I’m going to share a tough truth so make yourself ready. Family business is often painful. And sadly, that pain is typically rooted in misapplied perceptions of fairness. That’s right. Parents trying to be fair create sibling wars. Even in only-child situations, preconceived notions of what is “fair” can cause great and unnecessary angst.
In my experience working with family companies since 1991, battlegrounds rage over three predictable points of contention – money, risk and control. Look behind the curtain of each of these issues and you will find “fair” raising its ugly head, causing fear and bitterness.
Now for the good news — there are solutions! Agreed upon values on money, risk and control are working beautifully in high functioning family businesses. The other good news is that no matter how much pain you have allowed or caused, it’s all fixable. Let’s get started!
Fix #1 – Eliminate money pain. I have witnessed hurting families where kids were forced to work for almost peanuts to prove their devotion to the family business when they entered. I have also witnessed the flip side where kids were paid stupidly high salaries beyond their worth just because they were family, demoralizing non-family workers with their entitlements. Neither works.
The simple solution to money pain starts with written, results-driven job descriptions coupled with pre-requisites and salary ranges for each job. No exceptions.
One family I have the pleasure of working with solved the money pain by instituting a government-style pay classification system across all jobs that allowed employees (family or not) to understand top pay grades across all divisions. From entry level through top managers, to the CEO, each position was clearly defined – prerequisites, results expected, pay grade.
In this Internet era, it’s easy to find market salaries for positions. Sites like Salary.com or any of the job boards (Monster, Career Builder, Indeed) make finding competitive pay rates for various functions super simple.
One new trend working extremely well is to rate and pay employees based on culture adherence as well as results produced, regardless of family status. This keeps the high performing, but ego-maniacal jerk, from rising to the top where, sooner or later, they will do serious damage.
With clear job expectations, culture expectations, prerequisites and pay scales set, you’ll have a system in place that will cure the typical family money pain.
Fix #2 – Eliminate risk pain. Risk pain in families typically shows up when the older generation wants to reduce risk, not grow aggressively, not take on new debt, not “bet the family farm” so to speak while the younger generation is coming to the table with “wild” ideas of growth, diversification, and geographic expansion that all cost enormous amounts of capital. And while this may look like it’s a money issue, it’s really not. At its core is risk tolerance.
Here is what I know. Create systems around risk that all understand and you immediately eliminate family feuds. How? Through easy-to-understand financial risk models. At Meridian, we co-develop a Decision Analyzer, a glorified, customized NPV spreadsheet for each family to make sound, empirical growth decisions.
The Analyzer explores opportunities by core merit, “financing free.” In other words, families assess each project on an all cash basis to make the thumbs up or down decision. Then, if it’s thumbs up, the various financing methods are analyzed and selected.
What I adore about the Decision Analyzer is the tool forces any family member with an idea to go through the rigor of cash inflows, cash outflows and risk weighting. What I find is that most first and second generation owners do this process in their head, but never reveal how because the method is only in their head. Then Junior comes to them with a half-baked, capital intensive project. Boom! They swat it away as soon as Junior says it. Now Junior is mad, embarrassed and frustrated with no clue why, and after a series of these “bad ideas” either stops giving ideas or leaves the family company feeling too stifled.
Contrast that painful scene where new ideas are presented at a regular family strategy meeting using a fully developed Decision Analyzer format, discussed and collaborated on in an open communication environment. Junior learns that if a project is going to take a few million, he must be almost dead certain it will produce a 15-20% return, show the ways the return could fail, etc. Junior quickly learns the difference between viable and hair-brained projects in a nurturing, respectful environment. By the way, I in no way intend to be sexist here. Junior may be a darling daughter.
Fix #3 – Eliminate Control Pain. You will know control pain when you’re in it. It is the typical turf war, a battle of who reports to who, who gets to control who, who gets to hire and fire. At its worst, siblings can appear to be stacking the decks with allies who then war against the other side right within the family company. With all this infighting happening, it’s hard to win the real war of beating the external competition.
In this classic family battleground, I find one common denominator – a poor understanding of leadership that is mistakenly rooted in positional power. Authoritative power is very misunderstood, therefore what I find most effective for curing control pain is leadership training and development, coupled with communication skill development, leading to a natural strengths-based organizational chart with floating teams for collaboration.
My favorite resources for leadership development come from my personal mentor, John C. Maxwell, named #1 leadership guru in the world by Inc. Magazine and others for multiple years. Having personally traveled with John on leadership projects to Guatemala, Paraguay and Fiji, meeting with presidents and diplomats, as well as the uneducated commoner, his values-based, personal-growth-focused leadership development can take any willing learner to new levels of leadership.
A classic book I often use in training title-wielding, self-declared turf warriors is The 5 Levels of Leadership, where Maxwell clearly demonstrates that a positional leader is on the bottom rung of the leadership ladder and ineffective over time. That book is usually enough of a wake-up call to create a desire for more learning, like Maxwell’s The 21 Irrefutable Laws of Leadership, which takes a deeper dive.
In today’s world, it’s also not just how smart the upcoming leader is — traditional IQ is being trumped by EQ, emotional intelligence. Fostering servant leadership throughout your family company, daily modeling of putting others above self, will go a long way towards creating a pain-free, rock solid family company that outperforms peers.
BACK TO FAIRNESS
Finally, let’s deal with the notion of fairness that underpins much of this pain. Valuing fairness most often creates well-meaning but poor decisions. The heart means well, but the outcomes are poor. Children end up warring.
A more practical message any parent can bring their family and employee team is that life is not fair. That’s right – it’s not fair. Good people have bad stuff happen. Sometimes bad guys win the battles. Teaching our family and employees to expect fairness at all times does them a tremendous disservice. At its worst, it creates people who seek evidence of injustice at every turn, creating a constant state of bitterness and hurt.
In contrast, if we teach that life is often unfair and that we should work hard in spite of that fact, we learn forgiveness because of that inherent unfairness, plus we create bold, empowered families and companies, ready to tackle whatever life throws their way. I don’t know about you, but empowered, bold leaders are the ones I want living out my legacy.
If I stirred a little curiosity, please reach out and inquire about our resources specifically for multi-generational family business success.
