The pool and spa industry began as a family
business on a grand scale,
and while there has been
consolidation, a great many small
family businesses remain in the retail,
service and building sectors. Often
this is a great strength, as the family
business enjoys the sense of common
purpose that already unites families,
and that sense of shared destiny
becomes a powerful motivating force.
Family businesses can also face
the unique challenge of motivating
non-family workers who sometimes
feel under-appreciated, ignored in
company planning sessions, and
overlooked for advancement into
management positions.
That feeling in a company can retard
incentive and ultimately, erode profits.
“People who feel like ‘outsiders’ see no
point in putting in 100% effort,” says
Sam Brownell, founder of Stratus Wealth
Advisors in Kensington, Md. “As a result,
customer service can drop off, and the
business can have issues with inventory
management and vendor relations.”
In the worst such cases, dysfunctional
family dynamics can impact retention — an especially costly issue in today’s
tight labor market. “People who don’t
feel their efforts and accomplishments
are being appropriately rewarded have a
motivation to look elsewhere,” says Travis
W. Harms, the leader of Mercer Capital’s
Family Business Advisory Services Group.
“The worst possible thing is to lose high-performing
talent to a competitor.”
BUSINESS FIRST
Family businesses thrive when they
create a work environment where
all employees feel at home. “Any
family business that grows at any
appreciable pace will very soon become
dependent on people who are not
family members,” says Craig Aronoff,
chairman of The Family Business
Consulting Group, Chicago. “And it
behooves that company to ensure they
feel included rather than excluded.”
Equal treatment for everyone stems
from a vital principle: The enterprise
should be a “business first” rather than
a “family first” operation. Here are
some specific steps that will help create
a work environment that stimulates
productivity among all employees —
family members or otherwise.
•Work hard at fairness —“Non-family employees should be
treated, managed, evaluated and
compensated on the same basis as
family members,” says Aronoff. “It’s
also important to maintain clear
distinctions within the family group
as to each individual’s role, whether
that be employee, supervisor or
manager. Within each of those roles,
it’s extremely important that there is
perceived fair treatment of everyone,
whether family or not.”
•Promote for performance — “Advancing the right person to upper
management can be a complicated
and difficult process,” says Aronoff.
“Choosing a family member may seem
to make the decision a simple one,
but it’s not. It’s certainly not a way
to build the best possible business,
nor is it the best way to help the new
generation maximize their own lives
and experiences.”
Successful family operations
plant an early seed of responsibility.
“Make clear that it’s not your genes
that prepare you for a position,” says
Aronoff. “Rather, it’s your knowledge,
experience, drive, and how you interact
with other people. The person who
gets advanced into a higher position
will be the best person for the job.”
•Avoid empty positions — Too often, family businesses
create meaningless positions with
impressive titles so members of
a new generation can be brought
aboard. This practice creates morale
problems and saps profits.
Aronoff notes that the family member
who requires career and employment
help can be provided financial assistance
or training opportunities outside the
business structure.
•Earn stripes elsewhere — “Assigning family members without adequate experience or training to
management positions can create a
sense of entitlement which is frustrating
for everyone,” says John Joseph Paul,
a Portland, Ore.-based family business
consultant. “Instead, family members
should prove their mettle by working
at entry-level positions in other, similar
types of companies. This experience
will give them the opportunity to learn
practical skills.”
Many companies today require
family members to bolster their
credibility by gaining experience at
another company for five years before
joining the family enterprise.
•Communicate family business policies
— Having the right family business
policies is one thing. Ensuring
everyone is aware of them is another.
“It can be frustrating for non-family
employees if they feel like their
advancement opportunities within the
company are limited because a family
member will eventually come in and
snap up a job they’ve been working
toward,” says Harms. “That’s a pretty
common frustration.”
This situation can be obviated by
communication. Family and non-family
workers must understand the
policies that govern promotions. “Clear
guidelines on how the family is going to
be treated personally and professionally
must be clearly understood by
everyone,” says Brownell. “Transparency
in these things can make a huge, huge
difference, because everybody will know
what’s expected.”
•Maintain clear chains of command — Too often new employees find
themselves juggling contradictory
directives from more than one family
member. This creates operational and
morale problems. In the worst-case
scenarios, the frustrated worker leaves
for another employer.
“Family businesses must maintain
robust organizational charts that
illustrate clear chains of command, so
that no employee ends up reporting
to multiple bosses, whether formally
or informally” says Aronoff. “It is the
responsibility of top-level management
to create a clear system of authority.”
•Distribute perks fairly
— Non-family employees should share
equally in company niceties such as
paid-time-off, flexible working hours, and
work-life balance initiatives. “If family
members are given special perks, it is
noticed by everyone,” says Aronoff. “And
that can lead, again, to morale problems
and a decline in commitment. While
this kind of treatment will be accepted
by some people, it will not be accepted
by those who can provide the greatest
return for your company.”
•Reinvest profits
— One of the most critical family issues
is that of financing: Will profits be reinvested
in operations or distributed
to family members? “Your company
might have lots of exciting investment
opportunities,” says Harms. “But if
shareholders press for large dividend
payments or share redemptions, the
drain on funds can crowd out otherwise
attractive projects. That can be very
frustrating — especially for non-family
CEOs and CFOs.”
Never mind that smart investment
of profits will ultimately benefit family
members. Those not intimately
involved in daily operations are more
likely to want immediate returns. Such
conflict can become especially intense
as the years go by and the family tree
becomes populated with second, third,
and even fourth generation members.
“The number of family members can
grow substantially, and everybody
wants a slice of the pie,” notes Harms.
How can this situation be avoided?
Nothing so complicated has a one-size-fits-all solution, but ongoing
education can help. “It’s important
to make sure family shareholders
understand that businesses often grow
by heavily reinvesting earnings,” says
Harms. “A dollar distributed or used
for redemptions is a dollar that’s not
available to make the business succeed.”
•Share your success — Equitable pay and promotions are
one thing. But who benefits financially
when the business becomes more
valuable as a result of employee
performance? Too often, the answer
is only the family members who own
part of the company. Employees who
lack equity also lack the ability to
participate financially in the upside.
That can lead them to jump ship,
taking their skills to competitors.
What’s the solution? Just like publicly
traded companies, privately held companies can have shares of stock that
not only represent ownership control, but
also facilitate the allocation of financial
rewards through share appreciation
and dividends. Harms says that it’s
wise to set in place a financial vehicle
that channels such financial rewards to
non-family executives through equity-like
compensation, while allowing family
members to retain operational control.
A number of vehicles are available
to accomplish this task. One of the
most common is a profit-sharing
plan, but there are others such
as classified and phantom stock.
Additionally, an Employee Stock
Ownership Plan (ESOP) can channel
appropriate compensation to executive
and non-executive employees alike.
While delving into the details of
such vehicles is beyond the scope
of this article, family businesses can
seek further information from their
attorneys and accountants.
Family businesses that follow
the aforementioned guidelines will
ensure their entire teams maintain
good morale while remaining invested
in the success of the enterprise.
“There are many ways to show non-family
members that you care about
their contributions,” says Brownell.
“Everyone will perform better when
they understand their labor is going
toward something greater than just the
net worth of the family.”
