Family And Business
The Delicate Balance

The family owned business. It's a unique breed. Because, along with all the issues, problems, challenges that any business competing in today's marketplace must deal with, there are special issues that only a family business faces.

Ask a family business owner which comes first, family or business? Very often if not all the time, the answer is that family comes first. Sounds good, doesn't it? Looks like the owner has his priorities in the right order, doesn't it?

But, then, ask him to give examples of what he means!! Aside from the very admirable reply that he would go to a daughter's school play or attend a son's football game no matter what business meeting he has to rearrange, most of the remaining answers fall into several categories:

• Avoiding "making waves"
• Establishing a "therapeutic" haven for family members
• Keeping the business in the family at all costs
• Using the business as a family bank

The desire to avoid "making waves" at first blush is very admirable, but trouble lies ahead.

A father was being pressured by his wife to make room in the business for their son-in-law who, until then, had been unable to remain employed. The wife was afraid that their daughter's marriage was in jeopardy. The father feared that, if he wouldn't agree, his wife and daughter would be forever angry at him.

Ordinarily the owner would have deferred to his wife in any potentially conflictual situation and he was tempted to now. In fact, several years earlier he had bent to his wife's insistence that their son be brought into the business. The son had not worked out but the father could not ask him to leave in the face of his wife's wishes. Fortunately, the son had left on his own accord, thus helping his parents avoid a confrontation.

His son-in-law was clearly unqualified for any managerial position in the firm and would have had to start at the bottom. His daughter, however, insisted on something "more in line with his being her husband".

For the first time in memory, the father defied his wife and daughter, a formidable duo as he had witnessed in the past, and refused to employ his son-in-law. Though a shouting match did erupt, the father stood his ground, and, in fact, did more than that. He laid out for his wife and daughter how their unholy alliance was infantilizing his daughter and preventing her and her husband from growing up.

How often does a business owner make business decisions to appease family members, to avoid making waves, to the detriment of the business? Consider all the opportunities where this is a potential problem.

• Choosing one sibling over another as president/successor not because he or she is qualified but to avoid family conflict
• Not being clear and forthright about a family member's abilities so as to avoid offending that party
• Favoring a family member over a more capable and dedicated key employee
• Allowing a family member his way (e.g., in a marketing decision) just to sidestep another hassle
• Asking key employees to "cover" for a family member, i.e., follow after and smooth the waves he or she made

Quite often the business owner deliberately creates a "therapeutic haven", a refuge, for otherwise unemployable family members or for those who otherwise could never reach the management levels they might in a family owned business.

An owner recognized that two of his three sons simply did not have the ability to run the family business. At the same time he wanted to ensure their financial welfare. He acquired two firms that augmented the main thrust of his business and put the two sons in as president of each, but with a key employee as "assistant" in each. The "assistants" supposed role was to train the teach the sons. Good luck!!

One son became more and more depressed. He recognized that he was being "carried". The other son became more arrogant and officious, making life miserable for his "assistant". He began to make business decisions that did not mesh with the best interests of the firm.

The sons are still in their respective businesses. The depressed son is frequently absent, though the business is flourishing in the hands of the capable "assistant". The arrogance of the other son keeps his business on the edge of failure, raining huge sums of capital from the main business to stay afloat.

Trying to keep the business in the family at all costs can lead to the decline of the business.

A retired owner refuses to acknowledge that the gradual decline in the fortunes of his firm is due to the incompetences of his two sons who are supposedly running the business.

Another business owner is not selling his business in an industry which is rapidly conglomerating. He wants his son to succeed him and keep the family name on the building. His dream is that his son will be able to pull off a miracle and justify the father's past business judgement, which consisted of doing business as he had in the past, as opposed to focusing on a specialized niche or growing larger through acquisitions.

The desire to keep the business in the family at all costs has many different motives driving it. A primary goal is to preserve the name and status of the family in the community. Nothing can be more demoralizing than for a former business owner to overhear at the club or in a restaurant the whispers about how his family couldn't keep the business going. The facts don't make these whispers any more bearable, unless, of course, the buyout price was so enormous that everyone heard about it.

Another common motive for keeping the business in the family is the hope that in fact the tide will turn for an underperforming company and the business acumen of the owner will be justified. As the example above illustrates, a successor is often seen as a savior, someone who will in fact ensure the future of the firm and, thus, Dad's reputation. Many businesses do not survive the second generation; one reason for this is that the business when transferred to the son or daughter was in such bad shape that only a miracle could have saved the day.

The family business as a family bank in and of itself can be a noteworthy cause. However, this strategy can be detrimental when the cash cow is not fed, i.e., when capital investments are not made, qualified management is not hired and/or not paid well, new markets are not broached, etc. The theme in this type of "family first" motto is that the financial prestige of the family and its members comes first -- the real goal of the business is to enhance the family's reputation in the community.

In all these examples, "family first" really means, "Let's hide those basic family problems we don't want to discuss. They can only lead to hurt feelings or worse!!"

Thus, hiding the strains and stresses in the owner's marriage, avoiding a true and realistic evaluation of offsprings' abilities and skills, blinding oneself to why you want the business to stay in the family, and refusing to acknowledge that there is something wrong about a family that has to spend beyond its means through draining its business in order to preserve its image in the community -- all these examples share an underlying theme. That theme is that when a family business says that family comes first, it really means that there are serious unresolved personal and family problems that the family wants the business to shield.

If the family business does try to keep the family first, disaster can be predicted. The business then is no longer a business -- it becomes a therapist's office.

Strangely enough, the motto, "the business comes first", is equally misguided in that it can be used to justify many ill-advised decisions and actions. (But that's for another newsletter.)

The question, "Which comes first: the business or the family?", is not properly framed. If a business is being run like a business and if a family has a tradition of surfacing nagging problems and resolving them, no conflict between the business and the family need arise. And, in fact, "good business practice" entails "good family relationships" and vice versa.