Working with your family can present some unique challenges. This excerpt from REG ATHWAL’s book Unleash Your Family Business DNA defines these challenges and offers solutions to overcome them.
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.
Having the right people in the right jobs is integral to ensuring you kick off on the right foot.
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 advice 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.