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Spring 2013

March Current Thinking Column

Thursday, March 16, 2017

Evolving Responsibilities of a Family Business Stakeholder

by Leslie Dashew


What makes family-owned businesses different than others is the web of complex relationships that surrounds the business. Consider the daughter or son who is born into a family with a business. They often feel that they have a sibling that is more important than they are: the business! This can lead to jealousy or resentment of the attention that this “sibling” receives. Jealousy and resentment mark only a few of the attitudes that comprise this family-business web, with others such as entitlement, greed, and a strong sense of responsibility often surfacing as well. 

As the lives of young people evolve, they often feel they cannot merely decide on a career of their interest/choice, but rather they must decide whether or not to join the family business. Even when parents indicate that they want their kids to follow their passion, wherever it takes them, the null hypothesis is engagement with the family business. Some youngsters look at the business as an “employer of last resort.” In any event, the question of whether to take a job in the family business must be addressed.

For some youngsters, the sense of responsibility for the family business comes with ownership. Parents often bestow shares of the business upon their offspring without their knowledge as part of estate planning. At some point, these new owners look at the tax forms they are required to sign and begin to ask questions. What does it mean to be an owner? What are my rights? What are my responsibilities?

And then there are the “married ins,” or the in-laws who join the family. Often, they hear about the challenges, conflicts, and perks that are associated with the family business. However, for many, they feel awkward about the connection and not sure where or how they should engage this “family member” known as the family business. 

The sometimes-awkward dance around the family business becomes manifest in the disparity between which information is shared or omitted concerning the family business and how to communicate this information, especially pertaining to those family members not working in the business. In fact, some family members who work in the business and even perhaps own part of it, may also feel awkward about asking the types of questions that a board member or investor might ask. 

So as roles evolve over time, it is important that family leaders recognize the changes that should happen in the engagement level that various stakeholders should take in the family business and the subsequent preparation required for appropriate involvement. Educating family members about the business, industry, roles, and responsibilities of ownership are important aspects of this preparation. (See for instance, our monograph Ownership Education). 

Understanding the fundamentals of business management are important for all family stakeholders so they establish appropriate expectations of the family members who are working in the family business. For example:

• What is the vision for the future of the family business? Who establishes it?

• Does the company have a strategic plan for achieving the vision?

• What are reasonable expectations for return on the investment (ROI) that the family has made in the business? What are industry standards for profitability, turns in inventory, revenue/employee? What reinvestment is necessary in order to continue the sustainability of the business?

• How efficient are the processes of the company? How are they measured? Are they documented and automated?

• How are employees recruited, selected, trained and developed? Are there effective human resource systems in place? Are there succession plans (emergency and long-term) for leadership roles in the business?

• What are the greatest risks to the business and how are these mitigated? (regulatory, litigation, competition, obsolescence, environmental, etc.)

• Does the business use debt effectively, including having access to a line of credit?

• Are there appropriate financial controls in place and transparency?

Being born into a family with businesses or assets does not mean you know about these components of business knowledge. Yet, sometimes there is a sense that one needs to oversee what is happening at the family business or cast an opinion without having a proper context to do so. This can become the source of great conflict in the family if not handled properly.

The Annual Women in Family Business Program being conducted this month by Leslie Dashew at Miraval Resort and Spa will help participants to gain the perspective and tools to better manage the responsibilities of a family business steward. Stay tuned for further insights from this program.

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