Managing Family Owned Business - Essay Example

?Running Head: Managing Family Owned Business Managing Family Owned Business The purpose of this research was to identify the barriers and effective practices emphasised by consultant who provide services to family owned businesses. The findings of this study have important implications for practitioners in training and professional development, as well as those who coach family owned businesses. The results from this research have provided insight regarding those businesses who utilise and follow the advice of consultants. Managing Family Owned Business Introduction Family businesses are created for a variety of reasons, but a common belief among founders of family businesses is that working together as a family unit can be more profitable than working alone (Friedman & Friedman, 2003). Family businesses, whether they are small, local enterprises or large, national companies have unique concerns, such as interrelationships between family members, the question of succession in the next generation, maintaining talent, ownership and finance, in addition to all the problems that other businesses face (Van der Heyden et al., 2005). A family business has the challenge of balancing both the family and the business. Many times these two systems are in conflict with each other (Friedman & Friedman, 2003). Power struggles, resolving conflicting vested interests, leadership and mergers are other issues that arise on a daily basis. The importance of the consultant in supplying the guidance and expertise in the area of managerial skills is often overlooked in the family firm either because of lack of financial resources or the erroneous belief that an outsider does not know the business and thus cannot offer effective solutions (Hubler, 2009). This research can be used as a guide to consultants in suggesting management skills that are lacking as well as recommendations to their clients to overcome these weaknesses. Research Question What are the barriers and effective practices identified by consultants who work with family owned businesses? Literature Review As resources and energies shift from transaction based to value-added activities, there is mounting pressure to improve traditional measures of business efficiency (Javier & Low, 2003). A family business has the challenge of balancing two distinct and often conflicting systems: the family and the business. Despite family business' significance in the economy, researches are showing that most of them are struggling to survive beyond a single generation (Krebs, 2001; Carlock & Ward, 2001). According to Theune (2000) “stories about family businesses that failed due to mismanagement or family conflict are very common.... [and] only three out of ten family businesses survive into the third generation” (p. 1). Researchers are concerned that the biggest factor in the success or failure of family businesses are the relationships between family members. There are many things to consider including personal well being, family life, financial security and even standing in the community (Hubler, 1998). The implications are that each generation can either bequeath the business and the business skills to the next generation or choose to let the emotional, psychological or relational issues destroy the business (Kets de Vries, 1996). The challenge for trainers to overcome is to synchronise individual visions of the family and the business. It is this creation of a shared vision that is the work of the planner or trainer before designing and implementing any technical succession plan that sets up a family business for success (Theune, 2000). Siblings vie for positions within the company over power, status, influence and prestige. There are conflicts over succession with siblings, conflicts over succession with parents, as well as intergenerational conflict. Issues such as how a female successor deals with male resentment and domination and gains respect have also surfaced. Family businesses suffer from the complications of hiring unqualified family members, the perception that they are duller and less financially rewarding places to work than public companies and the improper importation of family relationships and management styles into the workplace (Hutcheson, 2003). Relatives who are available and eager to fill positions may not necessarily be the best qualified. When family needs carry equal weight with business values, equilibrium is maintained. The problem faced by many family businesses is how to attract capable, talented new employees as well as retain good employees. On the other hand, family business can offer something that other companies may not be able to offer including longevity or staying power. A family business, especially one involving several tiers or generations of family members can be a supportive, reassuring foundation in an otherwise uncertain economy (Carter & McGoldrick, 1999) While there can be positive family relationships that do not need to be dropped in the workplace, it is rare that the full mantle of an adult-child relationship or sibling rivalry can be shed (Hutcheson, 2003). In relationship to parental guidance management through fear will lead to more long-term problems as opposed to a short-term fix (Hutcheson, 2003). Among siblings, physical size, gender and age may determine a pecking order. In the workplace, however, a different set of values must apply. Siblings also tend to be competitive within the family structure and such competitiveness on the job might be counter productive (Hutcheson, 2003). The barrier that trainers must overcome is to understand and address the concerns of all levels of personnel throughout the entire company. Trainers must develop and integrate a shared set of values. Another issue with implication is for trainers to transcend organisational boundaries and overcome cynicism and resistance at all levels throughout the organisation (Davis & Harveston, 2001). Methodology The goal of the research was to identify barriers and examine effective practices that are important to manage family owned businesses. In this study a sample of trainers and consultants were surveyed using an open ended questionnaire. This research utilised primary source/questionnaire which was focused on identifying barriers and effective practices utilised by consultants/corporate trainers. Respondent population was chosen by investigating internet resources of organisations that provide consulting to family owned businesses. Respondents were asked if they would like to participate in this study. Upon their agreement following questions were asked from 5 consultants/trainers. In your opinion what are the foremost reasons why the efforts of consultants fail? What percentage of family owned businesses ignored your input to the detriment of the organisation? Talk about a success story, a business that benefited from your services or one who did not take your advice and floundered. From your experience what are the characteristics of a successful family owned business? Findings Response to Open Ended Question 1 Lauren (All names are fictitious), a private consultant wrote family business interventions failed when the system was closed. In other words when the family system is unwilling or unable to take in input from external sources. Sometimes they engaged a consultant, but the effort was doomed because they had a preconceived notion of what the answer should be and don't really want independent input from the outside. Lauren explained that one of her tools to assess the system readiness to take input was whether or not the key stakeholder(s) seemed to listen when they did their initial visit. Lauren also stated that equally as bad was when the consultant did not involve the entire system, i.e., both the family and the business, all stakeholders (insiders, outsiders, family-of-origin and spouses, non-family key employees, other trusted advisors). Those not involved may undermine or sabotage the intervention. Timing also played a major role. Often the client system doesn't move at the pace the consultant would like. Expectation of the consultant was that the changes will happen faster or slower than the system can move. Thus it appeared to be a failure, when actually the process and interventions worked, but at a later time. Jim, a private consultant explained it this way. Efforts of consultants failed because a) the consultant never really discovered the key issues that caused problems in the family, b) the consultant failed to achieve the trust of family members (all of them), and c) the consultant tried to move too fast and does not allow the family to process what they learned about themselves and their business. Carl, a private consultant believes the foremost reasons why the efforts of consultants failed in family owned business are a) lack of follow through on action steps, b) conflict and resistance to change and c) lack of continuous communication. Sam, a corporate trainer and consultant wrote the top three efforts family business consultants failed is because of the "fix everything but don't change the way we do things syndrome, "cherry picking solutions" when the consultant gives the CEO an integrated solution that includes several parts, the CEO chooses the parts he likes and ignores the ones he doesn't. When the strategy fails the CEO blames the consultant. Failure of the consultants to understand the culture of the family and the organisation in deciding which strategies and solutions will work in this organisation and which won't also is important. Jay, a corporate trainer and consultant wrote the consultant does not understand the system they are operating in and the advice is thus inappropriate or not likely to be accepted. The family did not really want to change or is too afraid to change. The consultant unconsciously may want a long term client and slow or no success means more work. The second question pertained to the percentage of family owned business who ignored their input to the detriment of the organisation. Response to Open Ended Question 2 Lauren believed the percentage of family owned businesses that ignored the consultants' input to the detriment of the organisation are perhaps 7% in terms of ignoring the main ideas. Jim believed it was a much larger group, perhaps as much as 30-35%. Jim (a private consultant) explained that he is quite selective in the clients he chooses to work with. He accepts assignments from those that he feels have a chance to be successful. Some have taken his advice long after they have ceased the client-consultant relationship. Carl (a private consultant) is more in line with Lauren and believes the number is less than 10%. Sam (corporate trainer and consultant) unlike the rest believes the number is as high at 75% that ignored at least some of his recommendations. Jay (corporate trainer and consultant) believed the magic number was about 20%. He believed that more than that ignored his advice in the beginning, but when they saw he was right they started to follow it. The third question encouraged participants to share a success story, a business that benefited from their service or who did not take the consultant's advice and floundered. Response to Open Ended Question 3 Lauren explained a business that benefited from her service in the following manner. One father was a second generation and his father made him the leader (of four sons) of the business. His brothers resented him for this. He didn't want the same thing to happen with his six offspring. He had one son whom he knew would be the best choice. However another son had been there the longest and felt he was entitled to the role. Lauren recommended to the father to let her work with the six siblings and educate them about the success factors necessary to become the next President, and let the siblings decide who it would be. Through this educational experience with the six offspring/shareholders, through attendance at other programs (e.g., a psychologically oriented leadership program) for the one who thought he was entitled, the six ultimately selected the youngest son, who was the one most suited. After a year of preparation for the role and an independent assessment of the salaries (adjusted to fair market value), the transition occurred and has worked beautifully for the business and the family. Another story of a business that did not take Lauren's advice would be a family business in its' 2-3 generation transition. One son had left the business and the other stayed and worked hard to build it with the father "Prodigal" son comes back and the mother wants him to be the leader. The other son knows he can't work with that son. The other employees feel the son who left was destructive. The employees would not stand for his involvement, let alone his leadership. The mother didn't want to hear that her prodigal son wasn't to be the successor, therefore she caused the consultation to terminate. The mother wanted the consultant to affirm her point of view. Leadership floundered, conflict increased and the consultant wasn't sure of the ultimate outcome. Jim's stories are as follows: Client one sought consultation with the firm, regularly attended meetings, identified actions that needed to be taken, i.e., developing family business policies, etc. and committing themselves to developing a plan to include family members in the business and movement toward leadership and ownership transition. They have been extremely successful as has been their business. Client two failed to acknowledge that neither of the sons were capable of leading the business in the successor generation, refused to work at resolving conflict that existed between the sons. When the father named one of them president and went into semi-retirement the business began to flounder as the sons spent more time fighting with each other than concentrating on the development of the business. Several months ago, the business finally closed its doors putting about 65 people out of work. Carl stated a business that benefited from his service was an Octogenarian who owned 100% of his business. He had done no estate planning and his lawyer had created a Q-tip trust which deferred taxes to the second to die. But when the second to die would pass away, than the deferred taxes would become payable and the family would need to sell the business in order to pay the taxes. Carl created a trust and eliminated the Q tip trust and managed to save the business from being sold. Sam's stated that a business that used and benefited from his service was a woman CEO who took over the family business after the death of her husband. She was in business with her son. The business was struggling and she was afraid that the business would eat up her nest egg of insurance money from her husband's estate. Sam put together a team of advisors to help her through a period when she was seriously considering closing the business at a huge financial loss for fear of even greater losses in the future. She was also feeling the frustration of operating a family owned business, even though she got along very well with her son. A year later it was sold for a huge profit, allowing the mother to retire and travel with her new husband (her dream) and her son to be CEO of a larger division of the buying firm at significantly higher compensation than he could have ever paid himself in the family firm (his dream) Sam mentioned that a business that ignored his advice and floundered was a woman CEO who worked with her two sons (her only children) in the business. She brought in a team of consultants to help her through a crisis that was affecting the business as well as the family. She accepted the advice of the marketing consultant and the strategy consultant, which allowed the business to overcome some of its strategic weaknesses and continued to be relatively successful. However, she refused to follow the advice of the family business consultant (Sam). As a result both sons left the business and a huge rift was created in the family. This rift may never be repaired. In Jay's experience, family members were not talking with one another. He had a series of meetings with them and advised them to separate their assets so they could have a relationship afterward. The larger side with the assets Jay advised to give a gift to the other side after the negotiation for separation was complete. The family now talks and all sides are doing well. A situation in the opposite direction was a family who needed to make a transition and consistently said they would. They did not make any progress and several family members quit the business. Jay believes there will more than likely be a shareholder revolt and it may end up involving a lawsuit. The fourth open ended question addressed the characteristics of a successful family owned business. Response to Open Ended Question 4 Lauren believes that the characteristics of a successful family owned business are those qualities that help the business stay positively connected and in business for multiple generations. They would include such things as shared values, shared vision, shared power, genuine caring, willingness to learn and grow, good communication skills and structures, high level of trust, sound business practices, activities for maintenance of the relationships, privacy and healthy boundaries, traditions that characterise and distinguish the family, willingness to assist and support one another particularly during times of loss, shame and difficulty. Mutual respect is also important. Jim believes that successful family businesses are characterised by open communications between family members, a recognition of the value and importance of non-family employees, utilising a board of directors/advisors with "outside" members, establishing family business policies that govern family involvement, compensation, etc. and effectively utilising the services of their professional advisors. Carl believes that in his experience the characteristics of a successful family owned business is one that has a family council, a family creed, a code of ethics, an ethical will and an outside board of advisors and/or directors. Sam stated that successful family owned businesses are founded on strong family ties, good interpersonal communications within the family, sensitivity to each other's needs, respectful treatment of each other at all times, and learning to separate family problems and issues from business problems and issues, Also important is working to solve family problems with family solutions and business problems with business solutions. Jay believes that selflessness, servant leadership, stewardship, lots of communication, clear goals and vision and good family values are characteristics of successful family owned businesses. Summary of the Findings The purpose of this research was to identify the barriers and effective practices emphasised by consultant who provide services to family owned businesses. The percentage of family owned business who ignored input from the consultant range from 7% to 75%. This has serious implications for those who teach and coach. It would appear from the research family owned businesses that are successful are those who are willing to take in input from external sources such as consultants and act upon that advice. It is important for the consultant to involve the entire system and all its components, including family and non-family members, board of directors, etc. Sometimes the client system doesn't move at the pace the consultant would like or the expectation of the consultant is that the changes will happen faster than the system can move. The family business consultant needs to be aware of this and make adjustments accordingly. It is important to allow the family to process what they are learning about themselves and their business. The consultant really needs to drill down to a deeper level to discover the key issues that are causing problems in the family business relationship that could have adverse consequences on the business. It is extremely important that the consultant obtain the trust of family members. Lack of follow through on action steps, conflict and resistance to change are other issues that the consultant must be cognizant of. Communication is another key issue and has many implications for the practitioner. Additionally, family business must be willing to change and implement the suggestions. Sometimes what happens is the "fix everything but don't change the way we do things syndrome". "Cherry Picking Solutions" also cause problems for the consultant. This is when the CEO picks and chooses the solutions he likes and ignores the ones he does not. The implication for the practitioner is while this may work with some issues, this may not always be the case and can sometimes backfire. One example could be when the strategy failed, the CEO blames the consultant. It is also important for the consultant to understand the culture of the family and the organisation. This will aid in the process of determining which ideas will work and which ideas will not work. It is important for the consultant to understand the system they are operating in. This is essential in determining the advice appropriate to the situation, as well as the suggestions that are more likely to be accepted and incorporated. Equally as important is that the family wants to change and is willing to change and is not merely giving lip service. Unfortunately, there may be consultants who want long-term clients and no success or little success means more bottom line income. However this is a no win situation. In the end everyone loses. Issues of rivalry and succession also must be dealt with. References Carlock, R. S., & Ward, J. L. (2001). Strategic planning for the family business: Parallel planning to unify the family and business. London: Palgrave Macmillan. Carter, B., & McGoldrick, M. (1999). The expanded family life cycle (3rd ed.). Boston: Allyn & Bacon. Davis, P. S. & Harveston, P. D. (2001). The phenomenon of substantive conflict in the family firm: A cross-generational study. Journal of Small Business Management, Milwaukee, 39 (1), 14-30. Friedman, M. & Friedman, J. (2003). How to run a family business, Better way, Cincinnati,OH,1-158. Hubler, Thomas M. (1998). Ten Most Prevalent Obstacles To Family Business Succession Planning. Family Business Review. Retrieved November 17, 2011 from http://hubler.loudclick.net/Assets/files/10ObstaclesToFamilyBusinessSuccessionPlanning.pdf Hubler, Thomas M. (2009). Perpetuating The Family Business. Family Business Review Retrieved November 17, 2011 from http://hubler.loudclick.net/Assets/Files/PerpetuatingTheFamilyBusinessMNBusinessSep09.pdf Hutcheson, J. O. (2003). The family way: Family Business can make ideal clients for planners who understand their unique needs. Financial Planning, 231-234. Javier C. Cuervo, Low Sui Pheng, (2003) Significance of location factors for Singapore transnational construction corporations, Engineering, Construction and Architectural Management, 10(5), 342 – 353. Kets de Vries, M. F. R. (1996). Family business: Human dilemmas in the family firm. London: International Thompson Business Press. Krebs, C. (2001). Generation next: Plowing the soul of a new generation, Agri Marketing, Skokie, 39 (5), 24-28. Theune, D. (2000). Planning for succession in the family business. Trusts & Estates, Atlanta, 139 (7), 29-32. Van der Heyden, L., Blondel, C., and Carlock, R. S. Fair process: Striving for justice in the family firm. Family Business Review vol. 18 no. (1)(2005). pp. 1–21. Questionnaire In your opinion what are the foremost reasons why the efforts of consultants fail? Lack of Involvement From Family Members Conflicts in the family Lack of Trust lack of follow through Resistance to change Lack of continuous communication. Lack of organisation and family culture Any other ________ What percentage of family owned businesses ignored your input to the detriment of the organisation? 1%-30% 31%-70% 70%-100% Or Specify ________ Talk about a success story, a business that benefited from your services or one who did not take your advice and floundered. ________________________________________________________________________________________________________________________________________________________________________________________________________________________ From your experience what are the characteristics of a successful family owned business? Shared values and vision Willingness to learn and grow, Good communication skills High level of trust Mutual respect Board of directors/advisors with outside members Code of ethics Good family ties Selflessness Servant leadership Stewardship Any other ________ Read More