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Horizons: Family Office & Investor Magazine

How to Make Your Family Business Last Across the Generations - Part I

Tuesday, November 27, 2018

It wasn’t raining when Noah built the Ark: Prepare for family business quarrels now

Mitzi Perdue is the daughter of Ernest Henderson, the man who built the Sheraton hotels from one hotel to more than 400 during his lifetime and was the first hotel chain to be listed on the New York Stock Exchange in 1947. She is also the wife of Frank Perdue whose promotion of the Perdue brand through high-profile advertising resulted in creating the first well-known brand of chicken in the U.S. While Frank is now recognized as a visionary – branding his Perdue Farm chickens with his own name and being the first to put a name tag on them – Mitzi says that as much as she admired him for his success in business, she admired him even more for his success as a family man. Mitzi is also a business- woman in her own right. She started the family wine grape business, now one of the larger suppliers of wine grapes in California.

Mitzi likes nothing better than to share insider tips for successful family businesses. The Henderson’s started their Henderson Estate Company in 1840 and her Perdue family started in 1920 in the poultry business. These two families have a combined tradition of 278 years of staying together as a family.

There’s no such thing as a family business without conflict. If you Google “family business feud,” in less than a second, you’ll get roughly 1.2 million hits. And that, of course, is the tiniest fraction of the number of family business disputes that do not show up in the Google search engines.

At their worst, a quarrel in the family business can become a threat to everything the family business holds dear, including relationships, wealth, and position in the community. Seventy percent of family-owned businesses won’t make it to the next generation, and the biggest reason for this sad fact is family quarrels.

Since every family is going to have conflict, the fundamental question is, how do you deal with these quarrels so that they don’t cause lasting damage?

Develop a Covenant Culture

An answer that has worked for many family businesses is to create a covenant culture. Do it long before it’s needed.

In a family business, this means that family members covenant with each other that while they have a right to air their disagreements when a decision is made, they come together. They agree ahead of time to close ranks and move on.

Part of a covenant culture is, everyone gets to be heard. Participants agree to listen to all sides and to value robust discussion.

Another essential element—possibly the most important—is a commitment that issues will be resolved within the group. The reason for this is, in cases where members of a family business go to the media or get into litigation to resolve a conflict, they are likely to unleash an uncontrollable chain of events that predictably will endanger the entire family enterprise.

By the time a family business member exposes a conflict to the press or initiates litigation, there’s usually no turning back. The chances of reconciliation are so slim that many family business professionals will not take on as a client a family business that has reached this stage.

At this stage, when the family is in litigation or duelling it out in the press, chances are that family business is on its way to joining the 70% of family-run businesses that don’t make it to the next generation. What’s all important is preventing conflicts from reaching this stage.

Ways to Prevent Out of Control Family Business Conflict

Since conflicts are inevitable, what can members of a family business do to support having a culture that commits to keeping quarrels within the family? The answer is that the business family needs to consciously work on developing a culture for resolving conflict. Culture is, “How we do things,” and if the important work of developing a strong, supportive culture is left to chance, members of the family business may never learn key attitudes that they’ll need to keep disputes from escalating. Without ways to keep conflicts from escalating, a covenant culture is not possible.

Developing a positive family business-friendly culture requires time together, discussions, and above all, role modelling. To prevent disputes from getting out- of-hand practice these six attitudes and techniques.

1. Take a moral stand that it’s wrong to move disagreements outside the family.

The experience of many thousands of family businesses shows that once a family starts down the road of a public dispute or litigation, the usual end result is the end of the family business. Positions harden, reason goes out the window, and it’s a rarity for any members of any family business to change course. The usual end point is either a drastic weakening of the business or its complete destruction. Members of business families need to know that it is morally wrong to be the cause of this.

2. Let family members know that this isn’t just about their wishes.

Because any public acrimony in a family business so often leads to the company’s failing, it threatens the well-being of innocent bystanders including the company’s employees, stockholders, lenders, and even the tax base of the community. Members of family businesses need to know they have a responsibility to large numbers of people beyond themselves.

3. Emphasize the concept of “Family First.”

Family businesses are unlike regular families, be- cause in the tug of war between individualism and being a member of the group, there needs to be a different balance. Members of a family business have a different level of responsibility because their actions influence all the stakeholders involved in the business.

4. Put relationships ahead of ego.

Members of family businesses need to know that there are times when they have a choice between getting their way and having a relationship. Being a member of a family business at times means sacrifice, and for the business to continue, this can mean giving up the ego gratification of getting their way. However, in return, they’ll get something of vastly greater importance—the chance for the family legacy to continue and thrive.

5. Compromise is key.

Members of a family business need to learn to listen to each other and they need to avoid the temptation to “stand on principle.” In the context of a family business, “standing on principle” is a synonym for “being stubborn.” It means, “I’m not going to listen to you.” It also tends to shut down discussion because virtue signalling can shut down the give and take that’s essential for compromise.

6. Be careful of what is said in anger.

Angry words can be self-fulfilling, such as for example, disparaging someone’s competence or expressing a preference for a sibling. A person may say something in momentary anger, but the person hearing what was said may remember those words for a lifetime. Garbage can come out of Pandora’s Box that can’t be stuffed back in again.

Done right, the family and all its benefits will endure. Done wrong, the family business blows up. By considering and practicing these six attitudes and techniques, you can quell any family business dissent before it jeopardizes the health of the company as a whole.

 
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