Five Rules for Working in Family Businesses
March 2, 2010
Family businesses have been employers of choice for generations of executives. They are seen as more benevolent, personal, stable and loyal than the faceless, soul-less entities that serve as their corporate or public-sector alternatives. And while this view has stood the test of time, it is clouded by the reality that a great many marriages between professional managers and family businesses fail to flourish. Most often, these are failures of homework and understanding, both of the quirky beast that is the family business and of the attributes of executives who thrive in them. Both are avoidable.
If you are considering joining a family business, trying to understand how to thrive in the one that currently employs you, or even thinking of hiring a professional manager into your family business, the following five basic rules of engagement will serve you well.
Knowing the Family Business
The Rossy family’s first five-and-dime store opened in Montreal in 1910. It grew into a modest chain before being divided among founder Salim Rossy’s descendents. Larry Rossy took control of his segment of the family business in 1973 and over the next nineteen years built a chain of some forty stores. But the five-and-dime concept began to wilt under the weight of the big-box discount stores and Larry was forced to adapt. He tinkered with various alternative retailing concepts before morphing his five-and-dime chain into the wildly successful Dollarama which today boasts 594 stores with revenues of $1.2bb.
The Rossys illustrate some of the many ways in which family enterprises differ from their non-family counterparts. While non-family businesses seek to maximize near-term share price or returns, family businesses focus on longer-term continuity. They are driven not by the need to meet institutional investor expectations but by the desire to serve and protect family interests which are conceptualized in generational rather than quarterly terms. As a result, non-family businesses pursue greater returns through risk while family businesses mitigate risk, sacrificing growth in good times for the security of survival in bad. They strive for a balance between being opportunistic while eschewing opportunism.
While non-family businesses covet breakthrough innovation, family businesses pursue incremental improvement always wanting to leave the business better for those who follow. Thus, family business leadership can be viewed as stewardship of a legacy. As Lino Saputo Jr. recently stated, “I am fortunate to have inherited a solid business and am caretaker for the next generation.” This contrasts with non-family businesses in which leadership is more charismatic and legacies are accomplishments stamped on resumes.
Finally, non-family businesses serve the interests largely of shareholders and management. The business itself is an asset. For a family, the business is a social institution whose stakeholders are customers and employees. Among young Lino Saputo Jr.’s greatest sources of pride is his ability to recite “the first names of almost all of the twelve-hundred or so workers in our east-end Montreal plant”. Their welfare is his family’s concern. And because the family name often adorns the company entrance, reputation matters to the family business on a deeper, more personal level than can ever be found in a non-family business.
The Basic Rules for Working in Family Businesses
There are a number of ‘do’s and don’ts’, rules of the road if you will, that apply to most non-family executives working for a family enterprise. And while they may not quite be universal truths, they are ignored at one’s own peril.
1. You are a Supporting Actor
“This business was built specifically for my family. Anybody in the family who wants to come in, there’s an open place for them. If the business is destroyed as a result of that, so be it.” Sam Steinberg
Simply stated, a family business belongs to the family, and unless you win the genetic or marital lottery, you are not one of them. And blood is almost always thicker than the paper upon which your employment agreement is written. As a result, you will not always be informed or privy to what is happening, decisions will not always be understood by you, and the organizational dynamics will occasionally appear uncharacteristic of what you perceive to be ‘normal’ for organizations.
When working for family businesses, you must accept the likelihood that you will not enjoy real authority. It is the family’s drama, not yours, and if your ego cannot handle being a bit or role player in that drama, you are best to stay away. And since living in relative anonymity is the lot of the hired help, you must also be able to watch the kudos for some of your best work occasionally go somewhere else. Your job is to execute, assist, encourage, train, and do what is necessary to contribute to the organization. Notwithstanding your title, you are a ‘helper’.
Success in a family business is measured not by your title but by the trust and influence you earn, which in turn affects responsibility, authority and compensation. Trust is earned through job performance, diplomacy, patience and time and not necessarily in that order. No one walks into a family business and has trust handed to them. This is important, for if you overrate your political capital, or level of trust, you risk over-stepping your boundaries and truncating your stay at that organization.
Finally, though you are not part of the family you are ‘in’ the family. It is thus important to avoid ‘us versus them’ attitudes and workplace dynamics. Energy must always be positive and effort must always be for the benefit of the whole business.
2. Success Starts with Understanding
“People often mistook his rages for personal attacks, when they were just the way he expressed himself. His messages were heart-stoppingly critical. To many people, they were incredibly difficult to deal with, until you got used to them. But with Dad, it didn’t mean that you would be fired – though some people might be sitting there shell-shocked for a week and have to go into therapy for a month, before they realized that was just Dad’s way”. Gail Asper on her father Izzy Asper
For executives entering any new company, step number one is learning and adapting to the indigenous language, structure, roles and rules. In a family business this includes the role of the founder, the family values and decision-making protocol. It involves learning how freely information flows and is shared, and how conflicts are aired or suppressed. It includes understanding the family dynamics, the role of spouses and how merit versus blood is reconciled. And it includes gaining a sense for the apparent succession issues and who plays the role of family ‘glue’ holding everything together while resolving disputes. In other words, success starts with the lay of the land.
Differences can be expected in working for a family business still managed by the founder versus one led by a second or third generation family member. Knowing where a family firm is in its generational cycle provides clues to the likely characteristics of the firm. For example, founders are usually charismatic characters who bring with them strengths and weaknesses on a grand scale. They are unique ‘works of entrepreneurial art’. Larger than life and driven by their own magnificent obsessions, founders often have little need for subordinates who think for themselves. The founders’ desire for control drives their need to micromanage, a tendency even the most successful of entrepreneurs may never overcome. Many find structure stifling, and they share a common distaste for authority except that which is wielded by them.
While leadership succession may trigger changes to the organizational chart it does not necessarily alter actual reporting relationships. Many founders ‘retire’ though never really let go of the organizational levers. Others repeatedly leave only to return, a phenomenon known as the ‘yo-yo effect’. And as they age, founders’ behavior can become erratic and highly disruptive.
Second generation family businesses can be an altogether different work experience. Sons or daughters often lack the same qualities as the parental founders whose journeys and characters were formed, at least in part, by the adversity they overcame. Unorthodox fathers invariably covet a more orthodox life for their children who grow up wanting for little. The offspring may or may not apprentice in the business and if they do it is often fast-tracked and with gilt-edged tools. When thoughts turn to succession, the founders suddenly resent the apparent softness of the lavished children and subsequent attempts to toughen them up can lead to all measures of conflict.
There are many more challenges growing up in a family business. In most homes children mature and step outside to new lives with new identities separate from the family. But in family businesses this is a more difficult separation process. Many founding entrepreneurs are strong, controlling, aggressive individuals whose relationships at home cannot help but mirror those at work. It is difficult for their children to become independent when there is no outside arena in which to test their abilities and differentiate themselves from their families. At the same time children often bear exaggerated expectations while wearing other people’s projections about their authority. Taken together, growing up in a family business is both a blessing and a curse.
For some non-family executives, family dynamics can be a major source of anxiety and distraction. For others it is little more than background noise. And while there is no one response for every situation, prudent behavior is always guided by knowledge and understanding, in this instance of the complex cross-currents that run through the family business. This, in turn, informs the non-family executive’s options and strategies for success. Personality and maturity also play a large role. As the famous prayer extols, ‘grant me the serenity to accept what I cannot change, the courage to change the things I can, and the wisdom to know the difference.”
3. You cannot ‘fix’ the family
Anil Ambani is reported to be the 34th richest man in the world. His brother Mukesh is 7th. The two heirs of the late Reliance Industries founder Dhirubhai Ambani constantly fight over conflicting business interests. After a particularly nasty dispute over natural gas prices landed in court, the matter worked its way up to the Bombay High Court. After long deliberation the court determined that it could not impose a workable resolution. Instead the matter was turned over to the only party the court deemed capable of successfully mediating the dispute….. Anil and Mukesh’s mother, with whom the two brothers still live in Mumbai.
While being interviewed for a job in a family business, an executive is told of lingering, unresolved strategic decisions, glaring inefficiencies, and festering departmental conflicts. He reasons that these issues can be remedied by applying a few basic business principles, objectivity, common sense and a little mediation. And he believes he is just the person to bring those professional capabilities to the organization. He is likely wrong.
It is not the ability to recognize or analyze problems, or the lack of available tools to fix them that stymies so many less-than-perfect family businesses. Rather it is the intransigence of the family ‘issues’ that underlie them. It is the fractured relationships, the petty jealousies, the perceived injustices that are the real issues for which business efficiencies and effectiveness are sacrificed. And no outsider, especially one who has yet to earn his or her stripes, is going to fix those.
Affecting change in a family business is an incremental process that can only build real momentum from behind the firewall of family trust. The first step is cracking the combination to that trust and this almost always take time. Even then, trust does not necessarily equip you to ‘fix’ what’s broken in someone else’s family and thus the well-intentioned yet helpless executive is often left to put balm on the festering organizational symptoms. Such cosmetic remedies may or may not placate the family owners who want resolution yet stand firmly in its way.
It bears noting that the highest level an outsider can aspire to in a family business is not president but rather ‘consigliere’, or trusted advisor. This often unofficial role is earned through loyalty, wisdom, performance, a conciliatory personality and style, and time. Though few outsiders ever receive such honors almost every family business has a small cadre of such advisors either within or outside the business itself.
4. There will be conflict…tread carefully
By the end of the 1980’s Harrison and Wallace McCain no longer worked as a team, and they were no longer best friends. Harrison said that Wallace was blind with nepotism. Wallace maintained that Harrison was corrupted by the blight of power. For employees it was not a good situation.
Family conflict is a chronic source of discomfort for employees of family businesses. And irrespective of its cause or intensity it is always wise to tread carefully.
The attempt to entwine the different value systems of families and business invariably entangles even the best of family enterprises. Among the many such knots is generational conflict. The founder of a family business values loyalty while the next generation, looking to make its mark, values accountability. The founder fears losing control while the next generation wants to feel in control. The founder clings to the strategies that worked in the past while the next generation wants to implement their own. The parents’ ‘show me’ ethic contrasts with the next generation’s ‘trust me’ ethic. And on and on and on…
While the chronic or episodic family eruptions are unsettling, they become downright dangerous when they pull non-family executives to take sides or mediate. Family conflict is a dark, dangerous quagmire of idiosyncratic codes of conduct, generational scripts, grudges and memories. And they are dramas best avoided by everyone but the most trusted of non-family members.
Wise executives steer clear of the family fray by searching for creative solutions or good decisions that represent no one combatant’s position. They focus solely on the business’s interests and emphasize rationality, even if they know that reason has little to do with the issue at hand. And they act diplomatically, listening carefully and reframing the issues, all the while encouraging the polarized parties to see the other side. And finally, they act with full transparently and follow company protocol at all times, carefully avoiding any semblance of partisanship.
Family conflict is an emergent property of a complex system, not simply occasional outbreaks to be blamed on specific individuals or groups. Family tension should cue non-family members to pause and reflect on the family system itself and the most prudent manner in which to make a positive contribution. Executives who fail to understand this and charge boldly into the theatre of battle are almost certain to get hurt. And if you are uncomfortable or ill-equipped to play the role of Switzerland in a family war, your next best strategy is to take cover and hide.
5. Be Patient Yet Persistent
The newly hired CFO pores over every aspect of the family business looking for cost-saving opportunities. After several weeks she reports back to the owner with a list of recommendations including one that stands out for immediate consideration, the outsourcing of a non-core part of the business. She painstakingly details her rationale as well as the sizable savings the initiative will immediately deliver. The company owner promises to take the recommendations under advisement. Three months later, with no further discussion, the owner quietly indicates to the CFO that the family will not implement the proposed changes at this time. Shocked by the decision and lack of urgency with which it was rendered the CFO resigns.
Like any enterprise, family businesses pursue their own definition of excellence. But unlike most enterprises, family businesses must incorporate family considerations into their pursuit. To outsiders, this added layer of complexity is somewhat mysterious, shielded as it is behind the family firewall. This leads non-family executives to make assumptions about the logic of the family decision-making filter. In the above illustration, the department in question employed a nephew who enjoyed his mid-management level job. Though the family patriarch immediately recognized the value of the CFO’s recommendations he feared the wrath of the young man’s mother (the CEO’s sister) if her son was reassigned from his beloved role. The CEO reflected long and hard on the underlying family dynamics and quietly floated the initiative within selected family circles. After several months he decided that the risks outweighed the benefits.
The CEO’s decision was not a call for the CFO’s resignation nor was it a rejection of her recommendations. Instead, it was a very subtle plea for patience and understanding that the organization was unable to implement her recommendations, at this time. In family businesses, ideas must always be weighed on their impact to both the business and family. If the business value is offset by the family cost, the ideas will be shelved and reevaluated at a later date. And given that families conceptualize their businesses in generational terms, urgency and timing are relative notions. The result is a world of nuanced, complex decision-making which can be difficult for the family to discuss and for outsiders to understand. In the end, any explanation by the CEO was almost certain to fall short of addressing the CFO’s need for a logical response. And thus none was offered.
Family business owners want their employees to make recommendations and push for their implementation. But they also need them to understand that family considerations may affect their ability to act on them. Unfortunately, since family members cannot discuss these ‘family considerations’ with outsiders, executives often need equal quantities of clairvoyance, patience and persistence.
When asked to comment on the appointment of Arne Sorenson as President and COO of the family-run Marriott Hotel chain, the company’s chairman and CEO Bill Marriott stated, "He's young, he's bright, he understands the finance side of the business very well, and he accepts the role of the family.”
Accept the role of the family. It is likely the most succinct piece of advice for anyone contemplating employment in a family business. But as Mr. Marriott meant it, accepting the role of the family is more than tacitly acknowledging rights of ownership. It is developing an appreciation for the wonderful, sometimes quirky species that is the family business. It is learning the rules of engagement and calibrating your expectations. And it is understanding the attributes of non-family executives most likely to succeed in those businesses and then looking long and hard in the mirror to be certain you are up for the task.
About The Author
Robert Hebert, Ph.D., is the Managing Partner of Toronto-based StoneWood Group Inc, a leading executive search firm. He has spent the past 25 years assisting firms in the emerging and family-business sectors address their senior recruiting, assessment and leadership development requirements.
Dr. Hebert holds a Masters Degree in Industrial Relations as well as a Doctorate in Adult Education, both from the University of Toronto.