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A family-owned business is any business in which two or more family members are involved and the majority of ownership or control lies within a family. Family-owned businesses constitute an important part of Vancouver’s economy – after all, family businesses have been the most enduring, prevalent and successful form of enterprise here. Today, family businesses operate in almost every corner of the Canadian economy, driving innovation and employment, with their resilience and adaptability make them a buffer against economic shocks and dislocations.
Family businesses are vital to the development of both the prosperity and character of the Canadian communities of the future - ranging in size from two-person partnerships to Fortune 500 firms. These businesses generate about half of the nation's Gross National Product. Family businesses may also have some advantages over other business entities in their focus on the long term, their commitment to quality (which is often associated with the family name), and their care and concern for employees. But family businesses also face a unique set of management challenges stemming from the overlap of family and business issues.
In a recent survey by The Canadian Association of Family Enterprise (CAFE), it was noted that like any other business, family businesses are concerned with profitability, business growth, planning, and strategic issues. Family considerations can however overlay and even dominate these concerns, as owners struggle to balance short and long-term business considerations whilst striving to maintain the loyalty of family members and grooming future successors in a conflict-free atmosphere.
Respondents in Family Businesses were asked some pertinent and direct questions:
Respondents said that having sense of ownership and identity ranked well ahead of other characteristics (33 percent), followed by passion (10 percent), team orientation (13 percent), and loyalty (9 percent).
Re:Solve Mediation can Help – with Family Enterprise Advising & Conflict Resolution Services
A family business can be described as a complex interaction between two separate but connected systems - the business and the family - with uncertain boundaries and different rules. Graphically, this concept can be presented as two intersecting circles. Family businesses may include numerous combinations of family members in various business roles, including husbands and wives, parents and children, extended families, and multiple generations playing the roles of stockholders, board members, working partners, advisors, and employees. Conflicts often arise due to the overlap of these roles. The ways in which individuals typically communicate within a family, for example, may be inappropriate in business situations. Likewise, personal concerns or rivalries may carry over into the work place to the detriment of the firm. In order to succeed, a family business must keep lines of communication open, make use of strategic planning tools, and engage the assistance of outside advisors as needed.
Nancy Bowman-Upton in the Small Business Administration publication Transferring Management in the Family-Owned Business listed a number of common issues that most family businesses face. Attracting and retaining non-family employees can be problematic, for example, because such employees may find it difficult to deal with family conflicts on the job, limited opportunities for advancement, and the special treatment sometimes accorded family members. In addition, some family members may resent or feel threatened by outsiders being brought into the firm and purposely make things unpleasant for non-family employees. But outsiders can provide a stabilizing force in a family business by offering a fair and impartial perspective on business issues.
Many family businesses also have trouble determining guidelines and qualifications for family members hoping to participate in the business. Many major Corporations try to limit or control the employment of people with certain family relationships, such as in-laws, in order to minimize the potential for conflicts within the workplace. But conversely, family businesses often face pressure to hire relatives or close friends who may lack the talent or skill to make a significantly useful contribution to the business. Once hired, such people can be difficult to fire, even if they cost the company money or reduce the motivation of other employees by exhibiting a poor attitude and promoting a disruptively counter-productive conflict culture. A strict policy of only hiring people with legitimate qualifications to fill existing openings can help a company avoid such problems, but only if the policy is applied without exception – where this is impossible, early family mediation coaching training for key company personnel can prevent minor disputes from becoming major conflicts.
Another challenge frequently encountered by family businesses involves paying salaries to and dividing the profits among the family members who participate in the firm. In order to grow, a small business must be able to use a relatively large percentage of profits for expansion. But some family members, especially those that are owners but not employees of the company, may not see the value of expenditures that reduce the amount of current dividends they receive. In order to convince such people of the value of investments in the company's future, Bowman-Upton suggests that the leader of the family business use non-family employees to gather facts and figures to support the argument, demonstrate the bottom-line effect of the expenditure, and enlist the help of outside advisors such as an unbiased Family Enterprise Consultant. To ensure that salaries are distributed fairly among family and non-family employees, business leaders should match them to industry guidelines for each job description. When additional compensation is needed to reward certain employees for their contributions to the company, fringe benefits or equity distributions can be used. Re:Solve Mediation Services work regularly with a network of qualified individuals who can advise accordingly on all aspects of Family Enterprises.
Another important issue relating to family businesses is succession - determining who will take over leadership and/or ownership of the company when the current generation retires or dies. Bowman-Upton recommends that families take steps to prepare for succession long before the need arises. A family retreat, or a meeting on neutral ground assisted by a qualified Facilitator, can be an ideal setting to open discussions on family goals and future plans, the timing of expected transitions, and the preparation of the current generation for stepping down and the future generation for taking over. When succession is postponed, older relatives who remain involved in the family firm may develop a preference for maintaining the status quo. These people may resist change and refuse to take risks, even though such an attitude can inhibit business growth. The business leaders should take steps to gradually remove these relatives from the daily operations of the firm, including encouraging them to become involved in outside activities, arranging for them to sell some of their stock or convert it to preferred shares, or possibly restructuring the company to dilute their influence.
With the knowledge that the cost of conflict in business can be prodigious it is imperative that conflict be firstly prevented, and if and when conflict occurs that it be dealt with as quickly and effectively as possible before family and business relationships become strained. In our experience, litigation between family members involved in a family business should be an absolute last resort – especially if privacy is an issue, or if the negative publicity could impact a company’s operations or profits. Apart from the heavy cost of legal representation to consider, litigation amongst prominent members of local communities is often reported on, throwing a whole extra level of stresses on private matters – and highlighting family business affairs in the public arena.
Re:Solve Mediation can assist family business members to communicate effectively, to develop optimal relationship skills, and to resolve conflicts swiftly. Having family members communicate effectively, and resolve conflicts efficiently lays the foundation for creating and maintaining a successful family business now, and for the future.
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