All posts by Jennifer M. Pendergast, Ph.D.

Spring Cleaning – Organizing

Jennifer Pendergast
Jennifer Pendergast

Due to our long winter this year, my mind has just turned to spring cleaning.  The concept of spring cleaning – organizing, starting with a clean slate, focusing on priorities and getting rid of what’s not so important –  has a number of applications for family business.  So, let’s dedicate the week to Spring cleaning!

I spent a lot of my time with family business clients developing policies and processes to create order and accountability, increase family harmony and ensure the family and business operate effectively.  Often, hours of work goes into creating these rules, sometimes involving difficult family conversations and multiple revisions until the family is comfortable with the result.  Once all that work is done – what happens?  The policy is saved on someone’s computer under some name, and then…..  I often get calls from clients two or three years later asking me if I have the final version of a policy.  They can’t locate the document they spent so much time and care creating.

So, my first spring cleaning suggestion – create a protocol for how you name, store and revise your important family documents.  Each document should have a header or footer with an embedded date so that you can track versions.  A common naming protocol should be used – for instance, if a document is final, you might use final in the name.  If it is a draft, you might include the word draft and the date in the name.  And, you should use the same name for the same type of document. So, if you keep minutes of family council meetings, they should have the same file name each time with the appropriate date included, for example, FBCG board minutes 41013.

The naming protocol should be agreed upon by everyone involved in creating or revising family documents so that the standard form is followed.  Then, a central repository for documents should be created.  And, that repository shouldn’t be your family business consultant! Or the head of the family council, for that matter.  Ideally, a location that is protected and will last over time should be selected.  The company intranet or a family website is ideal.  The goal is to have a place where an archive can live for a long period of time.

For those readers who already have policies and other important family documents developed, take advantage of that spring cleaning spirit and review your current files.  Purge old versions or drafts that aren’t needed.  Consider renaming the ones you have in a standard format.  And, agree to a home for them.  When next spring rolls around, you will be glad you did!

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Puppies and Babies vs. Doomsday

Jennifer Pendergast

In our work as family business consultants, we are often approached by a member of a family business who recognizes a need in their family to accomplish some work together.  It could be a specific need, such as the need to develop a family employment policy, or a broader need, like the need to begin planning for a generational transition.  Regardless of the scope, it is often the case that all members of the family have not recognized the need for this work.  The family member who sees the need is then put in a position of figuring out how to convince other family members of its importance.

When confronted with this challenge, I try to help the family member by sharing two approaches.  The puppies and babies approach is the soft-sell. Have you ever stopped to think about how many companies use puppies and babies to sell their products – anything from toilet paper to tires?  What does this have to do with family business work?  Well, the puppy and baby equivalent in family business is the family legacy.  Appealing to the family’s desire to leave something behind, to ensure there is a solid future for the next generation or to honor the legacy of the founders is an approach that may convince other family members of the value of working together to ensure these objectives are achieved.  By creating rules, policies or decision making structures, you are making an investment in your future as a family.

The Doomsday approach is more intuitive.  If you don’t do this work together, unhappy family members may want to sell their shares, family infighting may get in the way of making good business decisions, qualified family members may choose to work elsewhere or unqualified members may lead the business.   In a worst case scenario, you could end up on the cover of the local paper in a legal battle.

The approach you take to selling your family on doing the important work it needs to do to ensure long-term success will depend upon your family dynamics and culture.  Some families react to carrots, some to sticks.  Only you know what will work best for your family.

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Family Business Vision

Jennifer Pendergast

If you and your family hope to create a lasting family legacy by passing your enterprise down through the generations, a family vision statement will help guide you in the achieving this goal. 

What is a family vision statement?  Most people are familiar with a business vision statement.  It lays out management’s aspirations for what the business will become – what customers it will serve, products and services it will offer, markets it will operate it in, and at a higher level, what value it hopes to create.  A family vision statement is similar, but its focus is the family, not the business enterprise. 

The family vision statement answers these questions:

  • What do we hope to achieve as a family together?
  • What is the purpose of our wealth and what will we use it to accomplish?
  • Are there particular needs or expectations we have of the business?
  • What values do we expect to see reflected in the business culture?
  • Is our philosophy to put the needs of the business before the family, the family before the business, or balance the two?
  • What role do we, as family members, intend to play in the management and ownership of our enterprise?
  • Do we hope to stay together as a business owning family for generations to come?
  • What will our family’s legacy be – to our employees, our community, future generations of family members

The answers to these questions will shape both your family and your enterprise in the years to come. Many long-lasting family businesses come to see that the greatest advantage of being a business owning family is not the financial benefit but the opportunity to leave a lasting legacy.  Without thought and guidance, your family will under-utilize this wonderful opportunity.

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Another Family Business Paradox

Jennifer Pendergast

Where is your family’s focus?  In the early stages of a family business, the family must focus its efforts on the success of the business.  Second generation members often share that the business was the child in their family, absorbing all the time and attention of their parents.  While it can breed resentment, this unwavering dedication may be required for the business to survive.  And, for most families, the success of the business is imperative because it pays for their basic needs. 

As the business becomes established and thrives, the success of the business will actually depend upon shifting focus away from the business.  By no means do I suggest that the business should be ignored. Rather, the needs, expectations and aspirations of the family must be considered simultaneously with those of the business.  Clarifying these needs, expectations and aspirations will actually contribute to the survival of the business. 

How so?  Once the business proves to be viable (e.g., it can attract customers, it can compete effectively, it makes money), family owners have the opportunity, or perhaps more strongly stated the responsibility, to set a long-term vision.  This vision defines what they are in business to achieve, what parameters or constraints they will place on the business and what values they want it to represent, among other things.  Articulation of a commonly held vision by the ownership group ensures that the family owners are aligned with the business.  Without the owners’ commitment, the business is unlikely to succeed.

Think about where you are in your family business evolution and where you are focusing your attention?  If you’ve gotten beyond the stage where the business requires 100% of your focus, maybe it’s time to start focusing on the family.  Continue reading this week for more thoughts on creating a family vision.

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Family Business Communication

Jennifer Pendergast
Jennifer Pendergast

One of the biggest challenges in family businesses is there are so many stakeholders who care about the business – family members, owners, managers, and potentially a host of others (board members, trustees…).  All of these stakeholders have a desire, and sometimes a right, to know what is going on in the business.  Managing the needs and expectations among all of these people can be fairly complicated.   How can this be accomplished without stepping on too many hidden ‘mines?’

To ensure open lines of communication, it is important to communicate equally to all members of a particular stakeholder group.  If you rely on informal means of communication (e.g., catching up at a family event, or calling your cousin when you think he needs to know something), you run the risk of leaving someone out.  One way to ensure you have appropriate and open lines of communication is to develop a communication grid.  This grid provides an inventory of all forms of communication between various stakeholders. 

Start by listing all the stakeholder groups in your business.  Then think about what information each of these stakeholder groups should be receiving.  You can also think about what information they should be providing.  For instance, the board chair may send a letter to all the shareholders at the end of each quarter.  But, how do shareholders provide input to the board?  If independent directors are involved, perhaps shareholders could have dinner with the board a couple times a year.   Another example to consider is how the family ensures they understand the needs and desires of the next generation.  Perhaps they are not interested in employment in the family business in the same way that the current generation was.  How can the communication across generations best occur?  If the younger generation members are included as a separate stakeholder group in the communication grid, the opportunity to think about how to communicate with them and receive information from them will be captured as well. 

The grid should include forms of communication (e.g., family website, family newsletter, financial statements, etc.), when they should be received and who is responsible for generating them.  Once you have completed the grid, circulate it to all stakeholders for their input.  If there are places where communication is not sufficient, they should be surfaced.  Once there is agreement on what communication should occur, the grid creates accountability for ensuring that communication occurs.  The grid can also be used as a long-term planning tool to evaluate how communication may need to change over time as stakeholder groups grow and evolve.  Taking the first step of documenting current communication patterns can lead to a host of opportunities for improving lines of communication and building transparency and trust.

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The Value of Family meetings in early stage family businesses

Jennifer Pendergast
Jennifer Pendergast

If you’re a frequent reader of this blog or other family business advice, you know the value of holding family meetings.  They provide a forum for discussing family issues, educating family members about the business, fostering trust, and sharing the family legacy and values with future generations.   Does this kind of approach really make sense if you are just starting to build your family business legacy? 

Take the case of a 2nd generation family business, run by four siblings in their 40s. Their father has already handed over the reins, their oldest 3rd generation in middle school, and their spouses not really involved.  While many families would start meeting at this point including children, spouses and the founding generation, the four siblings, 3 brothers and a sister, want to build their sibling partnership before they open up meetings to the full family.  They meet frequently as an executive team, so have a ready forum to discuss family and ownership issues. 

The challenge with this meeting format is longer term issues rarely get the attention they deserve in the rush of day to day operational issues.  The importance of longer-term thinking was recently surfaced for this family when someone raised the question of how the family might capitalize on the 2012 estate tax law.  To tackle this question and surface others, the siblings decided to engage a facilitator and hold their first ownership meeting.  At that session, they jointly articulated their long-term vision for the company and identified topics that needed further discussion. They realized they needed to start developing a next generation of business leaders because their children wouldn’t be ready to take over when they retired.  They also agreed that their current dividend policy, loosely defined, worked well for them but wouldn’t work well for the next generation.  Finally, they determined that they needed a shareholder agreement among their generation to ensure that their vision of maintaining family ownership was fulfilled. 

With these important topics on the table, they agreed to meet every 4 months as owners to ensure they have a place to address these important long-term issues.  As this example shows, family meetings come in a number of shapes and sizes.  The important thing is to ensure you’ve created a place for owners and family members to discuss important topics that affect the long-term future of the family enterprise.

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Confronting the need for change

Jennifer Pendergast
Jennifer Pendergast

In an earlier post, we discussed the challenge family business leaders face in creating a culture of accountability, one where employees understand what is expected of them and are evaluated on their performance and where performance issues are addressed.  A 3rd generation member of a very successful family business shared a story with me that cements the value of an accountability based culture.  She admitted that their company had run for almost 100 years without an accountability based culture. They valued loyalty and rewarded employees based on longevity rather than performance.  While they knew members of the management team were not performing up to the needs of the organization and their performance was impacting the company’s success, they chose not to deal with the situation.  Finally, with the downturn in the economy, she and her cousins in the management team  acknowledged that the issue had to be addressed.  They could not harm the long-term viability of the organization to protect a few individuals.

Their first action was to deal with a long-tenured manufacturing supervisor.  The family member involved in the HR function approached the supervisor and let him know where his performance was not meeting expectations and set clear guidelines for performance improvements that needed to occur for him to keep his job. She fully expected that he would opt to take early retirement and had a package ready that the owners deemed more than fair. 

To her surprise, instead of deciding to leave, the supervisor rose to the challenge. He not only met their expectations but actually exceeded them.  His attitude and ability to change was a motivator to the ownership group and across the organization.  The 3rd generation owner reports that 2 years later, the entire organization has become energized by the change to an accountability culture.  Some management team members have chosen to leave, but those who have remained are performing well. And, the turnover has created spaces for new employees who are a better fit with the changed culture. 

Her advice to other family businesses that need to confront a change in culture – go ahead and take the plunge.  If it’s the right answer for the organization, you will find that the pain will be worth the gain.  As owners and leaders of a family business, employees are looking to you for direction.  If you send the message that under-performance is expected, they will deliver.  But, if you send the message that this is an organization that strives as a team to achieve success, they will be excited to follow you down that path.

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What’s on the minds of 2nd generation business leaders?

 

Jennifer Pendergast
Jennifer Pendergast

Recently, 2nd generation family business leaders weighed in on the family business issues that they find toughest to resolve.  The top three on their list were: creating an effective board, addressing performance issues within the business, and infusing long-range thinking into their organization.  On the surface, these three issues may seem distinct.  However, when they elaborated on their concerns, the root causes come back to some common themes. 

Let’s examine the desire to have an effective board.  The participants in the survey were all aware that gaining independent insight into their business practices is widely regarded as a determinant of family business success.  But, they were hesitant to put a board in place.  The primary reason behind their hesitation came down to the fact that they felt like they were “going it alone”.  While they would value the strategic insight that board members could bring, they didn’t feel their management team could support them in pulling together the information needed for the board and executing on ideas the board might suggest.  In the same vein, they didn’t feel they could take the time away from the business to think about building a board.  Finally, they were concerned about lack of buy-in by other family members, both 1st generation founders and 2nd generation peers, concerning the value of a board. 

A similar set of concerns were expressed about long-range thinking. Again, all understood that a key determinant of business success, not just for family businesses, is strategic planning – which is the essence of long-range thinking within the business. Beyond a written strategic plan document, these leaders were concerned their business cultures did not promote making decisions with the long-term impact in mind.  The roadblocks to long-term thinking mirrored those that get in the way of developing a board – namely the lack of management team members with a long term perspective who could participate in the planning process and execute on long-range plans; as well as the lack of resources to gather information and develop a plan and the lack of time to get it done.  Again, these leaders were concerned about lack of family buy-in, particularly from 1st generation founders, about the value of long-term planning. And, they also had a fear that the process would force family members, both 1st and 2nd generation, to articulate their desires for the future – and they feared the Pandora’s box this could open as they knew consensus on long-term direction could be difficult to achieve.

Finally, the leaders admitted that they did not do an adequate job of addressing management performance issues.  They knew that there were underperformers in their organizations but had avoided dealing with them. 

They weren’t ready to deal with the disruption to the organization – the potential impact on employee morale, the conflict within the family if the manager was a favorite of another family member, or the guilt of letting go a long-term employee who had shown loyalty to the family.  In this case, the similarity with other challenges was that they might not have family unity about the need to let go of a particular manager, or more broadly about the need to develop a culture of accountability, where performance is evaluated and performance issues are addressed. 

A final central issue leaders faced in all these challenges was a need to change the culture of their business, from one that was predominantly entrepreneurial, short-term focused and based on relationships to one that was more structured, invited outside input, planned for the long-term and based success on objective measures.  They needed to move out of their comfort zone with the status quo, and get willing to confront disagreement within the family to change the culture. 

While these business leaders were concerned about how to enact these changes, all agreed that they were issues they needed to confront.  The first step was to get buy-in from stakeholders that change was needed.  In the case of some, that meant getting support from the founder generation.  In others, it meant support from a sibling team.  In still others, it meant support from a management team whose buy-in would be needed to implement change. As leaders, it was their responsibility to make the case for change and paint a picture of the future that helped these stakeholders to understand that the change would be worthwhile.  

The second step was to enlist support in planning for and making changes.  In many cases, they had to move beyond their management team and family members to find support in peers outside the business that could help them think through the changes needed.  The confidence to move forward, however, came from the knowledge that it was their responsibility, as leaders, to acknowledge that the challenges were there and create a plan to address them.

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Creating Group Norms

Jennifer Pendergast
Jennifer Pendergast

The decision making structure of a family business can be very complicated. Decisions are often made at the family level, the board level and the business level.  Most decision- making groups spend their time focusing on the decisions that needs to be made, but don’t spend much time thinking about the process of decision making. Yet focusing on how you do the work can be an important element of a successful result.  Think about a group that you are part of in your family business – perhaps organizing a family meeting, as part of the family business board, or as part of a management team.  Has your group ever stopped to discuss the norms or rules for how the group works together?  In most cases these norms or rules are assumed but not written down.  And, in many cases, groups may not agree on norms or may not be happy with the norms currently being followed. 

Some norms to consider include – how will we capture the decisions from our meetings, who is responsible for setting the meeting agenda, how do other team members provide input to the agenda, how will we communicate with each other between meetings (e.g., via email cc’d to all members?), how and with whom will we share information outside of the team, who may be invited to attend group meetings outside of the immediate group, what is the process for adding members to the group, or asking members to leave, etc.  Taking a break from decision making to work on the process of making decisions can be very beneficial from the group – with improvements in speed and quality of decision making as a result.

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Supporting Family Members in their 20s

Jennifer Pendergast
Jennifer Pendergast

As we all know, early adulthood can be one of the most challenging times in life.  Learning who you are as a person, finding a career, perhaps finding a life partner…all very exciting but challenging steps in life.  This period can be particularly trying for members of family businesses.   While there are lots of family businesses out there, it is not likely that family business employees, owners (or future owners) in their 20s will have a strong peer network who are also members of family businesses.  So, they often don’t have someone to share the special challenges and opportunities they are facing.  The decision to enter one’s own family business is very different than the decision to go to work for a Fortune 500 firm, or the decision to build one’s own enterprise.  Family business members in their 20s may be hesitant to share their family background with others their age for fear of sounding entitled or ungrateful for the opportunities they have.  If family members decide to work for someone else, they may be uncomfortable telling co-workers they spent their weekend at a family meeting.  What if co-workers assume they are “short-timers” at their current jobs because they may work for the family in the future?  Or, they assume they don’t need their current job because they receive some form of compensation from the family business? 

Finding ways to support family members in their 20s is a key to helping them make a successful transition to into their roles as family business employees or owners.  Some ideas include identifying family business programs they can attend to meet peers, creating opportunities for family members within the business to share with each other at family meetings or social events, or even identifying a mentor in the family or business who can help family members work through these issues. 

If you have developed a good program or approach for the young adults in your family’s business – we’d love to hear about them!

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