Paul Hawkins of the University of Portland, recently said the following:
“When asked if I am pessimistic or optimistic about the future, my answer is always the same: If you look at the science about what is happening on earth and aren’t pessimistic, you don’t understand data. But if you meet the people who are working to restore the earth and the lives of the poor, and you aren’t optimistic, you haven’t got a pulse”.
In providing support for the communities in which they provide employment, manage supply chains and enjoy a customer base, family firms have demonstrated an extraordinary willingness to give back. Much of this is connected to their values which include the need to support the wider “societies” in which they operate.
However, increasingly, giving monies is insufficient for family firms. They want to get involved in the causes they support in a hands-on way. Some are beginning to treat their philanthropic support and donations as they would any other investment. Family firms are beginning to measure their ROI in emotional, spiritual, political, commercial and social terms.
A group in the UK called “Achieving Impact”, run by James Plunket, works with families to align their values to the political, social and environmental needs of those to whom they give. Families treat their investment in land/machinery/people in the same way they treat their investment into charities. They work to build KPIs that help them to measure the impact they are having. Performance measurement becomes a key element in the philanthropic endeavours of family firms. Some families ask:
are we collaborating with other providers (social and political) for the greater good?
to what extent are we proactive in our giving vs. reactive?
do we combine with institutional investors who are ethical?
A question often posed is, “Which comes first, the family or the business?” If yours is a ” family-first” business decisions are often made that primarily benefit the family. For example, you pay family members more than their job pays on the open market. Also family members are guaranteed a job. If you are a “business-first”, you run the business strictly as a business; you require family members to get the education, experience, and other credentials to qualify for a job. And compensation is based on what the job merits. Whichever approach you take has long term implications. While there is no right or wrong system you may realize you may not be where you want to be. If you own a strictly “business-first” business you may want to ease some of the rigid rules that do not meet the needs of a growing family. For example if you have both a son and a daughter who are highly qualified and eager to join the family business, but you have only one position, you might consider changing the structure to allow both children to contribute. On the other hand, some “family-first” decisions that are meant to keep peace in the family may instead breed dissension among the next generation and threaten the business’s and family’s long term interest. Schuman, Stutz and Ward in their recently published book, Family Business as a Paradox, developed an excellent assessment to help families determine if they are a “family-first” or “business-first”. They also suggest, “One of the most powerful challenges in family businesses is managing the natural occurring tensions between the family and the business. Wise families know that the answer to this dilemma is to not choose one over the other, but be aware of the primacy of both”. Every family must decide what is best for them. Balancing both the family and the business goals require compromise, extra effort, extra planning and extra communication. The goal is to preserve the integrity of the business, while serving the needs of the family.
One of the hallmarks of workplace spirituality, particularly in family owned businesses, is commitment to the development of people. Many businesses have begun to realize the benefits of treating a person as a whole rather than as an employee by actively supporting their professional and personal development that promotes personal growth and long-term character development. This is particularly evident in successful family businesses that understand the link between employee personal growth and learning with job performance, satisfaction and retention. This emphasis includes providing resources that help employees better understand themselves, develop successful professional and personal relationships, and enhance personal management skills. In family firms, developing people is usually a natural outcome of extending the family feel of the place to employees beyond blood relatives. Long time non-family managers are treated more like siblings, sons, and daughters that bring a love and commitment to the founding family that tends to extend throughout the organization.
Workplace spirituality has continued to gain acceptance as a topic of study in B-schools across the country, presumably with application to practice within organizations. Though it may have been initially viewed as a passing fad, it now seems to have reached trend status that is distinct from religious connotation. In fact, even management textbooks routinely include sections about “workplace spirituality” and professional organizations like the Academy of Management offer membership in special interest groups emphasizing spirituality.
So, while any number of families associated with successful businesses may also be associated with a strong community of faith, if one of the many emerging definitions of workplace spirituality is looked at in the context of a family business, it starts to become clear why businesses with family at their cores also tend to be naturally spiritual workplaces.
Here’s a recent list of hallmarks of spiritual workplaces. Over the next week, I’ll be writing more about the three that seem to most show up in family businesses. I welcome your comments. The hallmarks are: Emphasizes Sustainability, Values Contribution, Regards Innovation, Cultivates Inclusion, Develops People, Promotes Vocation.
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.
A visit to Chick-fil-A reveals much about the organization. The facilities, usually crowded, are pristine. The employees, a rainbow of young (but during this recession not always so young) faces, inevitably are welcoming, smiling, helpful, polite and quick. The food is hot, tasty, reasonably priced, and healthy options are available. The menu is displayed attractively but there is no “value menu” with cut-price items (the patrons seem to find value in the restaurant’s regular offerings).
While locations are not on every corner, they are convenient and easy to locate in the areas where the company operates. A tasteful poster on the wall (there are several) talks about opportunities with the company and reveals that outlets are operated with carefully selected partner/managers, a very different model than that commonly seen at other fast-food franchises. The poster also talks about college scholarships provided to employees, one of the factors that allows the company to be highly selective in who it employs and gives it perhaps the lowest employee turnover rate in a high turnover industry.
Another tasteful poster shows the company’s philanthropic thrust (without calling it that) – aimed at providing life sustaining and building programs for challenged youth and families. One program is aimed at building stronger marriages.
If you visit Chick-fil-A on a Sunday, however, you won’t see any of these things. You won’t be able to get in. The place will be closed. The entire operation is closed on the Christian Sabbath at a cost that Forbes Magazine estimates to be in the neighborhood of $500 million in annual sales.
The Cathy family, owners of Chick-fil-A, is strongly Christian, but no religious icons decorate restaurant walls. No Christian tracts are handed out with the waffle fries. While an employee walks among the diners at their tables offering to refill drinks, no one encourages saying grace before their meals.
The recent protest over a local Chick-fil-A providing lunch to a group that promotes the traditional view of marriage focused a national media spotlight on the company. Dan Cathy, second-generation owner/executive, said that Chick-fil-A values everyone and isn’t “anti” anyone. He said that the company’s goal is to create “raving fans.”
I’ve run into some of those fans. Like my client in Cleveland, Ohio – third generation in a very large family business who could afford any restaurant but had his 30th birthday bash at Chick-fil-A. Or the porter at the Honolulu airport who saw my Georgia driver’s license (Chick-fil-A is headquartered in Atlanta) and told me to tell those Chick-fil-A people to open some locations in Hawaii (being acquainted with Dan Cathy, I passed on the message).
As a family business consultant for nearly thirty years, I have been fascinated with Chick-fil-A as a family business. I think the recent attention to the company obscures important lessons that it exemplifies. It has perhaps the strongest culture of any company that I am familiar with. It is a culture built on very clear values, reinforced by the company’s every action and decision. The culture is observable in the products, prices, promotion, and especially the people of the organization. The culture and values are visible, but other than the Sunday closing, not their Christian source.
That Chick-fil-A is a wholly-owned family business allows them the freedom to operate as they see fit within law and regulation. That Chick-fil-A’s and the Cathy family’s values are based in their religion gives them the means to more readily and easily formulate and communicate their values. Of course, actually practicing and living one’s values is always the hard part. Implementing their culture and values in a way that supports the on-going success of a business that has grown as large as Chick-fil-A ($3.5 billion in sales in more than 1500 locations) and that welcomes a large and diverse base of loyal customers is no small feat. Focus on politics or religion, in my view, can lead to loss of the opportunity to learn from Chic-fil-A’s success in building and sustaining its organizational culture as a way of building and sustaining its business – or the opportunity to enjoy a really good chicken sandwich and the best freshly-squeezed diet lemonade you’ve ever tasted.
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.
Many successful family businesses have made the decision to become publicly traded while still maintaining a controlling interest within the founding family. Since family controlled companies represent approximately one-third of both the Fortune 500 and the S&P 500, it is logical to conclude that funding from the public markets is a useful strategy for some family firms. In fact, some of the most famous family business names, such as Ford and Nordstrom, have taken this path.
Initial public offerings (IPOs) have been used successfully to fund growth and provide liquidity in conjunction with ownership structures that provide for control to be maintained in the family. While the current recession significantly reduced the appetite for IPOs in most markets, as the economy improves so does the expectation that IPOs will once again become popular. However, before a family business decides to trade any portion of its shares in the public markets there are several important issues to consider.
Of course, the help and advice of excellent attorneys, accountants and investment bankers is critical to any successful offering. Yet even before engaging experts to take their company through an IPO process, business owning families need to have open and honest discussions regarding how even the smallest portion of stock in public markets can drastically change the way they do business. Here are some issues to consider:
When your business becomes a publicly traded company it will be subject to a wide range of regulations, reporting requirements, and scrutiny that you and your management team may not be familiar with or comfortable in performing. Even with structures in place to preserve family ownership voting, the responsibility to meet SEC and other regulatory requirements can be onerous for many. In a very real sense it ceases to be your company, your capital and your decisions, even when it represents the combined wealth of your family. While perhaps a dramatic example, it has been argued that some of the business practices that led to fraud convictions for members of the Rigas family (Adelphia Communications) would not have been illegal if the stock had not been publicly traded.
Those who buy your stock may have very different interests from you and your family. Today’s public markets are largely driven by traders not investors and they do not share the “patient capital” perspective that has traditionally represented the strength of family business. Their desire for timely returns on investment can represent a major conflict with the long-term planning and next generation focus of family owners. Under existing legislation, an owner of as little as 3 to 5 percent of a public company has significant rights that impact corporate governance. Both Barnes & Noble and the New York Times have faced challenges from these types of conflicts of interest, at considerable costs in both money and the time of leadership.
In addition, the rules keep changing for public companies. In our post Enron/Lehman Bros. world the costs of being a public company have increased significantly. Smaller firms that once found IPOs a great source of capital now must carefully consider the “carrying costs” of public filings and the professional services needed to meet these requirements.
The very nature of public markets drives decisions that have short-term pay-offs. While good corporate governance theory maintains the importance of long-range results, efforts to incentivize, regulate and monitor such decisions have met with mixed results at best. Once a family business becomes publicly traded it may find that the very values that made it successful are under attack.
Tony Leahy, the retiring CEO of the UK’s largest retailer, Tesco, offered great insights to what’s different about family firms. Though Tesco is no longer a family business, he explained, “Tesco began life as a family business and one of our strengths is that we’ve not forgotten the values and approach we inherited from our founder.”
He goes on [the underlining is mine]: “We have a stable management.” In fact, he and many of his top management colleagues spent their entire careers at Tesco. “Our employees are encouraged to own a stake in the company; and there’s a willingness to take risks and to plan for long-term value creation… they enjoy the benefit of loyalty, long-term thinking and the courage to make bold decisions. Add to that a slim line, tight management and the stability families can bring and you have laid strong foundations for a powerful company.”
He closes with a profound observation about the distinction of family company ownership when he asks fund managers who invest in listed companies to consider, “Next time you’re in a meeting with management from a company…try referring to them as ‘we’ rather than ‘you’.”