Tag Archives: performance

Trouble in the Corner Office?

Chris Eckrich
Chris Eckrich

A recent Wall Street Journal article (At Family Firms, Do CEO’s Work Fewer Hours? by Rachel Feintzeig, Wall Street Journal Online, March 5th, 2014) referenced new research by professors at Harvard, London School of Economics and Columbia that measured family firm CEO’s as working approximately 8% fewer hours than their non family counterparts.  Is this an indication of impending underperformance?

Vibrant family businesses are often run by CEO’s who have mastered the art of working on the business rather than in the business.  They may work intensely during much of the year but also find ways to create time for thoughtful reflection on their businesses and are constantly discovering ways to improve not just today’s bottom line, but future opportunities as well.  Their insights are as likely to emerge at 5:30 a.m or 9:00 p.m., and not just during office hours.

Signs of a vibrant family business include:

  • Clear and aligned strategic direction from the ownership group, to the board to the CEO and management team;
  • A culture of high performance in which problems do not fester unattended;
  • An engaged workforce in which each individual understands how he or she contributes to the company’s objectives, and has the resources necessary to meet assigned goals;
  • Mutual trust between ownership, the board, the CEO and the management team;
  • A dynamic and iterative succession/continuity planning process in which the CEO and the family ownership group are actively engaged in achieving generational transition (assuming they have agreed on doing so); and,
  • A constant drive to meet or exceed ownership’s clearly stated objectives (which may include both financial or non financial measures).

Signs of a family business whose future may be troubled include:

  • Owners, directors or executives who are not sure where the company is headed;
  • Acceptance of correctable company problems and weaknesses as just the way things are;
  • Managers or employees who do not have clarity on their work priorities or goals;
  • Distrust between the ownership group, board and/or CEO;
  • The inability to discuss or make progress on succession and continuity challenges;
  • Little effort to clarify what ownership’s objectives are or limited drive to achieve those goals.

CEO’s spending their time driving towards becoming or remaining a vibrant family enterprise position their businesses for future success while CEO’s who lack that drive will generally allow trouble spots to creep into the picture.  Regarding time spent at work, perhaps the best question to determine whether there is trouble in the corner office is, “What are you doing with your time?”


Siblings to Cousins: Ownership Goals for Growth, Risk, Profitability and Liquidity

Amy Schuman
Amy Schuman

In the transition from siblings to cousins, families are often called to define the ownership role for the very first time. In earlier stages, a relatively small family allows for more direct involvement of family owners in business operations and tends to put issues of ownership on the back burner.

It is at the cousin stage when ownership goes – frequently for the first time – to a significant number of family members with no direct involvement with the business. It is common for cousin owners to have minimal natural contact points with the business they now own. The majority of cousin owners do not have careers in the business, and some likely live a great distance from business operations.   There is much to understand about the ownership role  – and some excellent resources exist for further reading (see below). In this post, I’d like to focus on the opportunities contained within an ownership goal setting process.

Owners need to know enough about their assets to be able to set educated goals for their performance. What level of return is reasonable to expect? How much risk would be needed to achieve different levels of return, and what is our risk tolerance as an ownership group? What is a realistic expectation for growth of our enterprise at this point in time? What returns should we expect in terms of asset appreciation and liquidity?

A few of my clients have dubbed this goal-setting process “GRPL”, based on John Ward’s suggested four ownership goals of Growth, Risk, Profitability and Liquidity (see article referenced below).

Realistic family ownership goals will vary widely according to factors such as industry of business – age of business – location of business – and many others. But grappling with the GRPL goals allows a large, potentially dispersed ownership group to have a focus for their learning and involvement in their business as owners. In fact, ownership education can provide a clear mandate for the Family Council, which tends to coordinate shareholder education.  Ensuring the ownership group develops the knowledge they need to articulate clear and achievable ownership goals is an investment in the ownership, management, and family circles of the family business system.

In my experience, Boards of Directors welcome the ownership goal setting process with enthusiasm. Written and agreed-upon goals from owners makes the Board’s task easier, especially as independent directors join the effort. They know owners’ expectations, and can conduct themselves in the boardroom accordingly.

Some management teams may initially have reservations about the owners setting these goals.  As the management team is so intimately involved in every aspect of the business, they may question ownership’s ability to set realistic, informed goals for asset performance. However, if management has a role in educating owners about their industry and the company’s competitive position in the market, they usually becomes enthusiastic supporters of the process. Instead of having to worry or wonder if their decisions and actions are aligned with ownership’s expectations, management can now more easily evaluation their actions against stated ownership objectives. I’ve had CEO’s tell me that they sleep better at night, knowing more clearly the owners’ shared goals for the enterprise they have been entrusted to lead.

There is much more to explore in this regard. Hopefully this post has whetted your appetite to learn more. Please feel free to share your questions or experiences with ownership goal setting here, and to explore the resources below.

“What do Owners Do?”, John L. Ward, Families in Business Magazine, June/July, 2003

Family Business Ownership: How to Be an Effective Shareholder, January, 2011,  John L. Ward, Craig E. Aronoff, Stephen L. McClure, Palgrave/MacMillan

“Why Family Business Owners need a Job Description”, Jennifer Pendergast, Family Business Advisor, June 2010


Home- to-Office Transition Challenges in a Family Business

“From each according to his ability, to each according to his needs, “  is a slogan popularized by Karl Marx in his 1875 Critique of the Gotha Program.

Dana Telford
Dana Telford

Often when giving a presentation about the challenges of running a family business, I use this quote to highlight the differences between the economic system we use in our family and the one we use at work.  If you are the main bread-winner for your family, it’s not reasonable for you to use all of the income you produce for your own wants or needs. Resources you bring in are allocated to family members based upon their needs.  Parents typically determine what is a “need” versus a “want” and set up a priority system.  Once the basics of food, water, shelter, clothing, transportation and communication are covered, the question of where to allocate resources is answered by finding the greatest need.  As an example of this, consider the family with a member who becomes ill and needs urgent medical care.  A family will sacrifice almost everything to ensure the well-being of the one member.  Once the member is brought back to health, however, the priority system and allocation of resources will change to fit the needs of the family as judged by parents. It’s a system that we are all used to and that feels natural and right.  And it is socialistic by nature.

I’ll state the obvious:  it’s important to make a hard break between our family and our family business. If a member of the next generation of a family business arrives at the workplace with an attitude akin to “Congratulations all who are here employed, I have arrived!  Me of Royal Blood!  Bow down and worship the future heir and bring gifts and resources to lay at my feet” we create problems for employees, family members and ourselves. At the family business, we must operate as capitalists, allocating resources based on forecasted return on investment and fit with strategic goals and culture.  Employees who don’t perform according to expectations lose jobs or get demoted, regardless of relationship to the owners or managers. Those who do perform get promotions, accolades, corner offices, bonuses, perks, more responsibility and prestige.

So how can we successfully make the transition between home and office in a family business?  How can we make sure that the Next Generation understands how important it is that the business can succeed only if it is managed by principles of merit and competition and performance?  Much of the answer is found in creating a set of shared expectations and understandings with family members, employees and owners to define which behaviors and attitudes are acceptable and which are not in the scheme of the family business system.   What does this mean on a workable, practical level?  Tune in later this week for a specific example or two of family rules and policies that can provide immediate help in keeping family socialism at home and capitalism at work.


More Data Says Private Companies Are Better

Craig Aronoff

A recent article in Forbes magazine made the following points:  stocks listed on U.S. stock exchanges have declined from 7400 to 3600 in the past 15 years;  public companies earn less than half of business profits in the U.S. economy today; and the part of the business sector that is not listed outperforms that which is listed. Obviously, family businesses make up a substantial portion of the non-listed universe (and the publicly traded universe as well).    These data speak once again to the size and importance of family business in the economy and the comparatively better results of private companies over public companies.


Successor Legitimacy

by John L. Ward 

A Financial Times article[*] about the sustainability of China’s leadership offers some ideas for family business successors.  The article outlines several forms of legitimacy that are more or less sustainable. 

First is procedural legitimacy.  The people accept how the successor was chosen. Democracy is believed to be the most legitimate – “people chosen by the people.”  That, of course, is not common in family businesses, nor China. 

Then what other forms of legitimacy are there? 

  • Performance legitimacy – success provides better welfare for the people. Beware: this cannot always be assured; research suggests that 55-65% of company’s financial performance is industry, not leader dependent.
  • Political meritocracy – it is clear that the leader is qualified. In China the Communist Party is setting ever higher standards of education for party leaders; honest competition for the best to be the successors also supports sustainability.
  • Ideological legitimacy – the people accept the leader as virtuous and the best steward of the company’s future. In Confucianism, the important values are benevolence and harmony.

As procedure, performance and meritocracy can be unsure in family firms, then ideological legitimacy is the essence – how virtue and stewardship are assessed may depend on the local culture.


[*] “Real Meaning of the Rot at the Top of China,” Daniel Bell, Financial Times, April 23, 2012


Five Reasons People Don’t Perform

Norb Schwarz

Perhaps the most difficult job I had as a manager was to complete timely and constructive employee evaluations. As I struggled with the process, it struck me that there were five primary reasons people did not perform satisfactorily in any job. 

  1. They did not know what to do. This is a shortcoming of communication within the company.
  2. They did not know how to do it. This tends to focus on shortcomings in the training area.
  3. They did not have the resources necessary to do the job. This is a matter of allocating the proper resources within the company.
  4. They did not want to do the job. This is simply a matter of appropriate motivation. And,
  5. They couldn’t do the job if their lives depended on it.

Nearly all of my employees who were not performing satisfactorily were in the first four areas. Management shares responsibility with the employee in the performance of the first four shortcomings. It will require a joint effort of management and employee to bring performance up to satisfactory standards. If an employee fell into the fifth category, the handwriting was on the wall. The employee had to be let go for the benefit of both the employee and the company. 

Once I began to see the performance management process in the light of a joint responsibility, it was much easier for me to utilize the process as a productive tool for the growth of both the company and the employee.