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In family businesses, how do you generally recommend that a father & son
refer to each other (for example do you recommend that the son call father by first name in all business situations and request others
to do so also?
In a business context, I suggest you use the ordinary practice that other pharmacists would use in a similar situation. If they would
generally call each other by first names, I suggest you do the same. Calling each other "Dad" or "Son" in the workplace
focuses on your family relationship more than your identity as co-workers and professionals. If there are other professional peers in
the workplace who can't call the boss "Dad", it puts them in a less favorable position. It's usually a good idea to keep business
interactions within the business, and save family interactionsfor evenings or weekends.
Good luck, Dr. Ellen
How do I buy out my parents' share in the family business?
Sometimes purchasing stock from parents makes a lot of sense. Often some kind of credit for "sweat equity" can be worked out,
such as a discount for each year worked for the company. The company can sometimes leverage the buy out from one generation to the next,
perhaps over a 5 or 10 year period. Getting the company appraised by an outside expert is step #1, and then a fair purchase price can
be negotiated, depending on the situation. Of course good professional financial advice is essential for any major decision like this.
The advantages to buying stock from parents, in my opinion, are:
a. It transfers the risk from one generation to the next, and usually generates a new kind of motivation within the
successors.
b. It funds the retirement of the parents (just in case a 401K plan was not at the top of their list when they were
building the company) and allows them to get their own investment out of the company.
c. Parents whose name is no longer on the line with the bank can often retire more peacably, and not worry about their
own financial security, even if the company goes south.
d. Siblings who buy out their parents will be funding their parents' estate plan, which may eventually pass to other
siblings who chose not to work in the business. This can prevent resentment and litigation later, in case the "Golden Goose"
(the family business) was transferred only to the eldest, or only to the sons, or only to those who work there, etc.
Sometimes parents use life insurance or real estate to provide for other heirs, but these assets will never be exactly equal to the
value of a growing company. Equal isn't always fair. e. Transferring ownership to those competent successors who make a commitment to
work for the company and are willing to purchase it, can contribute to better management decisions in the long run.
Good luck, Dr.Ellen
My parents started a busienss 35 years ago. They had four franchised fast food restaurants and were satisfied not to expand. However,
my three siblings and I wanted to grow, so we started a new company with the four siblings as equal partners. One is now president and
the three others are vice presidents. We are now managing 18 locations. My question is: Since we are all equal partners, and all work
in the business, should we be paid based on our positions or equally?
Dear
DS, Most experts who work with family businesses would recommend
that individuals be paid for the job they do, according to
the standards of their industry in their region. This data
is usually available through your chamber, or trade associations,
or your franchise organization. Some families choose to pay
on the high end of those standards; others choose to pay family
employees more moderately, because they may also receive dividends
at the end of the year. Some families do pay all siblings
of the same generation at the same rate, probably to avoid
conflict, but I have come to believe that "equal isn't
always fair". There is a published article on this web
site that discusses this more fully. The United States operates
as a capitalist society,not a socialistic one, and most of
your peers are paid according to the jobs they do. This approach
implies that there are annual performance reviews, so family
employees can be rewarded for achieving professional goals
and perhaps be bonused for exceptional service. The dividends
that belong to you as equal owners will, of course, be devided
equally. Let me know if you have further questions, Dr. Ellen
I can't get time off.
If you can't get time off, I suspect you are a founding entrepreneur
who is used to doing it all in the most economic way possible.
If your company is growing, it's probably time to decide who
is number 2, and gradually begin to prepare someone to take
over if something ever happens to you. This plan should be written
down, and kept with your important papers.
How about leaving an hour earlier each day? Or taking off one
day a week? If you find it hard to trust anyone else to ever
take over, that's another kind of issue.
Recently my father has been uncovered in an extra marital affair
with another woman. The family business is now a huge question
mark with my older brother in line for succession. A few other
children serve on the board, but are not employees. My brother
is lost in what to do, and how to go about his day with a man
(his father) who has deceived him and exhibits manipulation
now with this new situation.
The
first question to ask is whether the affair is on-going, and
whether your father has put it behind him. This issue then becomes
a matter for your mother and father to work out, ideally with
the help of a seasoned marital therapist. If the affair is ongoing,
the second question is whether this interferes with the business,
for example, is the affair with an employee, which raises massive
issues of risk for the company. If the affair does not interfere
with the business, and family members have confronted their
father directly about their concerns, then this is a matter
for your father and mother to work out between them. If this
issue leads to divorce, then the question is how to keep the
business separate from the divorce process, if at all possible.
(See also my column from Family Business magazine, under Published
Articles on this web site on "The Good Divorce").
Since this is a complex situation, depending greatly on the
personalities of those involved, I suggest your family meet
with a knowledgable psychologist or professional to sort out
your options. Your brother will have to decide whether working
in the company means enough to him to choose to continue and
keep his father's personal choices separate from their day to
day work together. Affairs have different meanings: sometimes
they represent a "mid life crisis" that is temporary
and resolvable; sometimes they are long-standing and represent
major deception, financial support, etc.; sometimes they are
red flags that the marriage needs to be renegotiated, and can
eventually result in a more honest marital relationship. Let
me know if I can help your family in a more direct way.
What should the CEO do to prepare his children to eventually
succeed him?
There is no one right way to prepare children for leadership
in a family business. Those who do well as parents seem to know
how to teach their children how to love and to work from the
time they are quite small. By helping out in small ways around
the house, according to their ages and talents, they learn how
to express care for the needs of others, and focus on somebody
beyond themselves. Talking about the family business at the
supper table from time to time, so they know what mom or dad
does, taking them for visits, summer jobs under clear supervision
can introduce them to the potential. Encouraging them to get
a "real job" somewhere else is another great step
to take for potential family business leaders.
What is the CEO's
responsibilty for handling conflict within a company?
A CEO's primary job is to provide overall leadership and
the development of the company's key strategies. They cannot
spend time on small skirmishes that can disrupt an office,
and need to delegate the resolution to the lowest level of
management possible. However, if a conflict is persistent,
or is related to unfair policies affecting employees, the
CEO's intervention may be crucial. Sometimes a conflict resolution
specialist can be called in to provide expertise that is not
presently available within the company. The ability to make
good judgments about which conflicts can be ignored, which
can be delegated, and which require the intervention of top
management, is one of the reasons CEOs are paid top dollar.
What rights do non-stock holder family members have in the
family business?
Non-stockholder family members can consider themselves "stakeholders",
insofar as they stand to gain or lose, depending on the success
or failure of the business. If their parents' estate, for
instance, is affected by the business, then they may be stakeholders,
even if they don't hold stock. Although many experts recommend
concentrating stock ownership in those who choose to manage
the company, sometimes other family members do need up to
date, correct information about the company. In my experience,
providing the right information to other family members -
who may imagine things to be either better or worse than they
actually are - usually prevents manipulation behind the scenes
and other conflicts. And besides, they may raise a child who
could someday be an asset to the business.
Please provide a job description for a CEO.
Flip Sheridan, a CEO with 25 years experience and one of my
colleagues, offered this job description for a CEO:
"Responsible for the overall growth, profitability and
ethics of the company. The successful candidate will have
a proven record leading a "Type X" company by providing
a framework for every associate in the company to succeed."
My spouse and I joined my parent's business 4 years ago, but
I am only confused about my direction. My parents tell me
I'm not advancing enough and thinking ahead enough, but I
have no clear roles. It causes much bitterness when we have
disageements, since they say it is their business and my opposing
comments on management style are disrespectful. How do I help
work through this? ast
Dear ast - I think it's ok to ask for a clear, written
job description, as well as a management team meeting in which
clear goals are set for the coming year. If your company already
has a strategic business plan, your job and the goals of the
management team should fit into that. If you don't have a
strategic business plan (and many small businesses do not)
maybe it's time to do that, perhaps with an outside professional
facilitator. If you set clear, observable, measurable goals
for your performance for the coming year, you can evaluate
yourself and continue to grow. Many small businesses operate
in informal ways during the start up, but as new family members
and other employees come on board, clarity of job responsibilities
becomes essential. Good luck, Dr. Ellen
A
family business with 3 working stockholders, what questions
should we be asking ourselves with regard to a buy sell agreement
? vz
Dear vz - Some questions you might ask as three stockholders
are: Does one person have controlling interest? I gather that
all the stock is voting, and that there are no other inactive
or non-voting stockholders. Can each stockholder distribute
stock to whomever he/she wishes, for instance through estate
planning documents? Or do the other two stockholders have
the right of first refusal? If one stockholder chooses to
cash out, how will his stock by divided? Equally? Or can one
or the other partners thus achieve majority control? How will
the buy-sell be funded? Has the funding strategy for the buy
sell keep up with the true value of the company? Do the stockholders
share openly their future plans, i.e., when they would like
to retire, etc. I am not an attorney, as you may know, so
as a business psychologist my focus is on how well the partners
can communicate, resolve differences, pursue shared goals.
Let me know if there are other aspects of your situtation
you would like to discuss. Ellen
My
grandparents wanted to be fair, so they distributed equal
shares of company stock to all their heirs - all 17 of us,
kids and grandkids. I am 36 now, and am being considered for
the job of CEO, but since I own only 1/17 of the company,
I am concerned about who will control the business in the
long run. Is there anything I can do about this?
You're in a tough
situation. It's hard to get the cow back in the barn after
the gate has been left open.
One option is to recapitalize the company, and develop two
classes of stock - voting and non-voting - with the voting
shares allocated to those committed to manage the company,
thus giving you/them control, while the other heirs continue
to enjoy the benefits of ownership. Of course, your financial
advisors will play a key role in analyzing all your options.
A second option is to begin the process of buying out heirs
who may prefer to invest in other projects. The formula established
in your buy-sell agreement (which I hope is up to date) and
your access to cash will determine whether or not this is
an attractive option.
The third option is to work closely with the other 16 owners,
communicating, communicating, communicating. If you schedule
regular family meetings, or build a well organized Family
Forum, so they can learn about good business practices, build
communication skills and learn how to develop healthy agreements,
they may become very supportive business partners.
Preventing long term problems like this by carefully thinking
through issues such as ownership and control remain the best
option of all.
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