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How to Make the Family Business Accountable

Many clients have developed elaborate compensation schemes with corresponding performance evaluations. They establish bonus formulas so complicated that the CFO needs to be a math major. They draft employee manuals covering every possible detail. Even ISO plans have been created to satisfy the elite of the business world.

But, somehow when it comes to family member employees falling subject to these policies…well, often it just doesn’t happen. Holding family employees accountable can become less than a whisper. It frequently becomes taboo if you want to maintain any kind of family harmony.

Certainly not all family businesses are guilty of the abuses or lack of accountability. Some develop good practices and maintain family harmony while working together toward common goals. On the other hand, some see the family business as a golden goose whose eggs they harvest and pawn, but want to take no responsibility for the health of the goose.

Abuses
Abuses lead to a lack of accountability.

One client hired her stepsons as entry level employees and paid them $3 an hour more than their counterparts working side-by-side. They continually felt they were better employees because they made more money, and yet the opposite was true. They were often late, or left early, to catch a ride with Mom.

Another allowed his sons to exploit their expense accounts as if they were using personal credit cards with no limits and no payback requirement! They saw no limits to what the business could provide, and there was no connection to their productivity.

Then there is unlimited vacation and personal time off, 20-hour weeks for full-time pay, vehicles (or allowances) for clerical workers. There is substantial over compensation, and substantial underpay – both abusive. Abuses and a lack of accountability can cause the business to implode and the family to disintegrate.

One client’s son continually abused his expense account to fund his alcoholism. He would hide the abuse (or so he thought) by having liquid lunches with clients. He rarely returned to the office after lunch. Another actually charged her baby’s diapers on her company credit card – and by the way, she was an entry level employee. Feeling that her family was being supportive of her single motherhood by allowing the practice, she would regularly leave early, or come in late, to handle her parenting responsibilities.

When the boating season arrived, a second generation employee, who watched his father use company funds for household and cottage improvements, felt his entitlement and filled his 35-foot boat’s gas tank to the tune of thousands of dollars a summer. When questioned by his older brother, his response was that he occasionally took clients out for an afternoon of fishing. His response didn’t go well with his brother who actually put in his time in the office.

Abuses are usually fostered by an expectation of entitlement.

Expectations
Expectations are the next place that accountability finds a nemesis.

I have actually worked with clients developing ISO plans who spend more time on how to keep family out of the metrics than they do on the rest of the plan. If you don’t expect performance, then how likely are you to get it? If family members are held to a different standard – a lower standard – how successfully will you be able to hold non-family employees accountable?

Relating compensation to expectations followed by some form of performance evaluation is critical. Employees want to know how their performance is perceived. Family firms usually balk at performance evaluations for family even if they evaluate everyone else. Just plain wrong! How can you hold anyone accountable if you don’t evaluate performance?

Family dynamics carry over into business accountability. If parents had low expectations of their children in school and at home, then they might expect similar performance at work. That’s not to say that individuals might not have high personal expectations, only that how you set the bar is critical to holding people accountable. You simply can’t hold anyone accountable if they don’t know for what they are accountable.

Collective job performance normally dictates overall company performance. If employees have no idea of the expectation of their performance, then collectively how can the company meet the owner’s expectation? If family ownership allows lower expectation of family employees, then you can expect lower accountability all the way around and poorer company performance.

Solutions
Set limits on potential abuses and make them clearly understood. Then monitor those limits with consequences for excess. One way to handle the expense account issue (frequently a problem) is to put a limit on the credit card that corresponds to some reasonable spending. If the issue is between peers, like siblings, agree to approve each other’s statements before payment. Managing excesses and entitlements sets a tone of accountability.

Sometimes expense abuses are due to the employee’s feeling of being undercompensated. Under or over compensation has far reaching and wide spread implications. Fair Market Value pay is always a best practice. Establish a Compensation Policy based on fair market value compensation coupled with performance evaluations. If you expect an employee – family or not – to be accountable, then you need to communicate the goals for which they are accountable on a regular basis. It might be easier to form a small evaluation committee as opposed to reviews especially for family. The committee takes some of the “personal” out of the process.

Lastly, be clear that the business needs to be run professionally. It isn’t a family gathering at the office where family dynamics rule the day. Rather, it is an organization dedicated to the vision and mission of the business. Hold each other accountable to meet and exceed expectations.

Richard Segal

Rick Segal is the principal at Segal Consulting. He holds an Advanced Certificate in Family Business Advising with a Fellows status from the Family Firm Institute. Rick is the founder of the Family Business Council and its affiliated study group. Reach Rick at [email protected] or by visiting www.segalconsulting.biz