I recently came across the following statement in a family participation policy regarding the requirement of outside employment for family members wanting to join the business. Please let me know of any other items you might include from your experience.
Outside work experience is required for the following reasons:
A. It’s good for the company:
We have a wider and more varied experience base (ideas and contacts).
It promotes a culture of meritocracy over entitlement.
B. It’s good for the family member:
Opportunity to make mistakes elsewhere (that aren’t remembered forever).
Opportunity to prove oneself and gain self-confidence where a person’s last name doesn’t count.
Helps avoid self-doubt later down the road (could I have made it on the outside?).
Opportunity to find a mentor from outside the family or business.
Opportunity to gain different perspectives and experience and be able to start contributing earlier in one’s career.
Acceptance by non-family members will be easier (credibility issue).
Opportunity to develop honest expectations for oneself.
Ram Charan has some good advice in his book “Boards That Deliver.” In it he lists what the top subjects of focus should be for effective boards. Not surprising to many of us, the number one priority he identifies is: “Do you have the right CEO…”
In public and private companies, boards are too often lax in their responsibility of reviewing, evaluating and developing management at the top. Whether a family member or not, all boards should ask if the company’s leader is the best suited person for the job – bearing in mind the company’s current needs and strategic direction. If the answer is “no,” the board must look to make a change and shareholders should support the process.
When the business is family owned and managed, the most difficult leadership change decision comes when the CEO who needs replacing is a family member. Truly independent directors are critical to help all stakeholders navigate this challenge. While these directors must be wise in their judgment of the business’ needs, in order to really be effective in this delicate situation, they are ideally well known to the family and respected by all, as well as experienced with family business and sensitive to the concerns and needs of the family, in addition to those of the business. This awareness will not lead them to change their mind about what is best for the company – but will enable them to interact with the family, and communicate the needed changes in a manner that all stakeholders feel respected, which will help the family remain united, despite this needed business change at the helm.
The other day I caught a conversation between a father and his young son. The boy had been the subject of criticism at school earlier in the day and was very upset by it. The father’s advice to his son regarding criticism was:
When I was a young bank President, one of my close friends was the new superintendent of schools in our town. One day over lunch he shared his “Grandfather’s Rules for Managers” with me. Some of those rules have guided me through my career in management, and I would like to share some of them with you.
GRANDFATHER’S RULES FOR MANAGERS
Do your homework.
Work hard — play hard.
Keep it simple.
Some things you just don’t see.
Be able to shift gears.
Keep your hand out of the till.
Don’t drink on the job.
Don’t do drugs, ever.
Fix the process, not the blame.
Confront rather than avoid.
Listen don’t just hear.
I would welcome hearing any “grandfather’s Rules” that have helped you in your career over the years.
The recent events in Egypt brought to mind something that I first read in 1999, so I revisited it again the other day. If you have never seen it or forgotten about it, I would suggest you take a look at the web site “cluetrain.com”. What the authors of the manifesto envisioned for the future of business has also impacted the world order.
“A powerful global conversation has begun. Through the Internet, people are discovering and inventing new ways to share relevant knowledge with blinding speed. As a direct result, markets are getting smarter—and getting smarter faster than most companies.”
Lack of accountability is often a major cause of succession challenges within family businesses. Why not make the establishment of effective accountability the top priority on your New Year’s resolution list?
In cases where transitions are running into trouble, lack of effective accountability is frequently the cause. This can manifest itself in many ways. For example, parents are often the ones who administer and deliver the performance management feedback for the next generation. Unsurprisingly, this frequently causes conflict among and between generations. Why? Because family issues and emotions often end up overshadowing the performance management process. In some cases, a process is not even present.
A related example is compensation, which is frequently managed on a basis other than merit. We have seen clients where they have policies based on a concept of “equality”, others on the basis of gender or years of service. Such policies are often the causes rather than the cures of conflict. So, I encourage the senior generation to consider the following resolution for family accountability in the coming year:
The owners, in collaboration with the Board of Directors, shall establish a written comprehensive participation policy for family in the business.
What are the prerequisites to joining the company (education, experience, etc.)?
What is expected in terms of on-going performance for family working in the business?
Ownership shall develop an agreed upon Vision for the future of the business and owner expectations for the business. These will be updated and communicated to the Board of Directors in writing annually.
Wherever possible family in the business shall report to non-family managers for performance management purposes.
Family members shall be formally reviewed a minimum of semi-annually with the following guidelines:
Wherever possible performance shall be measured on quantifiable and agreed upon written performance management objectives.
An annual blueprint for personal and professional growth and improvement shall be established for each family member in the business.
At each performance management review, each family member working in the business shall be given at least three areas in need of improvement and action plans to improve within those areas.
Adherence to business culture and underlying family values shall be a regular topic within the evaluation process of each family member working in the business.
Family member compensation shall be in accordance with established company compensation policy for the position occupied and performance within that position. Wherever possible such compensation shall be based upon position responsibilities and performance-based goals previously agreed to.
Family business legacies frequently offer life long benefits beyond the business.
At Christmas time each year I am reminded of the many learning experiences my brother and I had working in our small family business. My father had a fruit and vegetable stand in Milwaukee, and during the Christmas season he sold Christmas trees and wreaths to support his seasonal business. My brother and I worked the Christmas tree lot with him every year. Doing this we learned some valuable negotiation and sales skills. We had all sizes and shapes of Christmas trees, and none of them were marked with prices. Our father gave us general pricing guidelines depending on the size and fullness of each tree. The objective was never to have a prospect leave the lot without a tree. However, when a customer came on the lot, it was up to us to get the best price for each tree sold. The sale process included getting a general idea of what size tree the customer was looking for and above all how motivated he or she was to purchase. Once we got the preliminary information on tree size, we would walk the prospect around the lot and occasionally pick up a possible sale tree, shake the snow off the branches, and make our best case for a sale. Larger trees were a problem because the snow removal process usually meant snow falling down on our heads and down our backs. After our first year on the lot we lost very few customers, and we seldom sold a tree below price target guidelines.
Our greatest opportunity for both learning and profit came on Christmas Eve however. Our pay for working the Christmas tree lot each year was for my brother and me to take title to all the trees left unsold on Christmas Eve. On Christmas day the trees would be worthless, and our customers knew it. So the bargaining was difficult and became more intense as we approached 6 PM when we closed the lot. On occasion we would have to let a reluctant prospect know that we preferred to use the branches as ground cover than sell the tree for an unfair price. We seldom had more than a few trees left, and we always had enough income to more than compensate us for our work those few weeks prior to Christmas. We didn’t know it at the time, but we were learning entrepreneurship in an OJT (on the job training) environment.
Looking back on our work at my father’s Christmas tree lot, I am reminded of how our father used the experience to teach my brother and I some valuable life lessons. In addition to establishing a strong work ethic by working long hours in the cold and snow with an unknown future payoff, we learned negotiation and financial skills that helped us in our future professions in the legal and financial communities. While our family business may not have made it to the second generation, the values and experiences learned during those years are a legacy my brother and I have treasured throughout our lives.