Building a business is hard. Building a family business is harder. But the hardest thing is trying to build your family business into a legacy that endures. Every business wants to grow and profit, but family-run businesses have an added layer of complexity—they need to sustain and nurture the family as well. And sometimes those needs are in conflict.
Family businesses are doubly complicated. The business and the family cannot be separated. Consider the situation they are in:
- Being in a business that takes all available effort.
- Being part of a family where avoiding people who cause disagreement is not an option.
- It’s the perfect environment for conflict.
Conflict is the biggest barrier to creating a sustainable legacy. Family conflict is inevitable – how it gets resolved depends on leadership.
There are three damaging points of conflict in family-owned businesses: Purpose, Direction, and Legacy. This article will dive into those pain points, as well as the leadership skills needed to manage them.
CONFLICT
The “conflict,” or as some clients call it, the “screaming,”
- Sometimes it’s loud.
- Sometimes it’s silent but deadly.
- It’s always hurtful on some level, damaging to individuals and the business.
You can never get that time back, but the cycle CAN be broken.
Let’s look at each of these points of conflict:
1) Conflict of Purpose- Why are they in business?
The purpose of the business can be a number of things like:
- Providing for the customers, associates, and communities that the business serves.
- Providing income for the family, now, and in the future.
- Providing a benefit to society in general.
Often, the purpose is deeply rooted in the family values set forth by the founders. In any case, disagreement about the purpose usually stems from differing expectations. These can be individual expectations, family branch expectations, or generational expectations.
Additionally, family-owned companies are frequently referred to as “privately held.” The key word here is “private”, so the names have been changed to protect these clients’ privacy.
Como Inn:
To further explain how purpose can impact conflict, let’s explore the story of the Como Inn, a multi generation Italian restaurant in Chicago. It all began in 1924 when a young immigrant from Italy named Guiseppe Marchetti opened a restaurant on Milwaukee Avenue. The stated purpose was to deliver great food and excellent service. The restaurant quickly became world-famous. In 1997, the founder’s sons took over and started diverting cash from the business to buy Ferraris, as well as a building to display their new cars. The resulting crunch forced the Cuomo Inn to close in 2001, after 77 years in business. This could have been avoided.
Another example:
Another great example (also based in Chicago) is about a client whose business is 100 years old, and is currently run by three brothers and an uncle. There are 6 family members working in the business spanning three generations. The father started the business with the purpose of providing joy and beauty in floral arrangements for birthdays, sympathy, holidays, and other special events. They have been successful, including competing against grocery stores selling flowers. They’re committed to passing the company down to future generations. However, an uncle who was in poor health, and didn’t have children, surprised everyone when he insisted the company buy out his 35% share. This triggered a crisis because there was no liquidation plan in place and buying him out would require so much cash it would force the sale of the company. Eventually they were able to work out a payment plan, but this could have also been avoided.
Surprise expectations about purpose can easily put family businesses in that 97% category that doesn’t get passed down. A leader’s role is to create an environment of “no surprises.” This includes engaging family members, reiterating the purpose of the business at every opportunity, and integrating a generational touch point. It’s critical to learn about differences in expectations and manage those differences around a common purpose.
2) Conflict of Direction – What steps should be taken and what are the risks?
This area of conflict is related to the strategy and acceptable risks for managing and growing the business. This requires communication. When Charlie Leichtweis, the CEO of Experts in HOW, LLC, engages with a family business, he surveys every adult family member to understand how they feel about the business, management, and family governance. Leichtweis asks questions such as:
- What is done well?
- Where is the market going?
- What are the risks from outside forces such as competition, the economy, supply chain, customers?
- How is leadership qualification determined?
There are often individuals, or whole branches of family, who have never been asked these questions. This is a recipe for disaster. There are a number of ways to mitigate conflicts of direction, but they all start with engaging all the members of the family in how decisions are made and what they are based on.
When starting with a new client, Leichtweis also asks “Who is the family?” for a list of all the family members. Typically, they only name those members who are directly involved in the business. So Leichtweis follows up by asking, “Are there any cousins, grandchildren, spouses, etc., who are NOT directly involved in the business, or who hold equity?” It’s important to get the whole picture. The examples below are a few instances of how family engagement and conflict resolution can define the fate of a company.
Snyder Paper:
Engagement from the entire family is necessary, and Snyder Paper is a great example of why. Snyder Paper is a 75-year-old business in product manufacturing and wholesale distribution. Fewer than one third of the family members are shareholders, fewer than 20% are on the Board, and none are in management roles in the business. Only the shareholders are considered to be “involved,” and receive any type of reporting or participate in business decisions. When Leichtweis asked about family member involvement, they were surprised when he asked for the names of all the family members so a survey could be sent to them.
Those family members admitted that they had only been recognizing members who were current shareholders or on the Board of Directors. Once they understood that everyone needed to be involved, they explained that there was a branch of the family that was not likely to answer a questionnaire. There was some sort of conflict within that branch of the family, but no one was sure what the issue was. They only knew that something went wrong years ago and that part of the family was not on speaking terms with the others.
Not only did they receive the survey, but 100% of that branch answered the survey. It was clear that they cared about the business, and wanted to be more engaged in its purpose and direction. There were no answers criticizing management or any other family members. In fact, they seemed pleased that they were being asked for their opinion.
There was an assumed conflict that led to the belief of excluding an entire branch of the family from participating in the direction of the business. If left unresolved, any future decisions could be met with challenges that could jeopardize the legacy of the company and family. Now the family is actively engaging all the branches, and will be leveraging that engagement into developing leadership and ownership transfer that will ensure the continued legacy of the company.
Zyloware
Zyloware is a 100-year-old eyewear company, which was founded by the grandfather. While the grandfather may have started the business, the next generations had to adapt and experienced a common conflict.
Jamie, a grandson and the current CEO, told the story:
“In the early 1960’s when my father and uncle decided to outsource eyeglasses for the first time, they went to a small manufacturer in France, called Bollé, which today we all know for their ski goggles. They adapted Bollé’s designs and colors. My grandfather was livid! He said, “You do not go somewhere else and make eyeglasses. We make the glasses. That’s what we do. We don’t go somewhere else!” He then stated, “I’m not dealing with you two kids. You don’t know what you’re doing.” He left, went home, and stayed home. A few months later when he started seeing the sales reports, showing how great sales were with this new eyeglass frame, he came back around.”
Phillip’s Flowers
Jim Phillips, the founder’s grandson, tells the story about his father and grandfather:
“When a business starts, it’s usually dominated by one person’s vision, one person’s decisions. It’s very autocratic and I’m sure my grandfather was that way. When my father finished his military service and completed his degree in business at Northwestern University, he came into the business. A new shopping center was being built west of Cicero. He got excited about that, but his father thought that was the dumbest thing in the world and asked, “Why would you split your resources, take on more overhead, more rent, more utilities?” Jim’s father acted anyway, opening a second store. Six stores later, the company became the biggest independent floral business in the Midwest.
Conflict of Direction does not only include the direction of market or sourcing; it also often includes direction of leadership – who’s qualified to run the business. There are numerous biases that come into play here:
- Age bias – “They are not old enough to be in a leadership role.”
- Gender bias – “Women should not run businesses.”
- Experience bias – “They don’t know enough yet about the business.”
Duchossois
For this business, bias made an upsetting impact. Duchossois is a large, 100+ year old company. The founder’s granddaughter grew up in the business. She was smart and her father recognized that she was capable of being a leader. But her grandfather didn’t believe that women were qualified for leadership. When Leichtweis engaged with the business and collaborated with the granddaughter, she told him how it was difficult to get her grandfather to believe she could be a leader in the business. She was in her mid-thirties and described this experience with her grandfather as if “she was still the 8-year-old girl who used to sit on his lap at the holidays.” Because of her father’s belief in leadership development and engaging his daughter, she became a significant officer in the company and is now the Chairperson of the Family Foundation.
3) Conflict of Legacy – To what degree does the business provide for future generations?
What is the future and what does it look like? What do they want it to be? Do they need to pivot? How does the current generation feel about providing for future generations? What should those benefits be?
There are dozens, perhaps hundreds, of ways to define “legacy.” To achieve legacy, there are also hundreds of ways to arrange the business structure, family architecture, and governance principles. The best way to ensure that those dreams will come true is to put them all in writing, and make sure everyone who will be part of that future knows what they are. First, it’s important to understand what “everyone” means here.
Everyone refers to ALL the family, ALL the branches, ALL the aunts, uncles, cousins, children, in-laws and outlaws. Everyone needs to be engaged.
To sustain legacy, businesses must develop a family governance structure that can serve the business and family through all the inevitable changes. Sometimes the family governance structure is dictated by cultural beliefs that prescribe how to hand off the legacy from one generation to the next.
PhT Chemical Company
Based on cultural traditions, the founder of PhT Chemical Company believes that the business leader has to be a member of the family. So family members feel entitled to the job of CEO, decision making authority, and equity in the business. The problem is that the descendants were never taught how to take over, which puts the longer-term legacy of the business in jeopardy. This family needed a plan to engage the generations in leadership development and a succession plan.
Dr. Alfred Nobel
The story of Dr. Alfred Nobel (who invented dynamite) is an epitomic example of the ultimate legacy pivot. In 1888, his brother, Ludvig Nobel, died. Several newspapers mistakenly published their pre-written obituaries about Alfred. According to legend, a French newspaper wrote, “The Merchant of Death is dead. Dr. Alfred Nobel, who became rich by finding ways to kill more people faster than ever before, died yesterday.” Alfred was so horrified by this glimpse of how he might be remembered that he donated most of his extraordinary wealth (the equivalent today of about $5 billion dollars) to establishing the Nobel Prize. Like Ebenezer Scrooge, very few people get to see how they will be remembered by others. What humanity can do is be clear about how they would like to be remembered, and then collaborate with others to see that it does.
PURPOSE, DIRECTION, & LEGACY
These three components of family businesses are connected in ways that cannot be separated. To understand how to manage conflict and ensure that the family legacy gets passed down, Engage the Generations. ALL of them.
The three points of conflict explained throughout this article can cripple the ability to build a sustainable legacy. Emotions certainly play a part in each point of conflict; however, the family can still successfully navigate the conflict.
The solution, the glue to the rest of the elements, is Generational Engagement. This includes:
- Succession planning
- Leadership development
- Governance and risk management
Connect these elements through education, engagement, shared experiences, and constant communication across multiple generations and all branches of the family.
Building generational engagement programs will provide the path to connecting the key elements of legacy and significantly improve the family’s ability to pass the legacy down to many generations to come. Once the family has a clear idea of what they want the legacy to be, they need to bring everyone into alignment and generational engagement programs provide the mechanism for doing that.
Being blind to generational expectations of Purpose, Direction, or Legacy can easily put a family business in the 97% category that ultimately fails. It’s essential for every person to think about how they wish to be remembered by children, grandchildren, and beyond. Each person should strive to give the next generation the best possible future.
About the Author:
For more than 40 years, Charlie Leichtweis has been helping family businesses establish best in class governance as an executive, advisor, and board member. He is the author of two books, The Power of Respect, and The Power of Legacy. Also, he hosts the Power of Respect in Business podcast, which explores various topics about the dynamics and challenges of family businesses.
If the family is struggling with how to remain in control through generational changes, they can contact charlie@expertsinhow.com to set up a free consultation.