Working for a Family Business
A Non-Family Employee's Guide to Success
By Christopher J. Eckrich, Stephen L. McClure
Palgrave Macmillan Copyright © 2011 Family Business Consulting Group
All rights reserved.
Your Role in a Special Partnership
In a newspaper interview not long ago, Richard Yuengling Jr., the fifth-generation owner of D. G. Yuengling & Son Brewery in Pottsville, Pennsylvania, credited the company's non-family executive vice president, David Casinelli, with the company's recent rapid growth. Said Yuengling: "He's put us where we are today."
As the Yuengling case points out, non-family employees are often the key to family business success. Yet, one of the most challenging and confusing roles in a family firm is that of non-family supervisor or executive. And one of the least understood relationships is that between family members and key non-family employees. Consider these all-too-typical scenarios:
Scenario #1. The family managers and shareholders of Peerless Electronics are thrilled when Alan Woods, long a star senior executive in a much larger, public company, agrees to become Peerless's chief operating officer. After a few months, however, this new non-family executive lets his exasperation show. "There's too much family in this place!" he declares. Secretly, some of the other non-family employees agree. They don't understand why the CEO's daughter was given an important job when she can only work part-time, or why his brother is always putting his two cents in, or why the CEO puts up with those ungrateful minority shareholders, who also happen to be his nieces and nephews. Besides, many family members voice strong opinions, sometimes opposing each other on important issues.
In Alan's opinion, the business would function much better if the family got out of the way. "Then we could run this place like a business," he mutters.
Scenario #2. Olivia Turner wonders if she should start hunting for a new job. She has been working at Northam Tools for six years, and a year ago, was named head of her department. But the founder is ailing and, ever since his wife died last year, the grown-up children, who all work at Northam, have been bickering openly. Olivia doubts the company can continue to be successful once it falls into the hands of the siblings. All they do is fight. And it's too bad. Olivia really loves her job, but with so much tension swirling around and so much fear about the company's future, she thinks she may have to move on. If she does, it'll be a major loss for Northam because she is very talented and hardworking.
Scenario #3. Justin, a relatively new non-family CFO at Miller Transport, gets an earful one day from Adam Miller, 36, the son of the founder/CEO of the family-owned company. "Dad is really behind the times," complains Adam, the company's executive vice president. "This business is going downhill and it will fail unless we update our technology and adopt some new strategies. It's really time I took over leadership, but I just can't get the old man to listen to me."
Justin has seen the need for succession for a while, agrees with Adam, and at the next opportunity, he confronts Adam's father. "You know, Bob, you might want to be stepping up your retirement plans," Justin says. "Adam's really ready to pick up the reins, and besides, I think he's right about the need for change."
"What do you know about it?" Bob snarls. "Adam's not anywhere near ready, and, as I have told him, he's got some pretty crazy ideas about how to run this place." It was clear that the conversation was over. Justin is stunned. He was just trying to be helpful, and, after all, Bob had been talking about retirement ever since Justin arrived at the company.
These stories suggest how confusion and misunderstanding can drag a company down and derail or at least sidetrack careers. In the last scenario, Justin miscalculates his position with Bob and endangers his employment. While the son may be right, Justin has taken sides and alienated the father, his boss. In the second scenario, Olivia, an excellent performer, doesn't really understand what she's seeing: typical behavior on the part of adult siblings undergoing crisis. And, because she doesn't understand, she's getting ready to jump ship, which will deprive the company of a valued non-family employee. In the first scenario, Alan Woods demonstrates a complete lack of knowledge of what family businesses are like. He comes from the corporate world and becomes overwhelmed because he has no experience with family firms. Because of his background, he doesn't understand how to work toward a happy middle ground.
To be sure, business-owning families often don't understand themselves very well and often don't know what it takes to get the best out of their non-family employees. They will find this book helpful, but even more helpful if they share it with some "significant" others—key non-family employees, board members, advisors, shareholders, and other family members, including in-laws.
Working for a Family Business is designed first and foremost for key non-family employees. If you are a non-family employee who shoulders substantial responsibility or holds a position of considerable influence, this book is especially for you. Perhaps you are a department head who runs manufacturing, marketing, sales, finance, purchasing, information technology, or some other major function. Perhaps you hold an important supervisory or administrative role, overseeing public relations or engineering. Or perhaps you are an office manager, or the executive assistant to a senior manager. We've written this book with you in mind. The size or type of business you're in doesn't matter. The principles for success as a non-family employee apply to virtually all industries.
This book is also for you if you sit on the board of directors of a family business or serve it as an advisor—accountant, attorney, banker, or insurance agent. Much of what applies to a key employee will also apply to you in serving the family business.
This book will benefit you in many ways. First, it will provide you with a greater understanding of the concept of "family business." Family businesses are unlike other companies, and you will learn how they differ and how those differences impact you and what you do.
Out of this understanding, you will gain insight into the family and its behavior, as well as develop greater empathy for the family as it attempts to meet its own difficult, predictable challenges. You will come to recognize normal behavior patterns in business families and, as a result, you should feel more comfortable and less worried about what you see. You will be more able to grapple with issues and questions such as: Is this business in trouble? Is it going to be sold? What if I have to supervise the boss's daughter, or mentor a nephew? What does all this family disagreement mean?
You will discover some no-win traps to avoid, find tools and techniques for handling difficult situations, and develop judgment about your ability to take on certain roles or intervene in sensitive family situations. Generally, this book should provide you with the family business knowledge you need to be successful in your job and your career.
Finally, we will show you how best to serve the family and the business to insure the success of both. You will come to recognize the importance of seeing yourself as the family's partner. When you can do that, you serve yourself best as well. It is likely that your goal is to be so indispensable to the business that the family appreciates you, makes your job secure, and rewards you well. Absorbing the insights offered here will help you achieve that complex goal.
What Makes a Family Business Unique?
"Everybody's like family," is how Ernie Houston explained why he still enjoyed working for Melrose Diner, after more than 40 years of employment there. A family-owned Philadelphia restaurant founded in 1935, Melrose Diner was named one of the country's best places to work.
"Our job is to make this a good place to work for our employees, and it's their job to make this a good place to eat for our customers," Richard Kubach Jr., owner and son of the restaurant's founder, told the Philadelphia Inquirer. The Kubach family philosophy has made Melrose Diner a local institution, beloved by employees and customers alike. Some regulars eat three meals a day at the Melrose. Now the third-generation, Kubach's daughter and son, are working in the business with their father, carrying on the family's employee-and customer-friendly traditions.
Ernie Houston's affection for the business he works for is not at all rare when it comes to family-owned companies. Time and again, we hear employees of companies say, "They treat me like family here," or, "They really care about me." How often do you hear that same sentiment from people who work in large public corporations?
As a non-family employee, you are already aware of some of the challenges of working for a family business. When multiple cousins become employed, family and work relations can become quite complex. Family members may fight with one another and create tension for everyone else. An owner might hire a family member who makes little or no contribution to the organization, or Aunt Emma, who owns one percent of the company, calls and asks the head of shipping to send someone over to her house to move furniture for her.
But there is a brighter side to family business. Family-owned companies are unique in many positive respects. When you understand that, you might find yourself saying, "Hmmmmm, I'm pretty lucky to be working here. Let me see how I can make the most of this experience."
For starters, here's what non-family employees tell us:
—"Our company has a culture of being concerned and caring for our people. This stems from the owners."
—"What I really like is that we have less paranoia around short-term quarterly reports. Last year, we adopted a new strategy that will not pay off immediately, but will assure the long-term health of the company. This gives me hope as an employee."
—"One thing that makes this family business unique is that when economic times are poor, shareholders are willing to cut their own dividends for the sake of the long-term outlook and the health of the company. I find this very encouraging."
—"There is a culture of giving in our company. One owner heads a foundation that created a park. Employees here are allowed to do some volunteer work on company time."
Family firms often offer more security and more opportunity to make a difference. William M. Reid is the non-family president and CEO of the Mechanics Bank, a family-controlled financial institution based in Richmond, California. Mechanics has about 30 branches, and as Reid told us, "We're a really good company. We've had terrific success over a long period of time and [Mechanics] is a very strong and stable company. It's a wonderful place to work." As CEO of such an enterprise, he notes, "one can have long-term influence and in a way that is different than with a publicly held company."
Family firms have a reputation for paying less than many publicly held counterparts, and Reid admits that that is the case at his company. But, he adds, Mechanics is "an attractive place to work, it is more secure, it is more predictable. The working environment is one that is more pleasant to be around. It's more collaborative. It is supportive of the long-term growth of employees more, I think, than the public companies that I'm familiar with. All those things make it a happier place to be to do one's work."
GOOD FOR THE ECONOMY
Family-owned firms make a significant contribution to the worldwide economy. Statistical research on family firms is still in its infancy, but the International Family Enterprise Research Academy (IFERA) contends that family business is the dominant form of business throughout the world.
In the United States alone, depending on how you define family business, researchers Joseph H. Astrachan and Melissa Carey Shanker suggest that in the year 2000, family firms contributed anywhere from $2.6 trillion (or 29 percent) to $5.9 trillion (or 64 percent) to the U.S. Gross Domestic Product. They estimate that family businesses employ from 36 million people (27 percent of the U.S. workforce) to 82 million (62 percent of the workforce).
While people tend to think of family business as small business, many of the nation's largest companies are family-owned or family-controlled. Think of Ford Motor Company, the New York Times Company, S. C. Johnson & Son, Marriot Hotels, or Anheuser Busch. Studies indicate that anywhere from 37 percent to 47 percent of the Fortune 500 companies can be called family businesses.
Family businesses also show considerable staying power. According to the 2003 American Family Business Survey, a study of 1,143 U.S. family-owned businesses, the companies reported mean annual revenues of $36.5 million, up more than 50 percent from 1997 to 2002. The combined revenue of these companies was $54.4 billion. Despite adverse economic conditions, these firms had not decreased company employment levels in the three years ending in 2002.
As if to echo the survey's finding that family businesses often retain their commitment to employees in hard times, Herbert E. Stoller, CEO of Widmer Interiors, a contract supplier of office and healthcare furnishings based in Peoria, Illinois, told us that fiscal 2003 was a very tough year financially. But the Stoller family resisted laying off any of its 40 employees. "That would be the easiest, quickest way to save money, and we just didn't feel that that would be the right thing to do," said Stoller. The family members believe that they are stewards of the business and have pledged themselves to manage it well for others. You'll learn more about the Stollers in later chapters.
FLEXIBILITY IS GREATER
At their best, family firms are less bureaucratic and can therefore be more flexible and creative in the way they do business. Often, the needs and abilities of the family itself drive strategy. We've known situations where a family-owned retail business had seven outlets because there were seven siblings to run them, or where a new division was created to make the use of the particular talents of one family member. They can be more responsive to a local market because they are not bound by the same requirement that national chain stores have to keep things standard throughout the country with only slight modifications for a particular locale.
Companies that expand beyond their country's borders often discover that being family owned is a great asset. Binswanger Companies, a third-generation commercial real estate company, found that foreign clients like dealing with multi generational family firms because they can talk to the decision maker and decisions can be made quickly. Now run by two cousins, Binswanger has more than 5,000 employees in 160 offices around the world.
WHAT REALLY MAKES FAMILY BUSINESSES UNIQUE
Family involvement is what really sets family firms apart. This is where nonfamily employees can play a very major role. For while family involvement is what makes family businesses great, it also makes them a more complex management challenge. Let's explore your role by taking a look at one of the classic models used to understand family businesses.
This model identifies a family business as a series of systems, and provides insight into the various roles held by stakeholders. The three circles represent three systems: the ownership system, the management system, and the family system. We will refer to these collectively as the family business system.
Notice how the circles overlap. For example, all family members exist somewhere in the family circle. Family members who don't work in the business and have no ownership stake in it are represented in the lower part of the family circle. Though not owners or managers, they may possess a high emotional stake in the business because they have grown up with it and it bears the family name. Other family members may work in the business but own no shares. Still, other family members may own stock but not work in the business. Still others wear all the hats: family member, shareholder, and employee. They are represented by the space in the intersection of the three circles.
Because these roles overlap, family members and employees often have difficulty sorting out which roles a person is playing at any moment in time. For example, a CEO's daughter works in the business. She is often late for work after dropping her children off at childcare. The CEO knows she needs disciplining and may wonder, "Should I confront her as her employer, or have a talk with her as a concerned father?" Her brother, who also works in the business, complains to the CEO about how she is overpaid, though his strong feelings come mostly from his belief that dad always treated her leniently. Meanwhile, a non-family employee wonders whether this is an employee performance issue to be confronted, or a family issue that should remain undiscussed.
It is common in any business to focus mostly on the role of those who work in the business. As the model implies, however, special attention is given to family members who may or may not become employees, but who must prepare themselves to become effective shareholders—a role that, in the case of younger family members, may not occur for years. These family members will someday have a critical role in determining the future direction of the organization.
GOVERNANCE IS DIFFERENT
The way family businesses are governed is also different from governance in nonfamily companies. Many of the most successful business-owning families believe they have almost a "moral imperative" to try to hold the family together. Toward that end, they seek to achieve excellent governance, which is the relationship between ownership, management, and the board.
In the beginning, governance is pretty simple. The founder owns the business and has the authority to make all the decisions about how it is to be run. In some cases, it may be a founding partnership that runs the business. (Continues...)
Excerpted from Working for a Family Business by Christopher J. Eckrich, Stephen L. McClure. Copyright © 2011 Family Business Consulting Group. Excerpted by permission of Palgrave Macmillan.
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