All in the Family
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In a first-generation family business, a founder typically renders verdicts swiftly and surely. Yet when that entrepreneur turns control over to children or other family members, decision-making gets a lot more complicated.For starters, it's a shift in personalities. Though an entrepreneur intuitively knows what's best for his or her business, second and third generations are not likely to make the same informed, seat-of-the-pants decisions. Multiple owners with different viewpoints further complicate the decision-making process. Suppose that a brother and sister inherit equal shares of their father's widget factory. The daughter, who has been involved in the business since childhood, wants to spend $500,000 for new machinery. Yet the son, an inactive shareholder, views the proposed investment as a waste of money because it will reduce dividends. Such dueling perspectives can quickly destroy the business — and divide the family. To keep your family business running smoothly, it's crucial to implement a decision-making framework. 3-D decision-making In a family business, decision-making responsibility can be divided into three dimensions:
- Management issues.
- Ownership issues.
- Family issues.
- Clarify roles for members regarding business ownership and management issues.
- Set participation policies: Who gets to work in the business? What's expected of them? How do members get out of the business? (Often there's a perception that if you're in the family, then you're in the business. Not everyone may want an active role — or be qualified to play one.)
- Bolster communications, which eliminates backroom deals and promotes harmony.
- Establish and implement values, mission and vision.
- Educate members — not only about family traditions and history, but also business literacy.
- Aid troubled family members and resolve conflicts.
- Set expectations for how the family behaves in public.
- Decide what role and image the business will play in the community — and who will talk to the press.
- Establish start and end times.
- Have an agenda and send out missives prior to meeting so that people can study and prepare for the topics to be discussed.
- Decide who will run the meeting. In the beginning, it's wise to hire a facilitator. Families often behave better with an outsider present. In addition, there are ground rules and negotiation tactics that a professional facilitator can teach. To find one, contact the Family Firm Institute (www.ffi.org or 617-789-4200), which publishes a free directory of family-business consultants.
- Write an account of the meeting, and distribute it to all family members. Why so much formality? It promotes accountability. By establishing meeting deadlines, selecting a leader and documenting your activities, you enhance the credibility of the council.
- How a successor will be selected for a leadership role.
- How to continue to involve inactive family members.
- How children will be exposed to the business.
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Articles in our Entrepreneur’s Resource Center appeared in print and online newsletters published previously by the foundation. More than 1,000 articles can be found in the categories below, addressing timeless challenges faced by entrepreneurs of all types.