DECISIONS BASED ON FAMILY VERSUS NON-FAMILY REASONS
What is Most Important to You?
I start with this challenge of identifying your philosophy for making decisions based on family versus non-family business considerations. Be clear about what is most important to you because it will affect how you address each of the other unique challenges to family businesses. By the way, when I refer to “family businesses,” I am referring to a privately owned business employing more than one family member.
Some of the other unique challenges covered in this program may or may apply to your situation, but this first unique challenge needs to be addressed by you, if you are the family business leader (FBL) of your company. All of your executives and other managers must also understand it, whether or not they are family members.
Profits and ROI
Is it profit or is it what you think is best for you and your family members or a combination of both? Profits and ROI are how most for profit non-family businesses determine the success of their company. Their business decisions are usually made based on maximizing the profits of the company and return on investment for ownership of the companies.
If you are like many owners of family businesses, your definition of family business success may not be just related just to profits or return on investment. Many family business owners define success of their businesses in large part based on whether it results in the impact they desire for their family. What is most important to you?
In the following story that I will share with you, success was certainly not defined by company profits.
I was having coffee one day with the executive vice president of a distribution company owned by his father. The EVP was pretty worked up about something that was really frustrating him. He explained, “My father made my youngest brother the sales manager of our company. My brother is barely qualified to manage himself and now he oversees our sales staff of eight salespeople. Before announcing the promotion of my brother from salesperson to sales manager, my father discussed what he intended to do with me. I expressed my concerns.
You know what my father’s response to me was? He said, he wanted to give my brother that position because ‘he’s a very good son, husband and father. As long as he gets adequate results, I’ll leave him in the position.’ That decision was certainly not the best decision for maximizing company’s profits.”
When I was asked for my reaction to the decision, I explained that decisions in family businesses often are not made based upon what is best for the company. It may seem odd for a FBL to appoint a family member to an important position in the company rather than appointing the most qualified person for the position. But it is a decision commonly made in family businesses because it is consistent with the FBL’s view that the benefits of putting a family member in an important position outweighs the negative impact on company results.
When FBLs make decisions for their businesses, they typically weigh the benefits to themselves and more family members versus costs, both direct and indirect, to their businesses. Often the result of this balancing favors benefits to them personally or to their family members.