Family Business Matters

 

April 25, 2012

October 9, 2013


Family employment: by encouragement or entitlement?

One of the major issues that family businesses grapple with is how to bring members of successive generations into the family enterprise. Rather than relying on genetics as the sole criteria for joining the family enterprise, the most successful family firms are those that structure a well-designed employment policy early in the life of the business.

This written document should address difficult family employment issues such as: What is the entry criterion for related individuals to be considered for employment? Does marriage to a family member equate to automatic employment? What prior experience and education is required before even applying to the family firm? What kind of training program should be developed? How does a family employee move through the levels of responsibility, and how will they be evaluated? What happens when a family member is disappointed with their position, supervision, compensation or treatment on the job? And one of the most challenging questions of all — how can a family member be fired?

Having worked with several family businesses over more than 30 years, I have seen families unwilling to address this challenge. Eventually, this avoidance can create the last resort, the sale of the family business. At the other extreme, I have seen parents keep “the kids” out of the business, but have no qualms about naming “the kids” as successor trustees with the expectation that “the kids” can step in to run the business under emergency conditions. This later expectation is very unrealistic. Unless the next generation has had some time at the wheel, it is unlikely that under the worst circumstances — the disability or death of a managing parent — they will somehow miraculously and successfully lead the business forward.

In addition, by not addressing family employment issues early, a founder can rob future generations of the opportunity to build on their family’s business legacies, continue to create jobs and add economic value in communities.

If family members already work in the business, one of the best uses of planning time can be to work with members of the board to develop a written employment policy. This document begins by stating the overall objective of the policy. One of the more creative purpose statements I have yet seen began with a paragraph that stated, “The children in this family are encouraged to seek personal and professional fulfillment whether or not it is through the family business.” This particular policy also encouraged all family members to recognize the ownership responsibilities each has as shareholders, whether or not they were actively employed in the business.

The family business employment policy also needs to outline the basis for gaining experience while junior family members are in school and college. It can require obtaining a college degree and working elsewhere full time for at least two to three years before applying to the family business. Consideration needs to be given as to whether spouses can work in the family firm. Clarity on the issue of compensation is also a vital component of a well-drafted family business employment policy. The better ones I have read state that compensation will be based on market rates and will be commensurate with the job responsibilities. In addition, well-designed policies outline that advancement will be based on performance, attitude, maturity, responsibility and contributions to the company, rather than on any perceived birthright or entitlement.

Nothing kills the chance of surviving intergenerational transfers for a family business faster than an entitlement mentality. Don’t allow this to happen to your family business. By taking time out to develop a well-written family employment policy, not only will the family members have clear guidance on how to become and remain employees of the firm, but also non-family employees will be relieved to see this kind of smart business planning being done.

The reverse side of this warning is making sure that children are provided an opportunity to move into the family business, once a family employment policy has been drafted and ratified by family shareholders. A founder can expose children early to the family business in a positive way to create respect for and curiosity about the enterprise. If the dinner table is frequently the scene of a founder’s tirades about the “lazy employees,” “demanding customers” or “always delayed vendors,” it will not engender warm, fuzzy feelings in children about the business.

In my opinion, a child’s sense of obligation and wanting to please his/her parents by carrying on the family legacy is not sufficient motivation to pass on the mantel of control to a child. If a founder sends this kind of message through intimidation or by suggesting that taking over the family business is the only career alternative available, it can become an actual life sentence for offspring.

As noted in “The Ford Dynasty” by Howard Muson in the February 2002 issue of Family Business magazine, “Henry the Deuce was a tormented figure who chafed for years under the heavy burdens he had assumed. He sought relief in drinking and consorting with royalty and the jet set in numerous trips abroad. His messy affairs and two highly publicized divorces further alienated the family from him and from the company.”

In “Cinderella,” the prince seeks the maiden whose foot fits into the glass slipper, and the ugly stepsisters try to force their own feet into the dainty shoe. Should a parent-founder either consciously or unconsciously force their child to “fit” into their footsteps and walk in their shadow? If parents try to raise their children to have roots and wings, a sense of humor, and an ability to make their own way in the world without them, making sure that the family business is truly a shared passion can be the most crucial step in the management succession process.


Eddy, CFP, is president of San Diego-based Creative Capital Management Inc. and co-founder of the Family Business Forum at USD. She can be reached at peggy.eddy@sddt.com. Comments may be published as Letters to the Editor.


 

April 25, 2012

October 9, 2013


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