By Richard M. Segal
June 7, 2012
Leon Danco is considered the founder of family business consulting. His classic book, “Beyond Survival” was published in 1975 and is considered be to be the old testament of the family business field.
A Harvard MBA, Danco began consulting with family business owners in 1962 encouraging them to attend to the continuity of their companies. He claimed that business owners see retirement as “somewhere between euthanasia and rejection.” Nevertheless, he encouraged them to prepare for the inevitable transition.
One of the treasures Leon Danco left behind from his consulting days is his “12 Commandments for the Family-Business Owner.”
- Thou shalt share thy dream with thy family.
- Thou shalt inform they managers and employees, “This company will continue forever.”
- Thou shalt develop a workable organization and make it visible on a chart.
- Thou shalt continue to improve thy management knowledge, that of thy managers and that of thy family.
- Thou shalt institute an orthodox accounting system and make available the data therefrom to thy managers, advisors and directors.
- Thou shalt develop a council of competent advisors.
- Thou shalt submit thyself to the review of a board of competent outside directors.
- Thou shalt choose thy successor(s).
- Thou shalt be responsible that thy successor(s) be well taught.
- Thou shalt retire and install they successor(s) with thy powers within thy lifetime.
- Thou shalt settle thy estate plans NOW, because thou canst not take it with thee.
- Thou shalt apportion thy time to see that these commandments be kept.
These are wise thoughts from an extremely talented and experienced expert. Today’s world is more likely to respond to a Letterman Top 10 List than commandments. So, allow me to take a stab at a “Top Ten List of Family Business Rules for Family Harmony and Business Success.”
10. Maintain open lines of communication. Sometimes it becomes difficult to have the conversations necessary because there is no real format for them to take place. Create a format for real and regular communication in which all the stakeholders will feel comfortable respectfully speaking their mind.
9. Eliminate triangulation. Triangulation is where two parties attempt to communicate through a third-¦like when a son complains to Mom about Dad. Triangulation is manipulative and can be terribly misleading even if well intended. Keep communication direct and respectful.
8. Make family time exclusively family time. You need to isolate work issues to the work environment or you risk losing the warmth and joys of family life. There are family members who are not active in the business and they are not interested in your “shop talk.” In fact, they normally find it boring or just plain rude.
7. Allow life cycle events to have center stage by themselves. Let weddings, graduations, births and funerals stand on their own. Don’t attempt to have a shareholder meeting piggybacked because everyone is in town. That only cheapens the importance of those things that are really important.
6. Insist on accountability. Be clear about who is to do what by when and hold them to it. If you would not let a non-family employee slide in a similar situation, then hold family to the same standard. If you let family slide, you will be establishing a new standard of non-performance.
5. Make the time to attend to your business. You need to set aside the time to establish plans, policies and procedures for your business. You need to discuss succession, strategic planning, and operational excellence. If you don’t set aside the time, these important discussions always wait until it is too late. Meet regularly with your executive team, Board of Directors and professionals - it is time well spent that can help you keep the money you made in the day-to-day operation. (Everyone knows this rule, but few follow it!)
4. Be Transparent. Family firms have the cloak and veil of secrecy wrapped around everything - especially the financial information. The “need to know basis” is no way to run a team of managers trying to earn a profit for the company - and especially for the future top managers. If you employ secrecy as a management tool, then what would you expect to get in return?
3. Accept nothing but excellence. You should expect to “be the best you can be,” and you should expect it from your family, your managers, your employees and your company overall. You set the watermark, and wherever you set it will be the performance of your company.
2. Plan succession carefully. The transition of ownership and management is difficult and delicate in the best of circumstances. A succession process gone badly can be devastating to the business and the family. Frankly, it is not something most families do well on their own and they should seek advice and counsel,
1. Remember your family business is only an asset. Businesses are assets that can be bought, sold and liquidated. Families are a lifetime investment in love, support, nurturing and caring. Sometimes families aren’t meant to be in business together, and recognizing it before the family is destroyed makes good sense. Sometimes repositioning or selling the business outright is the right thing to do.
There is my Top 10 - different than Danco’s commandments, but lots of overlap and some contradictions. These two lists are great for a family meeting discussion.
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.