Turning the store over to junior? Putting siblings on the payroll? Beware these pitfalls when kin convene on the job.
While all companies face challenges, family-owned businesses have greater risks. Personal dynamics add a layer of complexity to professional relationships, and topics like job descriptions or succession may go unaddressed because of unspoken assumptions. JCK consulted with academic experts who study family businesses and talked to jewelry industry insiders to get their perspective on the top traps for family-owned businesses—and how to avoid them.
1. Failure to communicate
“The big mistake people make is going along in an undefined way, just assuming the child wants to work there without saying anything explicitly,” says Michael Preston, professor and director of the Family Business Management Program at Columbia University. Adult children may acquiesce to please their parents, but the business can’t thrive without a passionate leader.
Poorly defined chains of command or job descriptions can be similarly detrimental. “One person says, ‘Do this,’ another one says, ‘Do that,’ and people aren’t sure who to listen to,” says Brad Huisken, president of Lakewood, Colo.–based IAS Training. “It leads to confusion. It causes morale to be low and salespeople to think they’re not working in a stable environment.”
2. Lack of succession planning
“Families don’t think broadly enough or far into the future,” says Fredda Herz Brown, principal of consulting firm Relative Solutions in Tenafly, N.J. “Have a 100-year plan that includes up to four generations,” she says. Preston agrees: “The elephant in the room is succession and inheritance.” Work with an estate lawyer to hammer out who will inherit what and when, plus what will happen in the event of divorce, death, or illness. He advises showing the company’s books to the next generation; it’s better for them to know about the business’ fiscal health before they take over.
3. Unwillingness to embrace change
“Family businesses tend to be more conservative and not take the bold actions a lot of small businesses might take,” says Jeremy Short, professor of management at Texas Tech University. A lack of staff autonomy—a common result, Short says—reduces innovation. “It has potential to constrain decision-making and proactive thinking about market challenges.”
Also, the founding or elder generation may be simply unwilling to step down and cede control to tomorrow’s leaders. “You want to get the energy of the next generation of ideas,” advises Carol Zsolnay, assistant director of the Center for Family Enterprises at Northwestern University in Evanston, Ill. Some multigenerational businesses require family members to retire at 65, although they may stay as advisers. “A lot report that they’re busier after that,” she says.
4. Treating family members differently
In some family firms, relatives may not be subject to sales targets or other performance metrics other workers must achieve. “If you have a nonperforming family member, you have to deal with that problem,” says Susan Coleman, professor of finance at Connecticut’s University of Hartford. “It hurts the business, and everyone around them can see that they’re not performing, which hurts morale.” Preston knows of one successful family business that won’t let a relative come on board until they’ve worked somewhere else for five years.
David Peters, director of education and member services at New York City–based Jewelers of America, says family firms must avoid alienating non-clan workers. Families have their own verbal shorthand, unspoken norms, and in-jokes. Subjecting other employees to this will only breed resentment and deflate morale over the long term, Peters warns.
5. Blurring personal and professional boundaries
The failure to manage expectations and emotions when working with family is a big stumbling block, according to Coleman. “In addition to the complexity of the business, there’s all kinds of emotional baggage, such as an expectation of loyalty and obedience,” she says. Childhood sibling rivalries can resurface in a new form, and parent-child tensions can spill over into the workplace.
Forcing fellow staffers to listen to family squabbles can dampen morale, cautions Huisken. “These things need to be discussed in private,” he says, “and I would always suggest having a mediator, such as a consultant or expert in family businesses, step in for serious situations.”