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Helping Family Businesses
Prosper Across Generations®

Leading Family Members in the Business

Dear Advisor:

I've just become the third generation president of a $28 million (annual sales), 63-year-old family firm with 180 employees. Five relatives are now in the business. We are still profitable, but things are much tighter than they used to be.

To fulfill my responsibilities to the business and the family, I'm convinced that I need to tighten things up, cut costs and increase accountability. My problem is that all family member employees feel that they're their own bosses and can do what they please. I don't want to cause too much conflict as I go forward. What's your advice?

While your situation is challenging, it is not unique. Many family firms that survive into the third generation must confront and overcome this problem.

You are absolutely correct in your belief that future business health requires a more "professional" approach to management. Keys to achieving this include: developing and clarifying your business strategy; establishing a definitive management structure and assigning specific roles and responsibilities to each member of the management team; developing appropriate performance standards and implementing regular performance appraisals; and implementing a market-based performance-driven compensation program. All of these processes are characteristic of professionally managed firms.

But you are not just a professional manager. You are the leader of your family business with a great opportunity to demonstrate your leadership abilities. Your challenge is to help others in your family business to see, understand and support the need for change.

We hope that you already have a tradition of family meetings to discuss matters related to the family and the business. If not, it is time to start. As a new president, it is appropriate for you to share your visions and goals for the business. You can also lay out some of the steps you think will be required to achieve these goals.

But you must help others to see the need for change. Do your homework. Document and explain trends related to declining profits and productivity, rising overhead or increased competition. Perhaps you can share organizational charts, job descriptions or policy statements from competitors showing that they have addressed some of the challenges you face. Another approach is to get expert input -- maybe by setting up an "in-house seminar" about the process and benefits of professionalizing management.

Assuming you can gain support for the changes you perceive to be needed, you will want to involve family members in the change process. Committees can be established to research and recommend the means of implementing professional management processes in your firm. The involvement approach we are recommending may seem to take more time than you'd like for change to occur -- but it takes less time and contains less risk than an approach that seeks to impose change.

If your board of directors does not have significant outside representation, we suggest you attempt to introduce that change as well. You should seek to have business leaders who have professionalized their firms accepted as directors. Their experience and credibility will prove invaluable to you, offering you guidance, a sounding board, a personal support mechanism, and enhanced authority as you seek to move forward through what may be family and business cross-currents.

Good luck.

 

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