Managing in a Family Business

Balancing Your Commitments

Managing in a Family Business - Balancing Your Commitments

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xuanhuongho

How can you manage effectively in a close-knit family business?

Family businesses dominate the U.S. corporate landscape, from vast conglomerates such as Wal-Mart® or News Corp® to small, local legal offices or accountancy firms.

There are around 28 million small businesses in the U.S., and 90 percent of these are family run, according to the U.S. Small Business Administration. The U.S. Family Business Alliance estimates that these companies employ around 62 percent of the workforce, and account for approximately 64 percent of GDP ($5 trillion).

In this article, we'll look at the challenges and opportunities that managing in a family business can present.

Note:

In this article we focus on being a non-family member in a family business. However, you can also apply the management strategies that we discuss if you are part of the family.

Benefits of Managing in a Family Business

The main advantage of managing in this type of business is the emotional and financial commitment of family members. The company was likely built from scratch, or passed down through the generations, so there is usually a strong sense of loyalty and dedication, from both family members and those they bring in to help them run the business.

A family business may also have a more "relaxed" feel, and is likely more flexible than a larger organization. So, it is often easier to gain approval or make decisions, without having to negotiate numerous layers of "red tape."

Management Challenges

Despite the benefits, managing in a family business can present a number of potential problems.

1. Building Effective Relationships

As you might expect, the key management challenge within this type of business is building effective relationships with family members. They could be shareholders, owners, senior leaders, or even entry-level team members, so it's important to know how to work productively with them, so that you avoid conflict, delegation issues, or nepotism.

2. An "Us and Them" Mentality

In family businesses, there's a risk that family members might make decisions "over the breakfast table," without consulting with managers or team members, delegating tasks or decisions appropriately, or trying to engage people with the company's objectives or aims.

So, you might feel excluded from the decision-making process if you're not part of the family, and you may feel that your opinions aren't valued.

3. Barriers to Promotion

Some family members may believe that "outsiders" are less committed to the organization, and they may regularly fill senior positions. This can make it difficult to gain responsibility, advance your career, or win a promotion.

4. A Sense of Entitlement

Some family members might view the business as their own domain, which can cause tension between them and other people working there. They may attempt to exclude non-family members from important decisions or discussions, or dismiss their contribution to the company. This can undermine their position, and lead to disagreements over investments, strategic or operational decisions, and even team members' salaries.

5. Conflicts

Family tensions can cause conflict, damage relationships, and hinder effective or rational decision making within the company. These may be the result of professional disagreements, or of unrelated family feuds that people have brought into the workplace.

Family members will likely be emotionally invested in the business, which can make it difficult for them to make careful, considered decisions. They may also dismiss or react defensively to any negative feedback about their relatives, so it might be difficult to exert your authority or raise performance or behavioral issues.

Finally, you might experience groupthink and resistance to change. Family members may assume that they know what's best for the company, or believe that they know what other people's ideas and opinions will be. This can make it difficult to implement change, put forward new ideas, or gain acceptance for your decisions.

Effective Management in a Family Business

Use the four strategies below to manage effectively in a family business.

1. Clearly Define Your Role and Responsibilities

Start by defining your role and responsibilities with your immediate boss. Clarify your authority, and its limits, including which decisions you are responsible for, the level of financial freedom you will have, and how you should manage your team members' performance.

Ask about how you will provide family members with negative feedback, or report any performance issues. What should you do if you encounter resistance? How will your own performance be measured, and is there an opportunity for career progression?

2. Secure Support

Once you've clarified your responsibilities, ensure that your boss will support you, particularly if you need to give coaching or feedback to family members.

It's essential that you are able to make decisions, resolve conflict within your team, and assert your authority confidently. This makes it harder for family members to undermine your position or question your decisions if they disagree with you.

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3. Communicate and Consult

Family businesses have unique tensions and relationship dynamics. For example, you may resent the fact that family members have access to additional support or "inside information," and that decisions may be made behind closed doors.

So, set a good example by making sure that you communicate clearly and transparently with everyone, and encourage your team to do the same. Set up regular meetings with family members to build trust and encourage open communication, and ask your boss to share any relevant information with you, including decisions made outside the normal channels. As a non-family member, you should also accept that you won't be present for all business discussions!

4. Be Fair

Some family members may prove troublesome and resist the authority of "outsiders." However, it's essential to treat all team members fairly, regardless of whether they're part of the family or not. So, make sure that you're balanced, honest and transparent in your dealings with everyone.

Finally, ensure that you appraise, manage, compensate, and reward each team member's performance fairly, and think carefully before giving family members preferential treatment, even when they might expect it!

Tip:

On one hand, it seems fair that family members have no more influence or special treatment than non-family members. On the other hand, however, family members may be significant stakeholders now or in the future, and they have the rights and privileges of shareholders.

Senior family members need to be careful not to demonstrate nepotism, but they also need to ensure that they develop more junior family members to be effective "stewards" of the business in the future. This is a difficult balance to find, and, as a manager who is not a family member, it makes sense to support this process pragmatically, and help it along.

Note:

See our articles on Working in a Family Business and Managing Friends and Family Members for more on building successful working relationships in a family business.

Key Points

Managing in a family business can be challenging, especially if there is an "us and them" mentality, or a lack of transparency around decision making or career progression.

Make sure that your role and responsibilities are clear, and that you have your boss's support, so you can make decisions effectively.

Communicate clearly with everyone, schedule regular meetings to exchange news and information with family members, and treat everyone on your team fairly, whether they're a member of the family or not.

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Comments (3)
  • Over a month ago Michele wrote
    Hi lyndab2014,

    Thank you for your thoughtful comment. The lack of a succession plan for the senior team is a huge risk for any business, but especially so in a family business because of the potential for infighting among the remaining family members. Unless succession is clear, productivity and market share can decline. The business press is full of examples of successful family businesses that have been destroyed because successors for key roles were not identified.

    Michele
  • Over a month ago lyndab2014 wrote
    One of the issues with a family business is how it will transition if the senior family member that is heading the business suddenly decides to retire, or cannot no longer work due to illness or death.... Family's owners often fail to Create and Exit/Succession Plan. They are fail to get the financial advice for ensuring that tax is structured effectively; ...worst of all "who will be the senior person if the current on is suddenly gone" This gets even more complicated if the assumed successor decides that they are not interested in the business - this happens a lot in today's world..
  • Over a month ago april123 wrote
    A family business needs to be run with the same professionalism and attitude than you would run a business without any family members in it. It can be challenging for family to be colleagues at work and family at home, but it's probably the healthiest thing to do in the end.