Category Archives: Policies

Keeping Promises

JoAnne Norton
JoAnne Norton

On a long cross-country flight, I sat next to a woman who was involved in her family’s business and she shared her family’s fascinating story. Working with a consultant, her family had put a lot of time and effort into creating a family constitution as well as policies, procedures, and protocols. She and her husband, his sister and her husband, as well as the eight cousins—who would all one day be owners—got along famously and had great fun designing the documents.

Then sadness crossed her face as she confided, “As wonderful as our agreements were, and you should have seen the celebration we had when they were ratified, the documents were never taken seriously by the senior generation. The new policies were ignored, and the rest of us felt betrayed. We had spent so much time and money on the process, and now my husband doesn’t speak to his sister, and my children no longer get along with their cousins.”

As the plane descended through the clouds the woman said, “When you work with families like mine, please tell them how important it is to honor the agreements they create. It just takes one little snag to unravel the whole thing.” I assured her it wasn’t too late to fix the situation, and I urged her to reconnect with her family business consultant.  I told her she might want to suggest a meeting with the senior generation to discuss how best to handle the breach of trust that had taken place. Her family could also take a second look at the documents to be certain they weren’t too constricting, but most importantly, they needed to start communicating again.

As we walked toward the terminal together, she said she would take my advice if I would take hers: she would call her consultant if I would remind families to keep their promises to each other.  When we write family agreements, we have to be sure they are promises we can keep, so if promises have been broken, we need to keep the channels of communication open.


Should Junior Generation Family Members Get Extra Vacation Time?

Kelly LeCouvie

Many of our clients develop a family employment policy as part of continuity planning. Some of the components of this policy articulate the circumstances under which family members will be hired, compensated, appraised, promoted, and terminated. And often we are told that the family business must remain a meritocracy, where family members earn their positions, and should be treated the same as non-family employees.

This philosophy seems appropriate when often there is much at stake and all employees need to be competent and held accountable. Also, non-family employees want to see that there is opportunity for them, even when their last name is not on the door. Family businesses should be run professionally in order to perpetuate the business through future generations.

That said there are times when exceptions to employment protocol might, and even should be made. Vacation time is one topic that often comes up when next generation family members join the business. They are often just starting their careers and take a position that offers two weeks vacation. However in some cases family members are given one or two additional paid weeks vacation. Senior management permits this for a number of reasons that are in fact, defendable:

  • The family may have meetings about the business while they are on vacation.
  • Junior generation family members are often expected to take courses or attend conferences that are family-business related. These courses often take place on weekends.
  • Family members are often invited to weddings and other events hosted by co-workers or family business associates, that require travel on weekends. Often junior generation members are strongly encouraged by their parents and/or senior management to attend these events.
  • There are often ceremonies and celebrations that are business related, and family members are expected to attend as ambassadors of the business. These events often take them away from their families if travel is required.
  • Community events sometimes require representatives from the business to attend. These are typically in the evenings and again, are responsibilities that family members take on in addition to their day to day work responsibilities.

While all employees sometimes make commitments on behalf of the business that are outside of regular work hours, often for family members it adds up to several days or even weeks in a year. Therefore, consideration is given to additional vacation time in an effort to make up for the significant investment made to work related commitments.


Sustainable family policies answer “Why?”

Drew Mendoza
Drew Mendoza

Increasingly, owning families rely on an array of policies intended to guide future decisions and actions. They may address who can serve on the family council or the board, set compensation for next generation members, determine whether in-laws can own stock or guide how profits will be deployed (re-invested or paid out to shareholders).

In our experience, an important quality a sustainable policy will have is that the reason or rationale for why the policy was written is explained in the form of a preamble or some sort of introduction. When preambles describe the philosophical basis of the policy, it conveys the intent of the policy. It’s akin to understanding the meaning or intent of a law as compared to the letter of the law. A policy that doesn’t convey the intent may be difficult to interpret or enforce as holes or ambiguous language is put to the test in later years.


Addiction in the family business

Bernie Kliska
Bernie Kliska

Addiction is an unfortunate but common issue that many families have to deal with. Families in business together are not exempt from this issue.

When a family member has an addiction, be it drugs, sex, gambling, alcohol, etc., it is necessary to address the problem in order to have long term family harmony and stability. This is especially critical if the addict is the anticipated successor.

Unaddressed, addiction can wreak havoc on a succession plan. As a consultant and family therapist, I have seen the results and consequences of addiction on families. The addict places a huge burden on the family. Their erratic and irrational behavior takes an emotional toll on everyone.

Unfortunately, for a family in business together, a lack of family harmony not only affects the family, but negatively impacts the business’ success as well.

There are two common ways families deal with an addict in the family. The first is they pretend the problem doesn’t exist, or they end up enabling the addict as a way of coping.

However, in reality the problem does not magically disappear. If your family is facing this tough situation, here are some steps family members can take to effectively deal with an addict.

  1. Encourage (not threaten or force) the addict to seek professional treatment. The best case scenario is for the addict to enter treatment willingly and take responsibility of his or her own healing.
  2. Regardless of whether or not the addict decides to seek treatment, you should attend support groups. Support groups will teach you about setting boundaries, consequences, compassion when it comes to dealing with an addict, not taking on the responsibility for the addict staying in treatment, being supportive versus enabling and what to expect from the addict.
  3. Have all family member’s employees sign a Family Member Employment Policy that includes the requirement for them to be addiction free. You can stipulate in the policy that anyone found to be suffering from an addiction must seek treatment and show proof of successfully completing a treatment program as a condition of continued employment.

The third step is important for any business owner, whether or not you currently have a member of the family suffering from addiction, in recovery, or even if everyone appears to be doing well.

Implementing policies and safeguards to protect what you have worked so hard for is just common sense. No one knows what tomorrow may bring, but planning for all possible contingencies will provide for the best chance of future success for both your business and family.


Compensation in sibling partnerships – A “fairly” complicated topic

Dana Telford
Dana Telford

A common anecdote told by family business advisors quips that the first three things a second born child learns to say are “Mama”, “Daddy”, and “That’s not fair.”

Tensions and complications related to sibling partnership compensation are grounded in the early-formed, emotional quest for fair treatment between siblings. Like it or not, brothers and sisters compare how much time and resources they receive from parents and grandparents with that of brothers and sisters. This dynamic lasts throughout the sibling relationship – which on average is the longest in life – and must be confronted and managed if we hope to put together a successful compensation system for family members in our businesses.

Earlier this year I analyzed my 70 most recent client engagements and was not surprised at how many of them struggle with the question of siblings and compensation.

  • In 60 of the 70 family companies (86%), siblings work together on a frequent basis (at least one day per week).
  • Of those 60 family companies, compensation is a major issue in 54 (90%).
  • Of the 70 total companies, family member compensation is a significant issue in 58 of them (83%), regardless of whether siblings work together.

Though it may seem simplistic, many of my clients use the Golden Goose analogy to teach children (and adults) about their family business. Protect the Golden Goose from the Sly Fox (primary competitor) and it will lay Golden Eggs for its owner. If the owner gets too fixated on the Golden Eggs and forgets the Sly Fox, he’ll kill the Goose. Dead geese don’t lay eggs, and families miss them when they’re gone.

Compensation in sibling partnerships becomes more straightforward when viewed as an important part of keeping the business healthy for its owners. Owners want their businesses to grow profitably. Profitable growth is a result of excellent decisions made by managers. Owners understand that overpaying under qualified managers, whether family member or stranger, isn’t going to protect the Goose for very long.

Developing a Compensation Policy can help provide clear guidelines for the family to consider when analyzing sibling partnership compensation. Some important elements of compensation policies include:

  1. The concern that any advantage given to family members working in the business will be seen by employees as family socialism superseding free-market capitalism.
  2. Family employees will be compensated in the same manner as non-family employees, period.
  3. Compensation levels will be determined by fair market value analysis.
  4. Family member performance will be measured consistently and compensation adjustments made accordingly.
  5. Family employees are expected to live within their financial means and not encumber themselves with excessive debt or rely on special disbursements.
  6. Extra compensation, when deemed fair and reasonable by the Board and/or Family Council, will be provided through ownership and/or family channels.

As a mechanism for satisfying point number six, consider compensating family employees as owners or future owners. Provide stipends for serving on the Board or Family Council, provide a fair and reasonable dividend taken from profits when the company performs well, pay family members for special ownership-related research projects (e.g. A review of a top competitors strategy) or to serve on an investment committee.


Accountability in Your Family Business – Achievable Reality or Elusive Dream?

Mike Fassler
Mike Fassler

I have often had the opportunity to serve family businesses where accountability is alive and well and the resulting culture of accountability provides a competitive advantage.  Likewise I have seen plenty of family businesses where the lack of accountability is a perpetual topic of discussion, there are little or inconsistent consequences when people fail to deliver, and accountability seems like an elusive dream.  Often family businesses that lack a culture of accountability also have contentious relationships which are a drain on both family and business energy and resources.

So what are some of the distinguishing factors for those family businesses where a culture of accountability is a reality?

Shared Values – Shared values are the foundational building block to accountability as they inform what attitudes and behaviors are expected and provide broad guidelines for family member interaction with one another and with the business.

Shared Vision – A shared vision provides a clear understanding of where both the family and the business are going and how one supports the other.  A shared vision provides the context within which results can be gauged and is the connection to a purpose larger than any one individual.  It is this connection that creates the incentive to contribute to the overall good.

Freedom of Choice – Accountability is built through freedom of choice to contribute on the part of the individual.  Absent a voluntary choice to contribute, there are too many ways to blame others for behavior and results that don’t measure up.  The motivation to be accountable is derived from the satisfaction of choosing to contribute.

Certainly articulating goals, roles, policy, procedures, consequences, etc. to provide additional clarity on expectations can be helpful to developing a culture of accountability.  However, no amount of structure will substitute for shared values, a shared vision, and freedom of choice when it comes to making accountability an achievable reality in your family business.


Implementing a Family Employment Policy

Dana Telford
Dana Telford

In my last post, I promised to give you an example or two of family rules or policies that can help to create a healthy separation between family socialism and business capitalism in family businesses.  A family employment policy is one of the best tools for protecting a family’s business from inappropriate disruptions by family members who may see it as a piggy bank or birthright. 

Here’s an example:  Two brothers, Craig and Jim, bought a manufacturing company from their three siblings and their father.  The family is large, with five Second Generation and twenty Third Generation members. The brothers knew that eventually one of the members of the 3rd Generation would ask them for a job.  In anticipation of this, I worked with them to develop a family employment policy.

The family policy stated the expectation that any member of the family seeking employment would have to meet the following pre-requisites before approaching the owners:

  • Graduate from college with a bachelor’s degree in business, economics or science
  • Earn and hold a job outside of the family business for at least two years
  • Earn a promotion or pay increase during those two years
  • Only apply for currently open positions

The brothers then asked their non-owner siblings to sign off on the family employment policy to ensure their support of the requirements if and when any of their children applied for work.  All of the siblings saw the wisdom in the policy and agreed to it in writing.

Not many months later, Tom, a 21-year-old nephew, approached Craig, the CEO and controlling owner.  Tom told Craig that college “hadn’t really worked out for him”, that his five previous jobs had been “learning experiences” and that he was ready to join the family business.  Craig told his nephew that he would be happy to consider him for any open position after he fulfilled the family’s requirements set forth in the family business policy.

He gave Tom a copy of the policy and asked him to take it home, review it and get back to him with any questions before they continued the job search process.  Not surprisingly, Tom never called or came back to Craig’s office.  Some days later, Craig called me and thanked me for leading them through the development of the family employment policy.  He said it had helped the family to steer clear of a potentially upsetting and negative confrontation between siblings about “whose children had the right to family employment”.  In his words, “the ounce of prevention had been worth more than a dozen pounds of cure”.  He also was grateful for how well the policy had de-personalized the situation and minimized the negative effect on Tom’s sense of self-worth as he struggled to find himself as a young man.

It’s important to note here that, although this example paints Tom in a negative light, he was not ready for work in the family business.  Young family members who need help with discipline, self-awareness and career planning need to turn to their family for support and assistance, not the leaders of the family business.  Bringing ill-prepared family members into the business sets a flawed precedent of allowing socialistic behaviors into a setting where only meritocracy can provide the long-term growth and success the family hopes for.

Tune in next time for another gripping tale of family policies that help to separate family and business issues in a family business…….


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!


Lessons from the U.S. Election

Chris Eckrich

Last week’s Presidential election in the United States was a great lesson on the need to have clarity about how decisions are made and what the framework is for implementing those decisions. 

Many family businesses have created their own guidelines and rules for how leadership might transition from one leader to the next.  Absent some understanding of the decision making framework, passions arise and frequently disagreement result in a divided ownership group.

One thing we learned from last week’s election was that there most certainly will be passion when choosing leaders, but agreeing on a constitutional framework allows everybody to get a good night’s sleep, wake up and function the next day.  Such is true in family businesses, and therefore we generally support the implementation of policies, procedures, and even full constitutions for families who seek to keep their enterprising families together for the long run.

Do you have clarity on how transition will work in your family?


CFO Issues

We were recently with a forum of 10 non-family CFOs of large family businesses. When asked what are the “family business” issues most on their mind, they responded with the following (in no particular order):

  • Airplane use
  • Incentive compensation
  • Board effectiveness
  • Keeping family shareholders informed
  • Dividend levels
  • Assuring stock redemption funds