Tolstoy’s novel Anna Karenina starts with one of the most famous lines in all of modern literature: “All happy families are alike; each unhappy family is unhappy in its own way.” In the case of family businesses though, we can safely assert that most of the unhappy ones tend also to be unhappy in the same way. It usually boils down to who gets how much and who is in charge of what.

When the founder of a company brings family members into the business, this can increase the potential for internal conflict by a significant factor. One of the most common manifestations of this phenomenon occurs when the owner—usually, but not always, the father—offers management positions to some or all of his children. When the children are also part owners of the business, the problems compound. And when the company transitions to new leadership, as when the founder retires and selects one of the siblings to run the company, the potential for conflict goes through the roof.

Here is a case in point from my own consulting practice. A younger sibling was appointed as general manager of a small company while an older sibling continued in a subordinate managerial position within the structure. The older sibling was somewhat miffed at not being considered for a higher position, especially that of general manager. The older sibling was starting to take out that frustration on the younger sibling. Conversely, the younger one was starting to act in a dictatorial manner in order to make clear to everyone “who the boss is.” A rivalry that had been seething beneath the surface for years now had the potential to erupt into a volcano of disruption that the company could ill afford.

The younger sibling had the foresight to get my advice about managing the working relationship. My advice was simple: “You are the boss, so act like it. That doesn’t mean to be insensitive or harsh, but you are the one who has to answer to ownership for the company’s results, not your sibling. We need to talk together to ensure that you both know where you stand and the dynamics of your personal relationship don’t hinder the dynamics of your business relationship.” Is that a tall order? Perhaps, but what are the alternatives?

The key method I advocate for dealing with these issues is what I call ‘The Outsider Test of Behavior.’ Simply put, if a family member is behaving or performing in a manner that would be deemed unacceptable for an employee or manager that doesn’t have a familial relationship with the company’s ownership or senior leadership, then that behavior or performance is probably unacceptable, even though that person is one of the family.

Therefore, if family members have an ownership stake or occupy various management positions within the company hierarchy, they still have to let whoever is in management do their job, whether those people are family members or not. They can’t just decide to change things because they happen to have a familial relationship. Nor can they question the authority of other executives and managers, reverse decisions unilaterally, or otherwise disrupt the good functioning of the company, all simply because they happen to have the ‘right’ DNA.

The company has a fiduciary responsibility to employees, clients, suppliers, and financial backers (e.g. the bank and outside investors), and family members have to work within that reality. If they are part of ownership, they can exercise their responsibilities as shareholders through the board of directors (if they are a member) or at the annual meeting, just like any other shareholder. If they are part of management, they have to exercise their managerial functions and carry out their responsibilities in the same manner as any other manager in the company, all the while respecting proper rules of authority, responsibility, and decorum. They should also be held accountable for performance and behavior just like any other member of the company.

Of course, all this assumes that the family member who is in a managerial position within a family business is actually capable of exercising the functions of that position. If not, then the CEO or senior manager overseeing that person must work with the rest of the management team, ownership, and possibly the board, to ensure that that person is either removed from a position of authority, or removed completely from the company.

All of this can be very hard on the family member who has the ultimate leadership responsibilities, whether it is still the founding family member or the one who has succeeded the founder. It can also be hard on family members who are in positions or who have ownership stakes that they feel are unjust given their status within the family or self-perceived capabilities. But like I said above, what is the alternative, run the company into the ground?

Family members who are privileged to be involved in a successful business should realize how lucky they are to be in that position. Most people aren’t born on third base, much less second or first, so the situation must be seen for what it is: a great opportunity for individual and collective growth in a win-win dynamic, not a bone of contention within a scarcity mentality.

© 2012 Richard Martin. Reproduction and quotes permitted with full and proper attribution.

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