits. Or resentment may occur when owners make decisions alone. Here, he or she may feel: I'm working here every day. I know how decisions are going to affect the company. Why didn't they ask me? Family members employed in or associated with a family business generally expect to be treated differently from non-family employees.

An Employee and an Owner - This individual may have the most difficult position. He or she must effectively handle all the actors in both systems. As an owner, he or she is responsible for the well being and continuance of the business, as well as the daily business operations. He or she must deal with the concerns of both family and non-family employees. Often, the founder, as the sole owner and chief executive, falls in this category.

Not an Employee but an Owner - This group usually consists of siblings and retired relatives. Their major concern usually is the income provided by the business; thus, anything that threatens their security may cause conflict. For example, if the managing owners want to pursue a growth strategy that will consume cash and has an element of risk, they may face resistance from retired relatives who are concerned primarily about dividend payments.

Non-family Members

An Employee but not an Owner - This group deals with the issues of nepotism and coalition building and the effects of family conflicts on daily operations. Owners' concerns for non-owner employees usually involve recruiting and motivating non-family employees and non-family owner-managers who will have little or no opportunity for advancement, accepting children of non-family managers into the business and minimizing political moves that support family members over non-owner employees.

An Employee and an Owner - With the emergence of stock-option plans, this group has become more important. Employees may become owners during a succession. In companies where a successor has been chosen, partial ownership of the company by its employees can foster cooperation with the new management because the employees will personally share the benefits and responsibilities of the company. In cases where there is no successor, selling the company to the employees who have helped build it makes good business sense. Employees who own the company will want to be treated like owners, which may be difficult for family members to understand and accept. A thorough understanding of the behavioral consequences of an employee stock ownership program (ESOP) should be grasped before a family implements such a program. Understanding the perspective of the individuals around you, both family and non-family, will make communicating and decision making easier.

Next: Balancing Family and Business Goals

Succession Planning Part 3 - Understanding the Family Business

Understanding the Family Business

The family business is a vital force in the economy. More than 60 percent of all businesses are family owned or controlled. They range in size from the traditional small business to a third of the Fortune 500 firms. It is estimated that family businesses generate about half of the country's Gross National Product and half of the total wages paid. Understanding the Family Business is critical if it is to prosper.



Our economy depends heavily on the continuity and success of the family business. It is unfortunate, even alarming, that such a vital force has such a poor survival rate. Less than one third of family businesses survive the transition from first to second generation ownership. Of those that do, about half do not survive the transition from second to third generation ownership.

At any given time, 40 percent of businesses are facing the transfer of ownership issue. Founders are trying to decide what to do with their businesses; however, the options are few.

The following is a list of options to consider:

q · Close the doors.

q · Sell to an outsider or employee.

q · Retain ownership but hire outside management.

q · Retain family ownership and management control.



To be one of the few family businesses that survive transfer of ownership requires a good understanding of your business and your family.

There are four basic reasons why family firms fail to transfer the business from generation to generation successfully:

1. Lack of viability of the business.
2. Lack of planning.
3. Little desire on the owner's part to transfer the firm.
4. Reluctance of offspring to join the firm.

These factors, alone or in combination, make transferring a family business difficult, if not impossible. The primary cause for failure, however, is the lack of planning. With the right plans in place, the business, in most cases, will remain healthy.

There are four plans that make up the transition process. By implementing these plans, you will virtually ensure the successful transfer of your business within the family hierarchy.

- A strategic business plan for the business will allow you an opportunity to chart a course for the firm. Setting business goals as a family will ensure that everyone has a clear picture of the company's future.

- The family strategic plan is needed to maintain a healthy, viable business. This plan establishes policies for the family's role in the business. For example, it may include an entry and exit policy that outlines the criteria for working in the business. It should include the creed or mission statement that spells out your family's values and basic policies for the business. The family strategic plan will address other issues that are important to your family. By implementing this plan, you may avoid later conflicts about compensation, sibling rivalry, ownership and management control.

- A succession plan will ease the founding or current generation's concerns about transferring the firm. It outlines how succession will occur and how to know when the successor is ready. Many founders do not want to let go of the company because they are afraid the successors are not prepared, or they are afraid to be without a job. Often, heirs sense this reluctance and plan an alternative career. If, however, the heirs see a plan in place that outlines the succession process, they may be more apt to continue in the family business.

- An estate plan is critical for the family and the business. Without it, you will pay higher estate taxes than necessary. Taking the time to develop an estate plan ensures that your estate goes primarily to your heirs rather than to taxes.

For business owners who do little planning, the idea of preparing four plans may seem overwhelming. Although it is not easy, the commitment made by all family members during the planning process is the key ingredient for business continuity and success.

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