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The Demise of the
Family Business?
See also:
The Family Business — Part One
The Family Business — Part Two
The Family Business — Part Three
The Family Business — Part Four
The Family Business — Part Five

he family business is as American as apple pie and the Fourth of July parade. Ford, duPont, McDonnell-Douglas, and W.R. Grace are only a few of the family businesses that are among today's corporate giants. And there are thousands of fine mid-size and smaller family-controlled businesses delivering respected services and products all across the United States.

          The family business has many unique strengths and advantages. Family members literally grow-up in the business from childhood. The business is the topic of discussion over the dinner table each night or at Uncle David's family dinners every Sunday evening. Family members are usually the beneficiaries of tough on-the-job training in the business from early adolescence as well as superb academic educations. Family members are willing to sacrifice for the good of the business in ways that would be inconceivable in a corporate position. Family members have a sense of loyalty and commitment to the business that is unknown in today's corporate environment. Family members may have a powerful sense of mission and noblesse oblige far surpassing what is found in the public corporation.

          But today we know that few families anywhere fit the mold of the Brady Bunch. Almost every family has tensions, jealousies, and internecine rivalries. A dominating patriarch — or matriarch — may impose apparent conformity for a brief period, but this may only suppress the boiling turmoil and divisions within the family. Being expected to "go into the family business" is now more commonly seen as a curse than a blessing. Too often, the family business simply exacerbates the stresses skulking behind the facade of unanimity and contentment. Contemporary biography would have us believe that America's great corporate founding families were virtually all dysfunctional families.

          Here are some of the guidelines that have helped to assure the long-term success of the family business.

          Make your mistakes elsewhere. Some families have the rigid rule that the heirs-apparent must first work 5 to 10 years with another business — frequently a large corporation in the same industry — and achieve some notable successes in this job before joining the family business. Upon then coming on board, they are recognized to be a competent and valued player in the industry, not just "the boss' son or daughter."

          Only competence counts. Family members are entitled to a job in the family business only if their performance is equal to and preferably clearly superior to the unrelated employee in a parallel job. The family must hold itself to the highest standards of performance; they must be mentors to all other employees. Lazy and mediocre relatives are resented by non-family employees at all levels and quickly become a malignancy within the organization. Some families pay the incompetent relative to work at some other job simply to keep his/her debilitating influence out of the family business.

          Key non-family positions. The family business must make a conscious effort to place a number of non-family members in key management positions. While it is clear that the CEO job is unlikely to be available to them, they must be given real responsibility, authority and power, and must command the respect of the family. The right people for these critical jobs will expect a generous compensation package and often some kind of equity-equivalents. In the 1920s, the duPonts began giving their non-family executives "phantom stock" which became a most effective incentive.

          Plan for succession. Succession is one of the touchiest problems in most family businesses. Two rules are fundamental. First, plan early, and in an orderly and open way. This vital decision should never be deferred until after the death or unanticipated disability of the founder or CEO; only bitterness and misunderstanding are likely to ensue. And second, the selection of the successor should be entrusted to a truly independent and knowledgeable outsider. This outsider must know the company and have observed the candidates at work. This outsider may be a professor who has been a long-term advisor to the company, or possibly an independent CPA or an attorney. Obviously, it is essential that this outsider have "no axe to grind" and that the ultimate decision can be expected to be one fully respected and honored by both the family and the key non-family workers in the company.

          The family business is unlike all other forms of business ownership. It has remarkable strengths and advantages, but it can also unleash some disastrous demons. These guidelines offer the basic weapons to protect the prosperity of the carefully nurtured family enterprise from the demons lurking within the family itself.

Your comments and suggestions for these pages are most welcomed!

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Thomas A. Faulhaber, Editor

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Revised:  May  03,  2023 TAF

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