By Richard M Segal
Nov. 7, 2013
Sometimes asking simple questions leads to vital discussion and discovery. Family businesses often get bogged down by a lack of communications while assuming that everyone is on the same page - a form of Groupthink without the discussion. Successful family businesses have regular communication structures for the business and for the family.
The first question
Annual family meetings become a critical component of maintaining family harmony and focusing on the value of the business. It makes sense to explore the question of whether the business is for sale - or not - and if so, for what price and to whom. A family meeting format would be the ideal place for this discussion and here’s why-¦.
Naturally, value in dollars and cents would be on the floor. The corollary to that would be who gets what after any purchase, who keeps jobs and what the future of the “business” looks like. I know of one family business that sold, but required the buyer to keep the family name as the business name for 100 years.
And that brings into focus the next value of the “keep or sell” discussion - legacy. Obviously any seller who insists on the family name remaining is speaking volumes for the legacy. I wonder if they required that the patriarch’s portrait remain in the boardroom too? The point being that there is a strong legacy issue in most families who own businesses. And the decision to sell impacts more than the shareholders.
There is a second group, often called stakeholders, who may not have a vote, but they have real decision making impact. Spouses, in-active siblings, children and grandchildren all have concerns about the future of the business and how it relates to the family and to them. The family dynamic piece of the question to keep or sell can’t be the pink elephant in the room - rather, it should be a vital part of the discussion. If we sell, what will Dad do? Who will remain, if anyone? How will non-shareholders who are key family employees be impacted? Has the business fostered a “safe harbor” for family to be employed? How about the key loyal non-family employees? These issues are not easily quantified into dollars.
Of course there is always the money. It has been said that everything is for sale for the right price. I would add the right price and terms. (A million dollar sale with terms of a dollar down and a dollar a week for the rest of your life might not be attractive.) Who gets what when would be a key part of the conversation? When a family company is sold, the payout isn’t always per share. Sometimes long term non-stock reward systems like deferred compensation or phantom stock need to be calculated into the formula.
In the end, the discussion of whether we should keep or sell the business brings on vibrant conversations on a multitude of issues beyond the one on the table. The value is as much in the conversations as the ultimate conclusion.
The second question
The second question is less specific, but nonetheless extremely helpful in the running of any business and especially a family business. It’s a management question that focuses on governance. It helps to set decision-making boundaries. It helps to foster a smooth transition between managers and even generations.
“Whose decision is it and how will they decide?” It’s simple enough, and yet it holds the key to control and empowerment.
That simple question is not necessarily centered on who has the voting rights like shareholders selecting directors, or directors establishing the organizational chart. Rather, it is meant to be a real life question about the real world. A parent hiring a child might form a good example. On the surface it might seem simple enough - but not really. Obviously the parent and the child are the key decision makers. However, it would be short sighted to believe that spouses and other siblings shouldn’t be consulted. How about the other company managers? What position will the child fill and with what authority? Not to mention what compensation?
In this common example (one that all family businesses face at some point), the question of “Whose decision is it, and how will they decide?” opens a decision making process that will prevent future conflict. By realizing that the discussion needs to be more inclusive, the decision makers will examine the complexities of what appears to be a simple question.
Does family get “special” consideration? Will the business create a position, or does one need to be existing and empty? Does the employment of a family member have any assumed ownership? Will the family member pay be different than a non-family member in the same position? Does the employment of one child imply the future employment of other children?
Ultimately decisions should be made by those empowered to make them. However, clarifying the process leads to better outcomes.
Asking these two key questions will improve family harmony and business success.
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.