The family business – problems, problems, problems

Posted: September 27, 2013 in Family Businesses, Protecting your equity

The new arrival into the family business brings youth, new ideas and a certain amount of irreverance that is positive as long as it is controlled. There are some problems that will arise and I will discuss a few here:

  1. Do I have authority to go along with your expectations?  This is a critical issue. The boss may get annoyed that his son or daughter made a bad decision or took initiative without consent but there should have been clear expectations about protocols for decision making when hired.
  2. None of my ideas are ever taken seriously. This is a routine complaint. Inter-generational arguments center around this. The owner usually retorts by saying that “you need to spend more time understanding how this business operates.” The new respondent replies: ” Your tried and true methods have been in place for years and they don’t work.”
  3. What is my role in the business? This is a fair question. I used to ask myself this when I went through stretches where I questioned if I was of any value at all.

The incumbent(s) need to carefully plan a management apprenticeship program. It seems counter-intuitive since the newbie is already in management.  The seeds of discontent can be set in with feelings of marginalization. I’ve heard many new family members say: “I am nothing more than a glorified gofer.” Well run family businesses may start the new family member in the shipping department and have them work their way up through the various departments before they ever see their name on an office door.

The acid test however is having a financial investment in the business. If a new member buys in to the family business (literally) then the rules are different. There may not be the due diligence undertaken similar to a sale of an interest to an outsider. If a second (or third) generation family member invests dollars in the business, before the ink dries there should be clear articulation of duties, remuneration and eventual acquisition of more shares.

The rule then becomes caveat emptor.

Sadly this isn’t the case…

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