Barilla, Chopard, Porsche, Rothschild, Chanel… these are a just a few examples of family business names that inspire affection and awe. For all those of you who, like me, spend time with family companies every day, they possess a dreamlike aura, an insolent charm and the allure of infinite decision-making possibilities. Just imagine being the head of a company generating half a billion dollars of revenue, with a job that’s also your passion and that offers a multitude of growth opportunities. In addition, you own 25% of the company and only need the agreement of three other shareholders to fulfil your projects.
But the three other shareholders are your father, your mother and your sister. Your parents believe that you’re taking unnecessary risks and that you’re putting the company and the jobs of your employees at risk. They cannot accept such risks. Indeed, your parents can’t be totally wrong because your sister shares their concerns.
Instead of finding enthusiasm in the workplace, you’re confronted with frustration. You want to advance but all your decisions are blocked. Many people would envy you and tell you that you’re in no position to complain, that you have a good job, an excellent salary and that you should do as you’re told or else sell your shares. Maybe, but sell to whom? And at what price? Your company is private, its value difficult to estimate and the shareholder agreement prevents you from selling to third parties. Only your family can buy you out but they don’t have the financial means to do so at the moment. The only exit strategy would be to sell the company or go public.
You start to feel increasingly guilty because to sell the company or to go public would mean losing the independence acquired through sweat and tears over generations. It would mean the spiritual death of your parents who would probably never forgive you. Nor would your sister who dreams of seeing her own children take over the company. At a stroke you would lose your job, your company and your family. So, you kick the door in frustration, rise up and move outside to inhale some fresh air. And you return to work…or maybe not…
Worldwide there are several hundred thousand family companies that will need to find a successor in the next ten years. Based on current trends, only 20% will remain within the control of the family, with the others being sold either to management or third parties or, worse still, disappearing. This statistic is particularly difficult to accept when you consider that such companies make up the backbone of our economy, employ a large percentage of our workforce who in turn help support a myriad of service companies such as restaurants, grocery stores, hairdressers and other sole traders.
We should all be concerned by these numbers because we all depend on family companies for the health and dynamism of our economy.
Why is Working with a Family so Difficult?
Firstly, because each important decision of the company will have a direct impact on the lives of the family members and there is no ready-made solution. Each family must create its own template to progress whilst taking into account its situation, emotions and culture, and of the motivations of each of its members. Ultimately the family, and very often the patriarch, must make a decision and accept its consequences. This is often a difficult responsibility. Let’s take the example of a successful company with 80 employees which has allowed two third-generation brothers to have a good job, to grow the company and to enjoy a prosperous lifestyle for both their families. One has four children, the other has two. Which model should they choose for the future? Should they invite all their children to join the company with the risk of adversely affecting the culture and success of the company? Should they just invite the children who are competent? But, in such a case, how can their competence be measured, and how will the excluded offspring react? Or maybe just invite one child? Whilst this might be the wisest choice it would probably create conflict between the two brothers.
Secondly, because working with family means relationships which are close and often tense. Does my cousin, a minority shareholder, have the same rights as me in the company? Will my sister have the same salary as me when she joins the company? Can I fire my incompetent nephew? How is it possible to reply to such questions whilst maintaining harmony within the family? Because each person is a family member, the reply to each of these questions will be charged with emotion and may elicit a feeling of guilt.
Thirdly, because we tend to forget that people are only human and that each is programmed differently. Even as babies they have learned to act differently in order to attract the benevolent attention of their parents. As adults, it’s not always easy for them to understand each other’s qualities and differences. And envy is an integral part of most groups. Even if most members learn how to conceal it, the green-eyed monster wakes up at the least feeling of injustice bringing conflict to the family.
Fortunately, knowledge of family companies has developed significantly over the last thirty years. There are conferences, meetings and a multitude of books available that provide tools and best practices to families enabling them to implement proper guidelines to anticipate or minimise conflict. These guidelines include shareholder pacts and the establishment of proper family governance. It should, however, be noted that such tools don’t seek to eliminate emotions because it is precisely these emotions which are the driving force of family companies: values, drive and a passion for the company and its products. The rules should minimise negative emotions (envy, jealousy, a sense of betrayal…) but preserve the positive ones. Indeed, they necessitate significant work on the human dimension within the family dynamic. It’s therefore essential to provide a framework for dialogue based on tolerance, patience, mutual respect and family values.
Prof Denise Kenyon-Rouvinez, Ph.D. March 31 2023