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Musings on the Roles of Parents and Business Successors


By Norb Schwarz

Most family businesses I have had the pleasure of working with have a firm foundation that includes exemplary family values: hard work, humility, stewardship, and competence. Some even go overboard by paying family too little for the jobs they perform. They believe that the family should set the example of hard work for the satisfaction and opportunity that stewardship affords. Unfortunately, there are occasionally some family members who are missing one or more of these critical values. When such values are absent, management and the firm’s independent directors must address difficult issues, such as: How do you tell a father that his son is not capable of running the company or, worse yet, should be fired?

Generally, companies that are having difficulty with these issues are in the process of transitioning to the next generation. There are, however, instances where parents also need guidance in these matters. The older generation may have inadvertently instilled a high level of entitlement in the successors without intending to. The mere fact that many older-generation parents strived to “give our children a better life and more opportunities than we had” gives witness to the potential for higher levels of entitlement.

Many family businesses have grown to a point where added perks are a part of life. Additional vacation is available whenever requested and higher salaries can be afforded. Accommodating boards from the world of public companies often add to expectations by drawing on experience with highly compensated CEOs. But more frequently, it is the parents who encourage expectations of entitlement by demonstrating the “cookie jar” syndrome of the family business during their tenure at the wheel. In this scenario, Mom and Dad go to the company checkbook when they want something. “Why not? It’s our company and we earned it,” they say. Fine for them, but does it apply to future generations?

How can the situation of having “spoiled bosses” in the next generation be avoided or, at the very least, the probability minimized?

First: Parents should identify, communicate, live and teach those basic values that have contributed to their successes and those of their parents. Some values will change with the times, but most will stand the test of time. I have always liked the value of living below one’s means as a good foundation for future financial responsibility.

Second: Parents should take notice of the many value system danger signals that may arise in everyday life. Some of the successor red flags I have seen in family business include:

  • Basing lifestyles on gifts from parents or dividend expectations;
  • Requiring the work team to adjust its schedule to yours so you can enjoy an extra day or afternoon off;
  • Not following company policies and procedures;
  • Expecting compensation based on the fact that you are a future “owner”;
  • Coming to work late or leaving early for family reasons;
  • Assuming that you have more knowledge than your experienced managers have because you have the perspective of an owner;
  • Attempting to overshadow your parents’ accomplishments by trying to hit home runs or by taking on risky ventures;
  • Viewing the independent board of directors as a necessary evil to placate the parent generation;
  • Placing the board in a position of deciding in your favor or running the risk of going against the will of the shareholders;
  • Refusing to reschedule personal time in order to be present at a board meeting or critical management meeting.

Third: When successor red flags are present, take corrective action:

  • Hold individuals accountable for performance and behavior. Make sure there are consequences for poor performance and behavior;
  • Insist on personal financial responsibility. Do not bail out a spendthrift;
  • By all means, do not promote someone who has not performed in his or her present job;
  • Dance with the person who brought you: Listen to your valued managers; make it easy for them to tell you what you need to hear, not just what they think you want to hear. Never shoot a messenger;
  • Stop forcing the kids to live your lifestyle. Until they own their own company, they can not afford it;
  • Run the family the way you think best, but run the company based on meritocracy;
  • Educate the family on the difference between family support, dividends and compensation;
  • Educate the beneficiaries of stock on ownership responsibilities and accountabilities, especially your spouse if he or she is not active in the business;
  • Find other activities for your life when it is time to let go;
  • Know when it is time to let go. It is probably much sooner than you think. Make sure you still have a smeller when it is time to smell the roses. Smell them from the top down rather than from the roots up.

Fourth: Seek feedback on your own shortcomings, strengths, weaknesses and positive attributes. Get feedback from your family, friends and valued associates. Give yourself a self-assessment and a future challenge in each of the critical areas making you a whole person: spiritual, emotional, rational, financial, professional, intellectual, experiential and physical. Where do you stand in each area now, where do you want to be and what are you going to do to get to where you want to be?

Fifth: Where there is an outside board of directors present within the governance structure, make sure the board is familiar with family expectations and guidelines, especially in the area of family employment, compensation and distributions. Also make sure they are aware of any non-negotiable items such as accountability issues regarding family members and family exit policies (can they remove the CEO?).

Sixth: Unpack your baggage. Both first- and second-generation teams can benefit from this advice. While one of the more rewarding elements of my work has been the time I have spent with successor generations groups, sometimes individuals within those groups create their own conflicts by promoting unhealthy competition.

The most common problem in this regard is siblings or cousins contending that they work harder or are more valuable to the company than others and should therefore command higher compensation. They contend that their parents did more to build the company and therefore they and their families should have more than others. Other forms of competition are more subtle and have included spouses who think they have to make a statement to the owning family that they know as much as or more than those in the business. If the next generation is to develop teamwork within its ranks and minimize conflict, it is essential that they communicate a common set of values and establish constructive communication guidelines, codes of conduct and participation policies for the group. Roles and responsibilities should be clearly understood and reinforced through group structure and process.

Parents, I have found, generally have more baggage to unpack than their offspring. In fact, many next-generation groups that work well together have done so because they have seen the conflict among their parents and have vowed not to let that happen to them. Parents’ negative examples can be a powerful motivator. What parents need to do is to first understand the impact of their conflict and establish a conflict resolution process. They must next decide to make it a top priority to resolve conflict. Many times the roots of parental conflict are similar to those of the conflict developing in the next generation. An unhealthy competition among siblings and cousins and perceptions of favoritism are among the most common causes of such conflict. Both generations need to unpack the baggage together if they are to remain a healthy and viable family business into future generations.

Finally, ask yourself what you want to be remembered for. Write your own epitaph. And don’t forget to write a farewell letter to your loved ones telling them how much they have meant to you. This is not a morbid exercise. To the contrary, it will be a fulfilling and sometimes emotional experience. Try it. You will like it.

 

 

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