How many times have you heard the following: “I’ll never let this business ruin our family”? Well, I’ve heard it plenty of times and often wonder how it is that the business can ruin a family. I believe what ruins the family is the lack of clarity of the challenges and opportunities that exist in the family business system and an unwillingness (or simply lack of awareness of) to prepare a family to interact with the business they own and operate. It is the role of the family business leader to do this, not the businesses role.
To help family leaders understand this, I often ask them, “do you consider your business to be a family-first family business or a business-first family business?” Family business leaders, knowing that their family should always be a priority over their business, often answer, “we are a family first business.” Let’s take a look at what a family-first family business really looks like.
A family-first business is known to treat all family members equally. They are paid the same-regardless of their contribution, they are given a job-regardless of their skills or qualifications, they are co-everything (president, managers – they are equal on the organizational chart etc.), they are all shareholders-regardless of their values, behaviors or their willingness to be responsible shareholders. We can’t treat one different than the other—that would ruin our family!!
Is that what family leaders really mean when they say we are a family-first family business? When examining the meaning of the phrase, I don’t think most founders, in their heart, agree that’s what they want to be. But how do we keep peace in the family if we are a business-first family business? Since these terms were first introduced, and the study of family business development has progressed, the term family enterprise family business has evolved to describe a family business structure that doesn’t have to be either-or. A family enterprise family business takes the benefits of both structures and creates an enterprise that has one of the greatest competitive advantages around.
Look at the chart below and find out if you’re a family first, business first or family enterprise family business. Then ask your family members and management team to give you some feedback. I once had a family meeting with eight family members. Six said the business operated as a family first business, two said it was a business first business. Interestingly, the founder was adamant that it was business-first and refused to acknowledge the opinions of the majority of family members who knew that most of their conflict was stemming from the fact that family members were not held accountable, and in this case, many were not qualified for their role in the business!
| Business Issue | Family-First FB | Business-First FB | Family Enterprise FB |
| Employment | All are welcome (and sometimes expected) | For specific job, if qualified | Opportunities will be created in and out of the business depending on needs. Family education will help prepare for roles in the business |
| Compensation | Equal pay for members of the same generation | As job description warrants | Closer alignment with responsibilities, if next gen is purchasing shares, compensation allows for bonuses to support generational transfer |
| Accountability | Mom and/or dad (sometimes too critical, other times, overlook shortcomings) | Non-family manager with authority to act (fire if necessary) | Feedback from management team, mom and/or dad hold final decisions |
| Perks | Equal regardless of role in business | As level of management, responsibilities outlined in job description | As earned according to family employment policy |
| Shareholder | Equal by branch of family | According to business philosophy (leadership, length of executive role, etc.) | Education provided for future shareholders, opportunities for business stock, passive investments or entrepreneurial opportunities |
| Titles and Authority | Equal titles for all members in same generation | Based on merit in a business hierarchy honoring theory of “one boss” | Equal roles for all those with high degree of competency according to family policy |
| Governance | Broad family consensus | Board of outside directors | Family and non-family board members, representative family council |
Great rubric, Beth. Thank you!