By Richard M. Segal
Aug. 30, 2012
The age-old question: What comes first -¦ the chicken or the egg, the horse or the cart, the family or the business?
Let’s dismiss the chicken/egg and horse/cart debate as irresolvable. However, the family or business question is anything but! First, let’s refine the dilemma as if we were debating: Be it resolved that the governance of a family business should always favor the business. I want the negative!
Historically - Family First
The family had to exist before the business, and unless we reach a point of zero offspring it will outlive the business. Hence, it would seem that by default, family first and last (and foremost).
Ownership
Businesses are born, nurtured, and developed for the benefit of the owners. When the ownership no longer sees benefit, or the ability to get future benefit, the current ownership is forced do something - major restructuring, sale or liquidation. Assuming the ownership is a family system, then by default, they get forced to select family over the business in that the family ownership will alter the business system to best serve the individual owners who are family.
You may be thinking that if things go south, there is likely to be upheaval in the family - and you are correct! However, that upheaval isn’t likely to destroy the entire family system. We may find that certain individuals or family branches part company on a temporary or permanent basis, but seldom does everyone go their separate ways never to reunite. Births, weddings and funerals are fertile ground for reuniting families once torn by “bad blood.”
Employment
Family businesses tend to employ family members. Generally, the path to becoming an owner in the business is to become an employee first. Often, employment for family in a family business is more beneficial to the employee than employment might be elsewhere. There are perks reserved for family members - better wages, liberal work schedule, expense accounts, fast-track career path, etc. Granted, these things aren’t true in all situations, but they do tend to prevail. Assuming that family does get these kinds of perks, then it would have to be obvious that family comes before the business because these perks are being borne by the business for the benefit of the family.
Often the career path proves the case in point. Way too often we find family members promoted to a level of incompetence - sometime just due to lack of experience. You know, the son who graduated with a BA in History who becomes a VP after six months in the sales department to learn the ropes. Or consider the daughter who got an accounting degree and becomes CFO in a year.
No other situation would prove that family comes first than the situation when the business becomes the “employer of last resort.” This is a term used to identify family members who might be unemployable outside of a family business. Or sometimes, the term refers to a family member who holds a position in the business for which they are ill suited and under skilled, but paid according to position in order to maintain a “lifestyle.”
Family
Business owning families generally have a culture that says that there is a job for you in the business. It starts young – sometimes with summer jobs, or coming to the office with Dad for some Saturday babysitting. Whether or not there is any formal communication, the message comes across that the family owns a business and if you are a family member you are welcome. Some families do have the formal discussions and develop formal entry rules, but formal rules are in the small minority especially for first and second-generation business families.
Family businesses provide part of the family culture. They can offer a legacy for a family beyond family history. The business can become so intertwined with the family culture that the family is known by the business: Smuckers, Johnson, Ford, Wrigley, Walton (Wal-Mart)-¦. Even if the business isn’t a national icon, but a local service provider, the family can be identified with the business. Think of your local cleaners, party store, vegetable market, contractor or jeweler -¦ more often than not the family name hangs over the door.
Conclusion
Families that own businesses operate those businesses for the benefit of the family - beyond any single individual. Oh sure, there may be a king or queen pin, but as soon as the second family member is employed things change. Strategies move to long-term thinking and employ patient capital. Legacy becomes important and the family dynamics become the seed for the business culture.
One last thought: we call it a family business and not a business family. Family first, foremost and last!
Rick Segal is the principal at Segal Consulting. He holds a certificate in Family Business Advising with a Fellows status from the Family Firm Institute. He is the founder of the Family Business Council and its affiliated Study Group. He can be reached at [email protected] or by visiting www.segalconsulting.biz.
