When we began the process of looking in the mirror to see who we were as a company, it became evident that we needed to refocus the company. It was important for us to involve as many as possible in this process. We began with the officers of the company and the executive committee of the board, and when these groups finished their work, the proposed ideas were shared with the remainder of the senior management team and then with the full board of directors. Next, we took this re-vamped vision to our shareholders and the entire management team. It was our new road map for the future. Everyone was on board.
Then came the difficult task of implementation. The vision clearly was moving the company into a focused “business first” model, but we still had a multitude of “family” issues that needed attention.
One key for a successful family business is to let the family know what their role is within the business. For 10 years, I have been preaching the same sermon: Know what hat you are wearing. When we have 190+ family shareholders, 30 of them working at the plant, they must know which hat they are wearing. They must know what their rights are as shareholders or as employees. If family members who are shareholders try to apply ownership rights to an employee position, we are in for trouble. I want the family-employee/shareholders to take pride in what they do, just as I want all employees to do. In fact, I want them to take more pride. But, I don’t want them to put on an ownership hat as an employee.
To me, it’s a tremendous relief when shareholders who are employees learn what their role is. They don’t have to worry about ownership issues, which they have little control over. They can go about as employees and do what other employees do, and their behavior sets a clear picture for all other employees who are not family members. Otherwise, it is awkward for both sides–shareholder and employee.
Clarifying shareholder rights
What are the rights of shareholders? In our family, they are to expect a return on their investment. Besides that, they have very few rights. Very few people actually own voting stock. We have four voting trusts that elect our board of directors, so when shareholders feel they have the right to exercise “ownership management,” they are going down the wrong street and they put all other management at significant risk.
If you are a shareholder and an employee in your family business, what are your rights? You have shareholder ability to elect directors and you may have the right to expect a return on your investment, but you have no additional rights as an employee. If you can make that clear in your family business, it will be better for everyone.
In my view, family working in the business should be seen as employees. This is particularly critical as your own children enter the business. I was very fortunate. My dad treated me as a professional peer, not as his son in the business. When you see relatives in the business as peers or employees, you have realistic expectations for those individuals.
Most family businesses do not do well in this area, and when not handled properly, everyone loses. Non-family employees expect differences for family members, and they can and will accept subtle differences. However, different performance expectations and rules for family creates problems.
Rewards of being professional peers
One of the things that I have tried to do with the family members I mentor is to encourage them to view themselves as peers. When a person goes around calling another person “Uncle” at work, it suggests to others–and to themselves — that they don’t hold their position because they earned it, but because of who they are. And when “relatives,” rather than peers, have business disagreements, they often will not share their feelings, or if they do, the relative will either disregard the comments or agree without question. We either end up agreeing with everything (even though we don’t agree — it’s called “lying”) or we agree with nothing. Either extreme is wrong.
Treating family in the business as peers is both rewarding and challenging. When family members are treated as peers, they build healthy business relationships. I believe it is critical for a family business to promote only the most qualified persons. If that person happens to be a family member, the family has done a good job in preparing for the succession of the family business. This is something we have tried to do at Hatfield. We have not always succeeded — you see, we are real people and sometimes we do things to keep family peace. But I can say that, with 20/20 hindsight, every time we did this, it got us into trouble. It is much harder to undo the thing that was done for peace or convenience than to do the right thing for the right reason in the first place.
Setting entry/exit rules
Too often, different standards are set by the business for family and non-family. And besides the business setting a standard, the other employees set their own standards for family members. Some family businesses make it easier on the family, but many more make it more difficult on the family members. Under these circumstances, it is difficult to truly treat the family members as peers in the business. Avoid extremes. A good rule of thumb is to have the same rules for everyone and make the rules known to family and non-family employees.
To achieve balance, we are beginning a Family Advisory Board to replace our Family Council that handled some of these issues. I want the Family Advisory Board to be much stronger. Their mission is to maximize family harmony, protect the interests and objectives of the Clemens Family Corporation, represent the family to the community, and provide oversight to the family enterprises. Part of their job is to clearly communicate the role of the family in the business and how family members enter and exit the business. We want to clearly have a “business first” business but do not want to lose the “family” side of the business. We want the family to know their role and support the business in appropriate ways. A key objective of the Family Advisory Board is to educate and encourage the family to trust management. Advisory Board members must be the leaders in showing such trust.
Good communication is essential in any business, and critical in a family business. Don’t assume family members and employees know what you are thinking and don’t ever assume you know what they are thinking. It will get you into deep trouble. Some of the most difficult subjects are often never discussed in family business, just because they are tough.
One of those subjects is what you are going to do with what I’m giving you. A key to this is if you don’t trust them to do the right thing with the gift, don’t give it to them. You are better not giving than to give and regret it. You won’t get it back.
If you trust them to give them part of the ownership–communicate why you are giving what you are giving and what you would like them to do with it. If you aren’t ready to do that, don’t give them the ownership.
What is the best way to communicate to the family in the business? Any way that assures they understand what you are trying to get across to them. I know of a business owner who needed to communicate to his family about what he was going to do with the business. He didn’t quite know how to do it, so he enlisted a professional to coach and help with the communication. His other problem was how to keep his kids from walking out when the communication started. After all, his kids were in their 20s and he had never discussed these subjects with them. His solution: Rent a boat and go to sea. It worked — they couldn’t walk away. In fact, it worked so well, he does it regularly. The father, the children and his spouse are a much tighter knit family now because he was willing to take the risk and communicate with his family.
I’ve tried to give you five keys to make your family business successful. One, set a vision for your family business; two, let your family know what their role is within the family business; three, set clear expectations for family members in the business; fourth, treat family in the business as employees (peers); and finally, communicate.
Phil Clemens is third-generation chairman of Hatfield Quality Meats, A Pennsylvania-based pork processor with around $500 million in revenues.