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Family Business: It’s Complicated!

Maybe your family is like the Johnsons. They have discovered that owning a family business can be a mixed blessing.

On the positive side, Johnson family members have common interests, such as playing golf, traveling or volunteering in the community. As a result, they are able to spend time together and enjoy each other’s company. Now if you add shared ownership in a family business, a common interest that provides employment opportunities and a reasonable return on investment – well, that’s tough to beat for any family.

When Steve Johnson started his business, he was the sole owner and only employee.  Not much likelihood of disagreement over marketing strategy, job responsibilities or dividend policy. With Steve’s hard work and business savvy, the company grew and talented people joined the business.  Then Steve got married, and his family grew – three little people joined the Johnson family. Life was good!

Jump ahead 15 years.

Congratulations to Steve and Johnson, Inc. The company has prospered. It now has over 100 employees. Steve has created such a strong management team that he is able to let them run the company while he focuses on growth strategies and new business development.  And Steve’s children have grown into responsible adults, excited by opportunities in the outside world and curious about what role Johnson Inc. may play in their life.

At home one evening, as Steve relaxed with his wife, Mary, his daughter, Susan, dropped by with her childhood sweetheart, Bill. Steve had always liked Bill, and admired his quick rise to marketing director at a local company while working towards his MBA at night. But both he and Mary were surprised when Susan and Bill excitedly announced: “We’re engaged!”

After celebrating the big news that evening, Steve took a moment to reflect on his wonderful family, the addition of Bill and his successful business. But then he noticed his brow was furrowed. He was worried. Perhaps his daughter’s engagement was the proverbial “straw.”  Just before turning off the light, Steve looked at Mary and said, “Honey, I’m not sure when it happened, but life has gotten complicated!”

The next day Steve called his friend, Mike, to discuss his concerns. Steve was hoping that Mike, as the third of four children and now CEO of the business founded by his father, might understand how to deal with the challenges of managing a growing business along with the interests of a growing family. “I’ve always been the one in charge,” he said to Mike. “As the owner and CEO, I’ve grown accustomed to making a decision and quickly acting on it. My senior executives understand my vision for the business and are experts at implementing the strategy. But now my children, who are only in their 20’s, are asking about job opportunities and when they will own the business. I’ve been telling them we’ll discuss these matters at the right time, not while we’re having dinner or enjoying a round of golf.”

Mike responded, “Steve, many years ago, my dad was in a similar situation. He was a very astute businessman, who was passionate about growing “his baby”. Mom looked after us kids while he focused on the company. But once my older siblings graduated from college and started asking about working at the company and owning stock, Dad realized he needed to have a family meeting to figure out how we should get organized as a family and future ownership group. That first meeting was awkward, but it was the first step on the path to being competent shareholders. I can honestly say that by setting clear expectations and being true to our values, the family shareholders have actually helped the company manage through some rough patches over the years.”

“Well, Mike, I’m encouraged. For a while there I was wondering if I was the only one dealing with these kinds of issues.” Steve continued, “My family thinks I’m some kind of a superhero. That I can handle anything. But I’ll admit I’ve been delaying these discussions because I don’t have the answers. And now my daughter is getting married and her husband will be joining the family. I better figure out how to accommodate the voices of the next generation in a productive way. I’d hate to have the wonderful relationships we’ve enjoyed over the years be damaged by the business. And I’m sure Mary would be relieved to see a plan for how the children could constructively share their opinions and learn how to be responsible shareholders. Come to think of it, I’d probably be much more likely to return that call from my CPA if I knew my kids were prepared to be good stewards of the business I have built. Mike, can I buy you a cup of coffee sometime next week? I’d like to learn more about that first family meeting and how you progressed from there.”

“Sure, Steve,” Mike responded. “Let’s meet on Tuesday at 10:00. In fact, why don’t you come over to my office? I’ll pull some notes together and will be prepared to share how our family succeeded in managing a wide range of opinions and developing into an effective ownership group. It didn’t happen overnight, that’s for sure. And now, from my CEO perspective, I can honestly say that the family, with their clear goals and long-term perspective, is a competitive advantage. Oh, and did I mention, while we have little differences like any family, we love getting together and just enjoying being with each other as a family. Anyway, we can talk about all this at our meeting. See you then!”

Check back for Brooks Insight ll – “Organizing the Family” Part 1 of Steve’s Consultation with Mike

Insight lll – Part 1: Five Tips for an Effective Family Business Board

Insight lV – Part 2: Five More Tips for and Effective Family Business Board. By the way, you only need these 10. Just get these right and you’ll be fine.

Insight V – Should every shareholder have an MBA from Harvard?