To make money, you say. Isn’t that the purpose of a business? From 67 years of being an owner of one, and the observer of others as an attorney, mediator and teacher, I’m not so sure. It’s not that simple, and in my opinion, this question can and does get ignored to the detriment of the business and family owning and operating it.
“What is the purpose of your business” is fundamental and essential. Before we deal with the question of purpose, let us discuss some of the essentials of a family-owned business.
THE NATURE OF THE BEAST
The family-owned business is the oldest form (Adam and Eve) and also the most unique — a family in business together. Most businesses are family owned and eventually most family-owned businesses go out of business.
I believe a family was not intended to operate an economic entity. I do not mean that it cannot be done, but that it is rare that it is done successfully, and that it is not accomplished without a tremendous amount of work, patience and understanding. The most classic example of how easy it is to destroy a family business is Adam and Eve. The first business — literally. An absolute monopoly! The requirement? Follow one simple rule. The first example of the wife telling the husband how to run the business.
It is my sincere opinion based upon 67 years of participation in family-owned businesses, and in serving others as an attorney and mediator, that a family which attempts to operate a business is attempting to do the impossible. Businesses are allegedly based upon economic models whose foundation are organization, skill, purpose and maximum profits. None of this applies to a family model. A family model is based upon love, caring and forgiveness. None of this applies in business.
Many scholars try to pinpoint the problems that reoccur in family-owned businesses, such as succession, as if that is the problem. It is not in my opinion. The problem is not who succeeds, but rather how family members deal with one another in addressing the issues. Every business has succession issues. Only family companies have the family issues.
Which brings us to the foundational issue.
What is the purpose of your business?
As Family Business Experts put it, “Family-first business or business-first family?”
I have heard family business owners bemoan their perceived lack of economic success as compared to other businesses while ignoring the fact that a cause of the diminished success is that many, if not all, decisions are being made on family, rather than economic bases.
A few actual examples to illustrate. Years ago, a father had his son-in-law successfully running his business. Marital problems arose and the daughter and son-in-law divorced. The father retained his former son-in-law as president. The company did well economically. The family disintegrated. An example of a business first family.
Last year a stranger who found that I was in a family-owned business told me that he ran the company for his father-in-law, and in so doing, achieved a national reputation in that industry and ran a very successful company. He and his wife divorced. He was fired by the father and the company has suffered.
AN EXAMPLE OF A FAMILY FIRST BUSINESS
A unique twist, a father and three children — a son and two daughters. The son ran the business very well and gained national prominence in his industry. In an estate planning move, the father gave all of his stock to the three children during his lifetime with the two daughters owning two-thirds and the son owning one-third. The two sisters fired the brother. The company suffered, and the family disintegrated. What category do you put this one in?
Lack of estate planning and some uniformity therein has caused problems and disintegration of family-owned businesses. How would you, as owner of half of the family business, like to have the IRS assert a tax lien on your deceased relative’s one-half interest because the brother didn’t make estate plans? It has happened as a result of family failure to communicate and plan.
THE DETERMINATION OF YOUR PURPOSE AND THE PURPOSE OF YOUR BUSINESS
In simple terms, you ask and answer questions. In most instances, questions are asked and answered by a course of events and without conscious effort. For example, the question of whether family members are automatically entitled to jobs is usually answered by a course of action over a period of time rather than in question and answer form. The approach advocated here is much more organized than occurs in real life. But it illustrates the point and suggests an approach.
First, each family member needs to ask and answer the same questions as to himself and his relationship to the family. No man is an island unto himself, to borrow a phrase, and this is certainly true within a family business. If two or more have significantly different views on critical subjects, trouble is waiting to happen.
The second step is a group approach. It is the addressing of significant issues to determine if there is group unity or division.
Beyond that, and beyond the scope of this discussion, is the asking and answering of questions to establish a family ownership mission statement and a business plan for the company.
A key to the asking and answering of the questions is that there are no right or wrong answers. For example, the question, “Should key positions be held only by family members,” does not have a right or wrong answer. It is “right” if the answer is unanimous. It can be right or wrong, but definitely problemsome if the answers are significantly divided.
Have someone help you identify the questions and supervise the answering of them. Have other owner family members take the test. It should give you an insight into determining the purpose of your company or into the fact that there are differences as to the purpose of your company.
Families need to talk which is easier done with the assistance of a third party.
Harold (Hal) Miller, Jr. has 67 years experience as an owner of a family-owned business and 50 years experience representing family-owned businesses as an attorney. He has taught the subject at Millsaps College and is director of the Family Business Institute, Else School of Management, Millsaps College. He is a family business consultant.