Difficult Times Difficult Decisions

The critical balance between the business and the family in business-owning families is in constant flux. No recent era would attest to that more than our current economic situation. Yet these are times when fortunes can be made while most struggle for survival, times when relationships can be cemented with loyalty while others can fall victim to unresolved conflict.

When times are good, the family shares in the prosperity; when times are bad the family suffers. And that’s the whole family. Unlike some scenarios where an individual may lose a job or get a pay cut, a business-owning family faces the prospect of everyone losing a job or a reduction in pay that affects the entire household and possibly even the extended family.

The Cuts
Every company seems to have gone through several rounds of expense cuts. After the obvious fat has been removed, the liposuction begins.

Sometimes that means cutting jobs held by family. There are cases where family members have been on the payroll for welfare purposes, or simply to avoid the conflicts they bring to the office/shop.

These are generally considered bad practices, but today they have moved to the “unacceptable” column-”especially if it means that family contributing to the business would be taking cuts to fund non-performing family. In other cases, taking the spouse off the payroll, even though he or she is a performing employee, is done just because it looks good and the family still has one income. Often the spouse will continue to work “for free.”

Management style matters a lot here. There are the “across the board cuts,” the “family first and deepest cuts,” and the “everyone but family cuts.” Naturally there are hybrids-”rotating layoffs, using all the vacation time first, or cutting hours in lieu of layoffs.

Regardless of your management style, hopefully your reductions were done with forethought and planning. If not, revisit them strategically and determine a game plan that makes sense over the long haul. After all, that’s where family firms out perform their non-family counterparts-”long-term thinking.

Here is another long term thought: All too often staffing gets cut to the bone and the other necessary functions of the business are ignored. While the cuts may move dollars from the top line to the bottom line, they will eventually erode the top line. Marketing and sales need to be maintained or the recovery could pass you by and your company will lag behind your peers.

It makes good sense to devote some precious time to the future by cultivating sales today. As difficult as it may seem to do, spending some predetermined time each week working on future sales is sound strategic planning. Cutting expenses may produce some profits, but it rarely produces prosperity.

It is never too soon to begin thinking-”strategically-”on how you will retool your staffing when things turn around. Will it be overtime or call backs? And when the call backs begin, who first? Seniority? Productivity? Needs-based? Family?

The Hires
As counterintuitive as it may seem, some family firms have actually hired family while making general cuts to their workforce. We have seen the family business become the “employer of last resort” in many forms-”usually when the family member is otherwise unemployable. But this is different. These times have brought family that previously had successful careers outside the family business to the fold because they have been unable to find other employment. They are often very talented and offer new enthusiasm to the business. In addition, they can see the family business in a new light-”as a saving grace in otherwise difficult times. Their upbeat attitude can offer a breath of fresh air in an otherwise dismal environment.

That being said, their presence can be very disrupting to the status quo. One case I am familiar with was a spouse being brought on as a “part time bookkeeper” just after the full time bookkeeper was laid off. And, she was employed at a higher hourly rate that her predecessor. Most likely unknown to the other employees, she had a much higher skill level and her compensation was actually lower than the job she was discharged from due to the “outsourcing” of her department. Nonetheless, her appearance on the scene did create unrest among the natives, including her brother-in-law who felt that she was being overpaid.

Another case is a 30-year automotive mid-level manager who received his layoff after passing on all the voluntary terminations. His boss, who always felt the manager was indispensable, got laid off at the same time.

His parents, in their 80s and second generation (G2) in the family business, had been searching for an exit strategy without contemplating succession within the family, largely since no other G3 members had expressed an interest.

Even though the G2 parents had been open with their executive team about looking for an employee buyout-”if one could be arranged that met their goals-”now, a 60-ish “retired” auto executive appears to be the future management/ownership of the company. I wonder how that will affect the management team?

In another situation the economy caught the retiring generation (and majority owners) at the wrong time. They were well on the way to full time retirement and passing the business along to their children. But, the downturn in the economy has brought them back to full time employment much to their frustration and disillusionment. They did not believe that their adult children had the skills necessary to handle the situation.

The Solution
If entry of a new family member into the business is involved, then be sure to visit all the entry issues that will surface. Is it similar to other family members’ entry, or different? If different, then have the rules changed, or is this an exception? If it is an exception, are the rules being broken or is there some due process for the exception? Due process is one way to get all the oars rowing in the same direction. You have an entry policy even if it isn’t written-”your past action becomes the policy.

Regardless of whether it is a cut or a hire, the solution for sound family business practices lies in the involvement of the stakeholders in the decision making process. That is not to say that decisions are necessarily “democratic,” but rather that discussions and fact-finding prior to deciding can go a very long way toward family harmony and business success.

While there is no “right” or “wrong,” having everyone rowing the boat in the same direction sure makes getting to the goal a lot easier.

Richard Segal is the chair of the Family Business Council, a membership organization of family owned businesses. He can be reached at [email protected].

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Richard Blanchard
Rick is the Managing Editor of Corp! magazine. He has worked in reporting and editing roles at the Port Huron Times Herald, Lansing State Journal and The Detroit News, where he was most recently assistant business editor. A native of Michigan, Richard also worked in Washington state as a reporter, photographer and editor at the Anacortes American. He received a bachelor of arts from the University of Michigan and a master’s in accountancy from the University of Phoenix.