When Frederick Brown, CEO of Brown Safe, had a heart transplant a few years ago, his 36-year-old family business didn't miss a beat. His daughter Lynel, along with her brother and sister-in-law, took the helm of the U.S. safes and vaults manufacturer.
"Although it was a challenge juggling the responsibilities and daily needs of the company with my father's medical care, the family bonded together and worked as a seamless team," recalls Lynel Brown, who grew up in the company and now serves as vice president. "The advantages of each family member knowing so many different aspects of operating the company was a huge benefit and allowed us to keep running at full capacity. You can trust family members to make decisions and act in the best interest of the business."
This sense of implicit trust and resiliency is a common theme among family businesses, which represent about 90 percent of American companies. In fact, Forbes reported that family businesses, which can range in size from two-person mom and pop shops to Fortune 500 companies, account for half of the nation's employment and half of the Gross National Product.
On average, family businesses also tend to outperform their nonfamily peers. According to the Harvard Business Review, family businesses "are stronger financially, have higher stakeholders, live longer and are more trusted by the public."
The challenges of running a family business
While the opportunities for success are many, family businesses face a unique set of challenges because they are governed by people whose lives are financially and emotionally intertwined. For anyone looking to start or take over a family business, here are a few common obstacles that must be overcome.
1. Separating family and work
Finding ways to manage dual-role relationships is one of the biggest challenges faced by family businesses, according to Arne Boudewyn, head of Family Governance and Education Services at Abbot Downing, where he manages a team of advisers for family-owned businesses. Imagine enjoying a family dinner with your father one day, and then having to report to him about sales projections for the family business the next. It can be difficult not to let family dynamics or childhood grudges seep into the workplace.
Finding ways not to blur those lines has been key for Christine Goldfuss, who has worked for 25 years at her family's business, Cora Refining, a provider of refining services to the dental industry.
"There was a long adjustment period when I first started with the company," Goldfuss said. "At the time I came in to help with accounting, so my older brother was my boss – and we clashed frequently."
Goldfuss was able to keep the peace by moving to the marketing department, which she now manages, and establishing a separate area of expertise from her brother. She also keeps work talk to a minimum when together with family outside the office.
Maintaining a respectable distance – both metaphorically and literally – can help create a positive work environment.
"Make sure your areas within the business sit quite separate to one another so you're not always on top of each other at work – it's important to have space," recommends Tamara Arbib, who founded healthy snack brand Rebel Kitchen with her husband, Ben.
Kathy Kolbe and Amy Bruske, a mother-daughter team that has worked together for two decades and co-wrote "Business Is Business: Reality Checks for Family-Owned Companies" (Greenleaf Book Group Press, 2017), find that a simple way to establish boundaries in the workplace is to avoid addressing family members by family names when at work.
"Drop the use of Dad, Mom, Sis and Sweetheart in the office. Always call each other by first names around employees and clients," they said.
Additionally, recognizing the impact that family relationships can have on other employees can help regulate family members' behavior in the office.
"We keep in mind that we have co-workers who are not family and it makes the work environment uncomfortable for them when family members aren't getting along," said Goldfuss.
2. Family employment policies
Sometimes family businesses don't have any clear policies about the qualifications family members need to be considered for employment or obtain a leadership role within the company. Developing a detailed family employment policy is one way to cut through this ambiguity.
According to Boudewyn, such a policy defines the "rules of the road" for family businesses and addresses issues such as "what the business actually needs in terms of talent and experience; what kinds of roles exist for family members within the organization; what kinds of preparation is required or preferred to be considered for employment; and the kinds of behaviors and performance standards that family members will be evaluated against once employed."
"Many enterprising families require, for example, that family members wishing to work in the business must first obtain a college degree and/or outside experience … so that they can actually 'bring' something to the business," said Boudewyn.
Such a clear policy eliminates misunderstanding or assumptions about family participation in the business and communicates to future generations what is expected of them if they want a seat at the table.
3. Fitting jobs to family members' skills
After a family employment policy is in place, the next priority is ensuring that each family member hired is an ideal fit for the position being filled.
"Too often business owners want to pull family members into their business – some for ego, some just because the person needs a job, some because they want to surround themselves with family," said Ken Wentworth of Wentworth Financial Partners.
But creating positions for family members or giving them jobs that don't fit their skills often backfires. Wentworth recalled the time when a client needed a marketing professional to manage his social media accounts. The client's father was looking to change careers and was hired with little marketing experience and even less understanding of social media.
"It was not optimal and led to quite a conundrum," said Wentworth. "Even though he was failing miserably, the owner felt obligated to keep his father on board because he had quit his job to join the business."
Once they're hired, it can be difficult to fire unqualified relatives, and they may end up costing the company money. Leaders in family businesses should set strict criteria for each opening in their company and make sure that only candidates with legitimate qualifications are considered.
4. Fair compensation
Compensation can be a tricky topic, especially for a family business where some people may feel they are contributing more than others, but where everyone may have an equal stake in the company. The best way to avoid resentment or feelings of entitlement is to ensure that each person's salary is based on what they would be paid in a similar position in the open market, said Buzz Tatom, a partner with farm and ranch land brokerage firm Venture West Ranches. Once compensation has been determined, any additional profits can be split evenly or provided through fringe benefits.
Tatom also recommends annual family meetings to discuss personnel, compensation and any unique financial considerations that may arise.
"The desire might be to take care of family members that maybe are less capable. That discussion has to be held openly and honestly and needs to be reviewed once a year to determine adjustments," said Tatom.
5. Planning for the future
Family businesses have roughly a 1 in 3 chance of continuing to the next generation. According to the Conway Center for Family Business, 30 percent of family businesses transition to the second generation, 12 percent to the third generation, and only 3 percent to the fourth generation. Succession planning is critical for the survival of a family-owned business in the face of such stark numbers.
However, many family businesses put off planning for succession because they don't want the transfer of power to cause a rift within the family.
"When the lines of responsibility and authority are not documented, the business becomes unstable," said Charles Vethan, a corporate attorney who works with small businesses.
Vethan recommends that family businesses have a well-defined plan in place that establishes the lines of responsibility and authority. He also suggests establishing a dispute resolution process and enlisting the help of a business adviser or advisory board consisting of non-family members to address any grievances.
Families willing to establish strong lines of communication and set firm guidelines can find that delicate balance of family unity and business success. In the end, it is possible to achieve that equilibrium. As Lynel Brown said, "Enjoy the rewards together as a family and feel the sense of accomplishment as a team."