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Is Your Family Business More Family Than Business?

How do you build a legacy in a family business where family members interfere and disrupt each other’s jobs?

Is Your Family Business More Family Than Business?

Don’t you hate it when colleagues meddle in your job area? Or they make big decisions solo when they should have included you in the process? Or when even minor decisions get bogged down by committees dithering over trivialities?

These are just three of the typical complaints we’ve encountered when working with business owners in family-run companies. And although these ailments aren’t unique to family businesses, they’re far more common and far more damaging in family companies than “regular” companies.

We’ve seen first-hand how family business with family members who are under-involved or over-involved often struggle to realise their full potential in generating wealth and financial freedom for their owning families.

As I wrote recently on the ownership structure of family businesses, they can thrive or suffer from the heavy influence of family relationships on how the business is run. In the ideal family business, family relationships are healthy, everyone likes each other, and decisions and conflict are handled in a consistent way in both family and business environments.

It might seem pedestrian or even touchy-feely, but liking each other plays an outsize role in pre-disposing a culture at work of collaboration, trust, and the benefit of the doubt when mistakes are made. If you’re spending chunks of your leisure time and 40 hours a week at work with the same crowd, not getting along could be traumatic.

The solution to meddlesome families in family businesses is to clarify your governance structures. Specifically, it’s about role clarity and managing boundaries.

(If “governance” sounds like a rude word and has you picture auditors and bureaucracy, it’s time to re-frame it: see my June 2020 primer on how governance affects your wealth. Governance guides how you achieve your vision.  It’s your business system as a wealth-creating asset.)

Managing boundaries between roles is vital in any business, but again, it’s a uniquely tougher challenge in family businesses because of how pre-existing family systems invariably dominate all other contexts, especially at work.

In the same way that your well-meaning aunt plays match-maker in your love life, so might she be just as inclined to insert herself into critical decisions at work. That she’s merely a minority shareholder and not actually employed in the business might be entirely irrelevant in her view.

So how do you ensure family members stay in their lane?

The easier-said-than-done answer is to clarify each family member’s job description or role profile. Starting with best practice for any owner-manager, define the boundaries between your roles as owner versus manager.

The owner role should be a relatively easy starting point: it’s defined in the companies act, plus the rights and obligations for owners of your specific business are set out in the shareholders agreement.

Don’t feel bad if this sounds foreign to you. Many entrepreneurs we’ve met don’t have a shareholders agreement and the companies act is known by name only, not its content!

Next, clarify each family member’s job at work, whether it’s as executive or non-exec director, manager, or even regular non-management employee. Key to this step is ensuring there are no gaps or overlaps between authority limits in the chain of command.

E.g. if the finance director has an upper limit of making investment decisions up to R 1 million, then the MD or board of directors to whom the FD reports should have a lower limit of no lessthan R 1 million. And so on down the reporting hierarchy.

The bigger the business, the more important it is to clarify the boundaries between each layer in the circle of control. After defining the owner role at the centre of the circle, radiate out into the CEO and board of directors layer, then to the management layer and staff layer on the outside.

Underpinning the full relationship map inside the business is the family system. Clarifying role boundaries makes it possible for even non-owning family members to still have touchpoints and visibility within the business, but their path to influence the business is through the clearly-defined layers in the overall governance structure.

The family-business clients we’ve seen succeed in solving family interference at work are those who already have a strong family foundation for resolving conflict. They also prioritise separating their roles in the business from their roles in their family. E.g. a family patriarch might step aside as CEO and report to his son, yet without undermining his family role as patriarch in the family system. (More on succession planning in family business in a future article!)

But that’s not to say prioritising family over business isn’t also a win. Making big changes too quickly at work could well ruffle some feathers at home. So no matter how much growth potential the business might have, allowing it to bumble along to rather preserve family unity is entirely your prerogative as the owners.

Either way, it’s your choice. Just know that fixing relationships at work and growing your family legacy is more achievable than you might think.

(Image credit: The Times of Israel)