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MANAGING A FAMILY BUSINESS - A LEGACY MODEL
Excerpted from Hess, The Sucessful
Family Business (Praeger 2005)
Family businesses
are a major part of the United States economy. 80% or more of
all businesses in the United States are family controlled. Over
60% of the U.S. workforce works for a family business.1Family
businesses embody our country's entrepreneurial spirit and represent
the hopes and dreams of many for financial independence and family
enrichment.
What makes
managing family businesses different than managing non-family
businesses is the added complexity of family dynamics which can
cause a family businesses to operate, adopt strategies, and make
decisions differently than non-family businesses. Families, usually
consciously or sub-consciously, factor in family needs and emotional
factors into their business decisions, and only family businesses
have sibling or cousin rivalries, jealousies, and competition
for parental love, approval, and financial favor. Family dynamics,
family ways of communicating and generational differences all
can impact business decisions. That is the added challenge of
successfully managing both the business and the family.
And what is success for a family business? Successful legacy
family businesses do not let the family destroy the business or
the business destroy the family.
My 25 years of working with family businesses has taught me that:
1) Your chances
of having a successful multi-generational family business will
be greater if you proactively and preemptively manage both the
business and the family. Family issues will occur. It is best
to deal with them openly and directly instead of trying to avoid
them. Avoidance only builds resentment and more emotional baggage
;
2) In order to manage a multi-generational family business successfully
you need to understand that as the family expands and as the family
ages family members' emotional and/or financial needs will change
as their life circumstances change. These changes will put stress
on the business. These issues are predictable and occur in almost
all family businesses. Common issues are inter-generational and
intra-generational equity,concerning position, power, money and
leadership and financial equity between those family members working
in the business and those not.
3) To successfully manage a multi-generational family business
you need a process which encourages frequent family communications
concerning the business and which sets forth a process for raising,
discussing, and resolving family business issues in a respectful,
fair, and inclusive manner.
4) That process should be based on 4 fundamental principles: transparency,
inclusiveness, consistency, and fairness. Inclusiveness includes
spouses of family members even if they have no direct ownership;
5) That process should also reinforce key family values . Family
values ( respect, humility, stewardship, integrity, equity, etc
) will be the overriding factors in mitigating jealousies, rivalries,
and personal financial self-interest;
6) Unlike some businesses, family businesses cannot be managed
in a hierarchial top-down command and control manner;
7) The process or how family members have input and communicate
with each other is as important as the answer to the particular
issue; and
8) Family business issues are difficult- they need time for incubation
and consensus building. Many do not lend themselves to an entrepreneurial
business decision style.
A family and
a business are two dynamic, evolving, changing organisms - each
unique - each with their challenges. It is this constant change
- evolution of the family and evolution of the business -which
creates a continuous flow of multi-generational family business
issues which need to be managed proactively in order to increase
the probability of the business remaining successful and the family
remaining harmonious.
Edward D.
Hess is Professor of Business Administration and Batten Executive-in-Residence
at the Darden School of Business, University of Virginia.
1. J.H.
Astrachan and M.C. Shanker, "Family Businesses Contributing
to the U.S. Economy: A Closer Look," Family Business Review,
September 2003
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