Five of the scariest nightmares

If you run a business, if you have the buck-stops-here responsibility for seeing that the shareholders and stakeholders get their expectations met, the odds are better than even that you don't sleep soundly every night. There are always a few nightmares prancing around at the edge of your dreams.

When those shareholders and stakeholders are members of your own family, the nightmares can become real terrors. Here are five of the scariest nightmares that haunt the sleep, and help explain the choices, of people who run family-owned businesses.

Firing a family member

This is one of the classic conflicts between the two systems that interact in a family-owned business. The business system demands that the person in charge focus on maintaining and improving efficiency and profitability. If an employee consistently detracts from, instead of contributes to, that objective, there's only one reasonable step to take -- put the skids under him.

The family system, on the other hand, prizes loyalty, support and the survival of the family unit and each member. If the chronic corporate screw-up is a family member, there's only one step that many family companies are willing to take -- cut him some more slack. The alternatives can be heavy personal guilt for the one who has to make the call and unremitting uproar for the rest of the family.

That's why the prospect of actually having to fire a son, sister, cousin or father whose incompetence or behavior jeopardizes the company is a senior owner's nightmare.

We're going under

No matter how much of your soul you might have poured into trying to save it or the number of marketplace dragons that ganged up to overwhelm your best effort, the idea of admitting that the family business has failed on your watch is a heart-stopper for most owner- executives.

CEOs of public companies routinely call in the bankruptcy lawyers and move along to the next career opportunity. But the head of a family-owned business can get an acute case of the sweats from the thought of making that one awful management mistake that negates the family's history and wracks up its future.

You don't want this?

You offer the business to a young family member -- and get turned down cold.

The implications of that scene go beyond the disappointment and frustration of seeing a young person turn away from a financially promising business opportunity. There's also that sinking feeling that comes from realizing that the family business now has nowhere to go but out of the family. For people who attach a lot of importance to preserving their family's business heritage, this is a very bad dream indeed.

Hard choices

Having to choose between respecting the family patriarch (or matriarch) and taking action to save the family business results in some hard choices.

If realities of the family business weren't so often colored by the values of the family, there'd be no reason to think twice when the company cries out for a rescue. But I've seen family business owners squirm on psychological razor blades trying to hold onto family traditions (such as an unwritten rule against second-guessing grandfather) with one hand while trying to hold the business above water with the other.

The resulting paralysis of decision-making has suffocated more than one good company.

Retiring nightmares

Giving your kid control of the business, which is the sole source of your retirement income, and then watching him run it right into the ground is a nightmare that, perhaps more than any other single factor, can compel a senior owner to hang onto the reins of authority long after he, the rest of the family and the business itself are ready for a change.

A fully funded retirement plan would relieve this headache, of course, but too many family businesses still rely on cash flow for the upkeep of their elder statespersons.

For those senior owners, the collapse of the company would be a bigger disaster than the collapse of Social Security. With that specter before them, they understandably prefer to hang onto a steady paycheck instead of putting their futures into uncertain hands.

Questions and answers

Q. Our family-owned company has started succession planning, and my father is surprisingly willing to innovate. He recently read that the family business of the future will be run by teams of siblings and other family members. So he wants to appoint my two brothers and me as a CEO team instead of selecting a single successor. But the three of us have never gotten along, so I think that's asking for disaster. What do you think?

A: Several companies have made headlines in the past few years by trying the corporate team leadership approach. Almost all of those experiments have gone down in flames because people with the talent, ambition and ego to reach the pinnacle usually don't want to share that tiny space with anyone else. A few commentators assume that family companies can succeed where others have failed because family members are more loving and tolerant of one another. But in the words of the old song, it ain't necessarily so.

Siblings can have dramatically different perspectives, experiences and personalities, and can fight like cats and dogs from the time they're old enough to holler. In such cases, being thrown together as adults in the family business will no more cure their mutual antipathy than sniffing rosebuds will cure a broken nose.

A corporate leadership team made up of people who share values, goals and mutual respect can work if other conditions are right. But three siblings who've never gotten along are unlikely to start singing "All for one and one for all" just because they get matching sets of executive washroom keys.

You and your brothers should have a frank discussion of this proposition. If you can agree that it won't work, that the business and the family are likely to suffer, be just as frank with your father in urging him to take another look at succession, maybe with some expert outside help. But remember to compliment him on his willingness to innovate.

It's not all that common at succession planning time.

Q: My sister and I work for the real estate firm our parents founded 25 years ago, and we're eager to carry on its family ownership and management. We're beginning to plan for the company's future. We've read your book on succession planning, but we want to make sure we cover all the bases. How can we be sure that nothing falls through the cracks?

A: You're right that just reading a book -- even a great book -- probably won't ensure a smooth and successful succession planning effort. A lot depends on the commitment and attitude of the senior owner and key family members.

Here are a couple of recommendations that might help. The first is that once you begin the process, you should carry it right on through to the actual hand-over of authority and responsibility to the new generation of leadership. Then the retiring senior generation should let go of the decision-making handles. Planning and implementing ownership continuity and management succession must be a systematic, objective and businesslike process.

The second recommendation is that the long-term health and stability of the business must take precedence over short-term desires of family members.

A company that's making lots of money can look like gold at the end of the rainbow to family members who want richer lifestyles. Family businesses are vulnerable at succession planning time if retiring owners want to play Santa Claus and family members want to live a little higher on the hog.

If prudent management will allow it, then by all means enjoy the fruits of the family's labor. But don't let passing the torch be the occasion for burning down the barn. Preserve your business and it can support your family for generations to come.

Q: I just finished my MBA at a top business school, and I'm ready to bring our 90-year-old family-owned company up to date. How soon can I move my parents into retirement and get some real 21st century management into this place?

A: From the tone of your question, I'd suggest sometime around 2050. Your shiny new MBA is a license to learn, so put it to good use and start learning how your family's business survived and thrived for 90 years. Then you might be ready to consider ways to improve on it.

James Lea, a professor at the University of North Carolina at Chapel Hill, is author of Keeping It In the Family: Successful Succession of the Family Business.

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