Heir Raising Tales of Nepotism
This article in a local business journal caught my eye: "Lines Music Company No More After 123 Years, 5 Generations." "Lines Music Company, a Springfield entity for more than a century, no longer exists as a company. The company's property is set to be sold in a foreclosure sale, the result of a shift in the company's bankruptcy status from Chapter 11 (reorganization) to Chapter 7 (liquidation)."
What went wrong? Imagine the changes in environment, market and government that this company had survived. What force was so great that it destroyed a company with this kind of longevity? The same force that had held it together for so long: family.
In the article, Bud Lines, fifth generation stockholder, says, "The transfer of stock wound through the family. We realized there wasn't a lot of future left with that many stockholders. Through the years, I can remember my father and uncle wanted to try to come up with a buy-out with other family members, but it just didn't work. It would've made things a lot easier if people who were in the company had held a majority of the stock."
Just speculating, but, can you imagine a few members of the family working their fannies off in the business while dozens of cousins eagerly await their dividend checks?
Nepotism is defined as "favoritism; especially governmental patronage to relatives." In other words, you get the post because you're a member of the lucky gene pool. That can create problems. But there are lots of advantages with family-run companies. Let's look at the pros and cons of keeping it all in the family.
Bew'heir these pitfallsFamily relationships in business become dysfunctional when family members play the game with a different set of rules from the rest of the company.
"I think our parents got together in 1946 and said, "Let's have lots of kids and give them everything they want, so that they can grow up and be totally messed up and unable to cope with life." - Hope Steadman
Really, most folks mean well when they bring other family members into the company. If you give Johnny a "leg up" in the business, why, he won't have to waste time making all the mistakes you made. He will rule the world in six months! Hmmmm. What if Johnny doesn't live up to your expectations?
Conversely, what if Johnny is allowed to "slide"? You don't hold him accountable because, heck, he's just a kid (35 years old?) and once he grows up he'll take on more responsibility. Sure. You are not doing Johnny a favor. You're stripping him of his own power. And the other employees will resent you both.
What if a family member really needs the boot? Tough call. But if Johnny is not producing, wouldn't it make sense to free him up to find a job for which he is well suited? If you fire Johnny you may be in for some cold shoulders at Thanksgiving dinner. But you are obliged to play a fair game. Hang tough. By next year, cousin Rosemary's affair with the teenager will take center stage and you and Johnny will be forgotten.
It is important that every employee's performance is measured against objective, measurable standards. Ask yourself, "Would I treat a non-family member in his position the same way?" Therefore, expect no more and no less from a family member than you would from all other employees.
I asked a young fellow recently, "Do you like being the service manager at your company." He responded, "Well, my dad wants me to be the service manager, so I guess I like it." I laughed. He didn't. Don't sacrifice your life for the family business. If you choose to go to New York and be a chorus girl in CATS, do it. The family will get over it. Dan and Uncle Louie will find someone else to be the weekend dispatcher. Therefore, do what you want to do, regardless of what the rest of the family wants you to do.
The article about the Lines Music Co. indicated that too many relatives were drawing money out of the company. As each generation increases geometrically it can get crowded on the salary line of the income statement. I'm all for putting Mother on payroll. After all, she's been a saint. But don't overdo this. If you pay more to relatives who don't work at the company than to the employees who do, you may be heading for trouble. Therefore, match compensation to performance, not blood test.
Frankly, in our industry, paying family members too much is the exception. More often, hiring family is a way to get free or cheap labor. Lots of contractors claim, "I can't afford to pay someone so my wife does the bookkeeping." Yikes! There are plenty of worthwhile nonprofit organizations looking for volunteers. Your company should not be one of these. Price your services to cover generous compensation for all performers, related or not. As Frank Blau reminds us, "Slavery is illegal."
Have you tried to run your company by committee? For fear of stepping on anyone's ego, family business members can coast along aimlessly. One person must accept ultimate responsibility for the leadership of the company. You can still work as a team and support each other, but choose a "buck stops here" person. Somebody must make the final call when it comes to a split vote. Therefore, decide who will be the boss.
Advantages of F'heirly Run BusinessesEnough of the problems! A family-run business can be a wonderful environment for profits and personal development.
Hire your kids. Even little buckaroos can help out at the shop-stuffing envelopes, sweeping up, washing trucks, entering data. Hold them accountable. Everyone fills out a timecard. Performance appraisals are based on production, not last name.
What a terrific opportunity to show kids how to play the game. Be sure to spend time training them on the whole operation. If Bobby is dumping trashcans all day, he might not see the big picture. Commit to their business literacy. Show them numbers. Have them visit job sites. Have fun!
School breaks are nice opportunities to "test drive" a family member. Determine that the working arrangement is satisfactory to all involved. For instance, your daughter Sally wants to earn some money this summer vacation. This is a busy time for you, so it is agreed that Sally will work part-time filing invoices and bills until school resumes. If Sally doesn't deliver, you have an imposed time limit on the relationship. You can discuss why the job didn't work out and develop a game plan for using the experience to her advantage. If Sally shines, great!
Also, you can pay each child up to $3,900.00 tax FREE (not tax-deferred) every year. Cool, huh? Check with a tax accountant for details.
You can teach your kids how to run a business and make money. This is empowering! Therefore, help your kids learn business skills.
Today, you must differentiate yourself from the competition in order to survive. Why would folks choose your company over the others? Because you are a family-owned company that cares for its customers. There are customers who would love to fall in love with your family business. Can't you hear them? "Oh, I called Arnold Roofing. They are so reliable! My mother used Arnold Sr. and now his son is my roofer."
Big companies will never match your ability to develop a personal relationship. Therefore, your family business can appeal to a market tired of big stores and poor service.
Open Book Management Guru Jack Stack claims that one of the higher laws of business is to give employees a stake in the outcome. If Johnny knows, "Someday this will all be mine!" he may be very motivated to make the company successful. Do you find that owners and employees usually have different motivations for their behaviors? When your name is on the sign on the side of the building you might go the extra mile to make sure you get the job and satisfy the customer. Therefore, reap the benefits of a company of owners.
If you are operating a sound business with solid earnings, you could pass your successful business on to your kids. This is an admirable goal. What nicer inheritance than a cash cow? If you are intent on creating a legacy with your company, you better make sure the thing works. Put systems in, pull the bugs out and create the perfect company.
If little Johnny grows up working in a sane and profitable company, well, who knows, maybe he could rule the world. You can create a legacy or expand one into another generation.