Family-owned businesses aren't just mom-and-pop shops. They range in size from two people up to hundreds of thousands in a Fortune 500 company such as Walmart. They employ more than 60 percent of U.S. workers, create 78 percent of new jobs and produce 64 percent of the U.S. gross domestic product, according to SCORE, a nonprofit mentoring arm of the Small Business Administration.
While family operations can face the same challenges as ones not established by relatives, they also must deal with an extra layer of complications. Managers who are not family members have to, in many cases, act as de facto business-school teachers, diplomats and behind-the-scenes leaders.
"There are some characteristics of the family dynamics that are slightly different from what you traditionally find inside a business," said Andrew Hier, a senior advisor and partner at Cambridge Advisors to Family Enterprise, a Boston firm that operates globally.
First, he said, it's rare that families will fire a relative in the same way employees and employers do. It's doubtful, for instance, that a relative would be fired without warning, have their badge taken suddenly, given 15 minutes to clean out their desk, and then be escorted to the front door.
"The bonds between family members tend to be quite strong in general in a business organization." And this can make it tricky for a manager who's not part of the family to correct or discipline a worker who is a relative.
Family-controlled businesses tend to be in business longer because of the commitments the members make to one another and the business, Hier said. Researchers Nicolas Kachaner, George Stalk Jr., and Alain Bloch concluded that family businesses did better than their nonfamily counterparts in the long term because they were more risk-averse, more diverse and better at retaining talent. "Our results show that during good economic times, family-run companies don't earn as much money as companies with a more dispersed ownership structure. But when the economy slumps, family firms far outshine their peers," they wrote in the Harvard Business Review.
Setting a Plan for Success
Hier said that a successful manager of a family business may have to operate a little differently from a manager in a nonfamily operation. It's essential to work closely with the family to help them understand the importance of job descriptions, performance goals, hierarchy, objective performance reviews, and an employment policy that outlines the situations in which family members will be hired and what qualifications are required.
"It's good for the family employees, because it helps them get focused. It helps them understand how they can grow, for their own benefit and for the benefit of the company. And having good feedback is constructive," he said.
Good governance is also critical to success, so that the family is speaking with one voice. "Who speaks to whom, under what circumstances, how information is aired and how direction is given has to be very well-organized," Hier said. "It's important for family [owners] to be able to talk amongst themselves to develop a clear vision for the company, to develop a mission statement to identify core values, to agree upon a strategy and to understand that all their side of operations occurs at the board level."
Mediator Mark Fallon, owner of Boston-based Family Business Mediation, said that being able to manage up, down and laterally with high levels of diplomacy are essential skills. One strategy he suggested is to meet with owners and employees separately to flush out any issues that may be hindering progress, then bring everyone to the table to work together on solutions.
When working with clients, Fallon subscribes to the notion that "the best ideas win," regardless if they came from employees or owners. "And then as the manager, you have strong input in determining what's right [to do]. You help make the call, lead the charge, engage the conflicts, be the change agent, and then implement those decisions. You've done it in a way that's more collaborative and produces real results for the long term."
Vanessa McGrady is a freelance writer based in Glendale, Calif.