Building bridges within the family business

by Sally Colby

Business psychologist Dr. Rob Skacel agrees with what farm families already know: working with family comes with unique blessings and challenges. Although working with relatives isn’t always easy, Skacel provided some tips to help family businesses run more smoothly.

In some cases, family members who work in a family business can’t get a good, objective assessment of how they’re performing. “Most of us like to know how we’re doing,” said Skacel. “In a family business, oftentimes other family members don’t want to weigh in about a family member’s performance, and non-family members feel it’s too dangerous to do that.” The result is some family members being cheated out of opportunities to grow and develop.

“While the rewards of family business can be great, the potential for problems increases as the number of family stakeholders grows,” said Skacel. “The more people in the mix, the more difficult it can be to manage the interpersonal tensions and complexities. Unresolved conflicts, lack of trust, difficult family relationships or family demands on the business often contribute to family and business problems.”

Skacel said that while family members may have more than one role on the farm, it’s important to wear just one hat at a time. Someone may have a role in management that’s different from their role as a family member, and during meetings, it’s important to clarify whether it’s an ownership discussion, a management discussion or a family discussion.

“Among shareholders, authority and influence are generally determined by vote according to the number of shares held,” said Skacel. “When owners speak to something, they need to speak with one voice – this is an area where families muddle things.” An ownership decision is typically carried by vote among shareholders, and the highest vote wins. Skacel said it can be tempting for those who have been outvoted to say they didn’t agree with the vote. “The key leader cannot keep their boss happy if each owner places a different set of performance demands on them,” said Skacel. “Take a vote and speak with one voice the will of the ownership expressed as a group, not as individuals.”

Skacel said it’s critical to establish clear lines of reporting, both between ownership and management and within the management structure. “Management is accountable to the owners,” he said. “You have to be clear on how the owners as a group will give direction to management, and how management will be accountable to the owners. Within the management structure, have clear lines for people. Who is the boss when I show up for work?”

Owners must be clear about what they expect of management and hold them accountable to perform. Skacel said he often sees family members reluctant to manage other family members for high performance, but it’s important that the owner group clarify for the person in charge what they expect in terms of performance. Another common issue is family members who say they don’t want to start a family problem or who don’t believe they can be objective or who don’t believe they can hold other family members accountable. “If you aren’t clear about your expectations and you don’t have a good accountability system,” said Skacel, “you aren’t likely to get good performance.”

Skacel said it’s important to resist the urge to give all family members equivalent roles in the management realm. Instead, assign roles that maximize each person’s contribution to the overall success of the business. “Too often, when families are trying to be fair, they put people in roles that are equal even though those people can’t perform those roles,” he said. “That’s a formula for poor performance.” He urged management to eliminate or minimize dual reporting because having more than one boss leads to confusion. The exception is the top leader, who is accountable to ownership.

Family businesses should monitor role and boundary violations. One example is older family members who give orders that conflict with instructions given by that person’s direct manager. “Be alert to that and be willing to call them out,” said Skacel. “It’s typical for families to blur these boundaries, which can contribute to dysfunction in the business and in the family.”

Issues can easily arise in a three-generation operation when a family member who doesn’t have a management role gives orders to an employee who outranks them in management. “That’s one typical way people can run over boundaries,” said Skacel. “Or a partially retired owner is stepping in and giving orders to an employee, inadvertently undermining the employee’s direct boss who might be their own son or daughter.”

When multiple family members are involved in a business, family meetings are beneficial and healthy for the business. These meetings can include others who may eventually have an interest in the business. “Family meetings cover clarification of family members’ values and expectations, or address current family tension or conflict,” said Skacel. “You may establish a family creed document – a written statement about the family values and how family members will have an opportunity to join the business and what will be expected of them. Sometimes there’s determination of entry, career development and ownership pathways for future generation family members.” Family meetings may also cover governance, succession planning, estate planning and use of shared assets.

Management meetings should include communication around management-related matters. Skacel suggested structuring such meetings to deal with management issues separate from owner meetings. “Being a shareholder does not give you any particular authority in a management realm,” said Skacel. “Even if you own 25% of the shares and don’t have a job in management, you have no right to direct the activity who are subordinates of a foreman or general manager. Being a shareholder gives you a voice and a vote in owner-related decisions but no power or authority in management.”

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