Winter 2007
Feeling at Home

Outsiders

Do non-family employees feel like “outsiders” in your family business? If so, it’s a sure bet that they have low morale and simmering resentments that are going to cause problems and affect profits. It makes sense, then, to take action that will make outsiders feel right at home.

Workplace psychologists suggest taking two steps to help non-family members fit into the family business. First, foster a business environment that communicates respect for everyone. Second, make a point of uncovering festering issues before they escalate into serious morale-busting crises.

To a large extent, both steps require continuing improvement in communications techniques. “Facilitating open communications can be even more important at family-run operations than at other kinds of businesses,” says Jerry I. Kleiman, cofounder of Optimal Resolutions, a Manhasset, NY-based firm that helps family-businesses resolve relationship problems. “There are so many additional issues involved that you really need to be mindful about identifying and dealing with problems before they become critical.”

Here are some great ways to keep non-family employees happy:

Set the ground rules.

Right from the start, non-family employees need to be told the ground rules in terms of their prospects for advancement. “During the hiring process the applicants should be informed as to whether they will be essentially place-holders, or whether there will be some potential for promotion,” says Susan Lazar, a Minneapolis-based family business consultant. “It is important that expectations be clear.” Is your family business one of the many in which there is no possibility that a non-family member will be able to gain ownership? That’s not necessarily a problem, says Lazar, as long as the non-family employees realize the restriction and are comfortable with it.

Treat people fairly.

“Non-family employees realize they will not be treated in a manner equal to family,” says Aron Pervin, president of Pervin & Company, a family advisory firm in Toronto, Canada. “But they do expect to be treated fairly.” This means family members must not take advantage of their positions in ways that cause irritation or resentment. It also means avoiding any appearance that family members are benefiting unfairly from the sacrifices of others. Suppose the business owner and family patriarch drives up in a new, top-of-the-line Mercedes and then tells the staff he cannot absorb more of their health insurance premium increases—one might not have anything to do with the other, but it’s going to be very hard for employees to reconcile.

Confront family issues.

“Family discord directly affects morale and creates a culture that is not attractive to aspiring and ambitious talent,” warns Pervin. When family members are arguing with one another, or simply giving each other the cold shoulder, profitability is threatened because business strategies become subject to the whims of the family members holding the most power. The insecure nature of such power dynamics can spark paranoia about outsiders. “High performance by a non-family employee may actually be viewed poorly as it undermines owner-manager control,” Pervin says. The solution to this problem, he says, is for family members to make a commitment to open communications. Disagreements and personality conflicts must be discussed and worked through, not swept under the rug.

Work hard.

Employees who are family members have to work as hard as non-family employees. When it comes to performance, problems often arise when it appears that family employees are not being held to the same work standards as non-family employees. But sometimes in “the real world,” underperforming family members have to be retained in a business, even if they are underperforming. What to do? Lazar suggests creating a position tailored for the skills of that family member. “Your challenge here is to allow the person to feel they are achieving something” that contributes to the business’s growth, he says. “In this case they will gain the respect of the other employees even if the person is not performing to the level of the other family members.”

Show appreciation.

Family businesses can help non-family employees feel valued in a variety of productive ways, including sharing the fruits of success through bonuses, benefits packages and retirement plans. Business owners can also provide less ambitious but prized perks, such as: food baskets for Christmas, summer picnics for employees and company luncheons or dinners to award individuals for length of service.

Family organizations can really shine when it comes to giving personal attention to employees. Bigger companies often just don’t have the time to plan an impromptu event or order a small gift package for an employee who went above-and-beyond.

Open the door.

Open-door policies are often a hallmark of family run organizations. Family members in supervisory positions need to be approachable. “Problems arise at family businesses when there is a weak intersection of expectations and reality,” says Paul Karofsky, principal of Transition Consulting Group, Weston, MA. “This can lead to frustration, hostility, terminations and even lawsuits. This stuff can get nasty. Left unchecked it can kill morale and destroy profitability.”

The bottom line is that family businesses need to take special time to encourage a climate of clear communications among family and non-family employees. Dealing with issues through explicit policies and open communications can avoid the buildup of dissatisfaction that can seriously impact company performance and the bottom line.

Hiring a Non-family Manager

Families love to manage their own businesses. Crises can occur, though, when there’s insufficient management skill within the family to grow an organization to the next level. As competition becomes more intense, a greater number of family businesses are hiring skilled non-family managers.

“Mature families often realize they do not hold all the cards needed to win the game,” says Paul Karofsky, principal of Transition Consulting Group, Weston, MA. “Hiring an outsider can be the best way to acquire needed skills.”

Karofsky says companies must clearly define job functions to avoid resentments when a non-family manager makes decisions that may conflict with the traditional procedures and established roles of the family. He suggests writing down clear job definitions and responsibilities for a new manager—and for everyone else in the organization.

Even with clear job descriptions in place, warns Karofsky, conflicts can arise when the non-family manager makes decisions that family members disagree with. Families can avoid these crises by drawing up a strategic business plan that calls for measurable results. He also suggests they establish a program of communications between the manager and the family members. This can include initial written reports, followed by formal presentations to the board of directors, and ongoing, informal discussions along the way.

Sources of Assistance

Educational institutions are ready to help with seminars and roundtables that delve into the issues facing family business owners. Here are a few of the prominent players:

University of San Francisco, Gellert Foundation Family Business Center
Works with family businesses to promote networking.

University of Southern California Family Business Network
A resource for families and their businesses, providing a sophisticated forum for information about management, growth, continuity and strategy.

University of Massachusetts Family Business Center
Sponsors presentations by experts in psychology, management, law, accounting, financial and estate planning, and banking.

University of Pittsburgh, Katz School of Business Family Enterprise Center
Provides educational programs and peer advisory activities.

Loyola University Chicago Family Business Center
This Chicago-based organization sponsors research projects on family business leadership, the communication patterns of business-owning families and the performance of family businesses compared with non-family managed counterparts.

University of North Carolina at Asheville, Family Business Forum
Enhances the viability of closely held businesses in North Carolina.

Canadian Association of Family Enterprise (CAFE)
Not affiliated with an educational institution, this association is included here because of its critical role in the Canadian family business scene, maintaining chapters throughout Canada.

Phillip M. Perry

Perry is a freelance writer based in New York, NY.
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