Family Business Center of Pioneer Valley

Family Business Center of Pioneer Valley

Defining Opportunities For Involvement For Younger Family Members

by Drs. Paul and Pat Frishkoff

Stephen Covey recommends starting with the end in mind. In conclusion, we recommend the development of formal conditions for involvement, at a time which precedes college decisions by members of the upcoming generation. We'll look at this recommendation from a number of perspectives.

Pat: Succession should be a business-first decision, focusing on the long-term health of the company. Recruiting leaders is an important process in any entity. It involves determining the leadership attributes critical to the organization's success, defining management positions, seeking and screening applicants, hiring the best people, and maximizing their value to the organization. The only thing different in a family business is that the eligibility pool often includes family members, who have been told or believe that they have some sense of entitlement.

Paul: From the perspective of the individual, career planning is the continual search for a situation in which to use one's skills to the utmost. Skills are what we do with ease and with results; most basic skills that one has were becoming evident at an early age. We recommend that any individual use those skills in diverse work experiences which will allow him or her to find enjoyable, meaningful employment throughout life. That pays off not only in self-esteem, but in the ability to see choices if the family business fails, has no entry positions, or is unpalatable.

Pat: The first issue is education. Is a college degree required? Does the choice of school or major matter? What about an advanced degree such as an MBA?

Family business owners often have strong beliefs in this area, but muddy rules. I remember one business owner whose son, let's call him Jerry, had come to the university. Jerry was enrolled just one year, majoring, seemingly, in girls. After he flunked out, he called his dad, indicating his urgent need for a job. Dad said, "Come on home."

But, nearly every day since Jerry joined the family company, his Dad makes a derogatory remark about Jerry's education and ability. "If only you'd passed some computer courses, I wouldn't have to hire a consultant." The situation is complicated by Jerry's brother and sister having completed their degrees.

One day I asked Dad, "Is there a rule in your family business that the next President must have a college degree?" He hemmed and hawed. I continued, "If you believe that this is the case, which I think you do, then it is time to clarify the rule and send your son back to school. And, if you don't want a rule, get off of his case because it is destroying your relationship and hurting the company."

Paul: Education is often the first rule that needs codifying, since it provides guidance as the oldest member of the next generation nears a decision about college. Another vital rule which we advocate is that the candidate have three to five years' experience outside the family business, with at least one or two promotions, prior to entry into full-time employment with the family company.

We once consulted to a family with five children in the second generation; the eldest grandchild was 17. There were no formal rules for entry, but precedence had established some unwritten and unstated assumptions that went like this: "There is always room if you have the right last name." "High school is enough." With fifteen grandchildren in the third generation, and a company not growing very fast, it was clear that these assumed rules couldn't continue to be effective.

Pat: Outside experience makes sense from the perspective of the company. Sure, young people will make mistakes and it's best to have them made on someone else's court. But a main reason for having an outside experience requirement is to provide the best opportunity for the young person to develop self-esteem. Working with clear job assignments and having performance reviews, culminating in a promotion or two, highlight strengths as well as indicating areas for improvement. The young person has a chance to exhibit capabilities, without being discounted as the son or daughter of the boss.

A key point is to insist that the young person personally secure the outside position. Dad and Mom should stay out of it. After all, if your son or daughter can't get a job, why on earth should you hire them into the family company?

Paul: Other rules define inclusion. Are spouses of children welcome and eligible? What about stepchildren and adopted children? Are women as welcome as men? Of course, we personally would like to see openness, especially in gender matters, and a closely-held company is NOT legally a democracy! Can one take extended leaves (for graduate work, or to check out an unrelated career or a new location) and still be welcome?

Pat: It's best to discuss the implications of going and expecting to come back long before the prodigal child departs. One of the worst family conflicts I observed was in a family where the oldest son, and intended successor, had a blow-out with his father and quit. In his several-year absence, the second child blossomed. But, when the eldest son returned, Dad put him back ahead of his sister, leading to a fight that almost destroyed the family.

Paul: Children deserve an indication about future ownership, especially if it will be tied to employment. If a young person chooses not to work for the family company, will that lessen his or her chances for ownership, or for involvement of next-generation offspring?

Pat: Even when family members have good education and experience, it won't always work. That's why fit needs to be included as a factor. One family, with a lot of capable members, hand-picked the first two young people to join the company, including one designated as the next President. The second generation team saw these two young people as a perfect third generation team to succeed them. Then along came another family member who seemingly met the education and experience requirements. But, it was clear to all that he didn't fit with the team, especially in terms of personality. Saying "no" was very difficult, especially on his dad. Here is another example of where a "business-first" philosophy must prevail.

Paul: The business-first philosophy should carry over into the terms of employment. We prefer market-based (as opposed to need-based) compensation. Increasing levels of compensation and of responsibility should result from measured performance, not from one's surname or the responsibility earned by one's siblings. An honest, timely system of performance review and feedback should pertain to family members as well as to non-family employees.

Pat: I've met few parents who could write honest and objective performance reviews of their sons and daughters. Some families have young people train under uncles, aunts, and outside managers. A mentoring arrangement is important to career development. Absent these opportunities for objectivity, it's best to go outside, to advisers and consultants, to screen and evaluate candidates. They bring objectivity and a broad business perspective to these sensitive decisions.

Drs. Paul and Pat Frishkoff are one of few couples who work together in the field of family business. They serve as a model for family participants. The interactive format of this column exemplifies the dynamic nature of their teaching. The Frishkoffs are the featured speakers for our December forum.

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