Brought to you by the Galliard Family Business Advisor Institute
“Why does my brother get to lead the company; he may be older, but I am smarter and more experienced?” My younger sister is undermining my authority; how can I run a company like that?” We think both of our children have the skills to run this company, so how do we choose between them?”
These are common complaints and questions in family-run businesses. Many small companies simply overlay large corporate, hierarchical structures on their small, dynamic businesses without realizing that they have options.
Management Structures
In sibling run companies, the traditional structure is still very common, particularly when one child has been very involved with the business, there is a clear differentiation in skills and age, or there is a strong leadership tradition in the family (such as oldest working sons are considered prime candidates). However, today, siblings and extended family members are likely to “buck the system” and demand recognition for skills over status.
The “Office of the CEO” is a shared role in which the organization can develop and utilize the individual strengths of each sibling in a coordinated fashion to benefit the whole. The team approach to management and leadership is certainly growing in popularity and appears to be more appealing to younger generations. However, there are hurdles – particularly in regard to accountability, conflict management, shared vision, decision-making and cohesive communication.
Tools to Increase Harmony and Productivity
Code of Conduct Agreements and Operating Agreements offer sibling management teams an opportunity to clarify important management philosophies and duties. This might include information on how key decisions will be made, who shall be on the management team, how key team members will be selected, how finances will be handled, what level of risk is acceptable, who will be included as professional advisors, what the exit strategy will be and how conflict will be managed. In addition, the siblings will need to have an agreement regarding compensation, and benefits and estate planning. While these are often tricky aspects to negotiate, the best time for discussion is when the team is being formed and positive emotions are running high. Remember – deal with emotional issues BEFORE emotion becomes the issue!
An experienced Advisory Board can also help to hold the sibling managers accountable. This works best when there is a clear set of objectives designed to achieve agreed strategic goals and the roles and responsibilities of the sibling managers have been clearly articulated. It is also possible to expand the role of selected advisors to include mentoring and coaching of younger or less experienced sibling team members.
We also recommend convening a Family Governance Council at least annually. This is a meeting in which both active family members and “outlaws” (married into the family business but not a direct owner, or an owner who is not active) can attend and learn about the strategic direction of the organization and discuss aspects of the business that directly impact their lives. The meeting can also be an effective way to counter frustration and confusion and help everyone to understand why decisions are made and what the impact of those decisions are on the broader family group.
In many effective sibling management teams, the participants will identify key roles and duties, undertake training to enhance skills and rotate through roles to increase their understanding and skill levels. It is interesting to note that through this rotation, sometimes a clear, individual leader emerges. However, as a result of this rotation exercise, the rest of the family can witness each individual’s strengths and thus the evolving leadership role happens naturally and understandably – often softening the impacts on family members who may have aspired to take a more prominent role but can see where their strengths fit…..or don’t fit.
Finally, it is important that siblings – in fact, all family members – learn how to manage conflict. This might start with simply stating a few commonly agreed protocols – such as how decisions will be made, how disagreements will be handled, how agreements will be tracked and how the siblings will hold each other accountable. Conflict is inevitable and learning how to understand and manage conflict and the associated negative feelings will be a very important component in an effective management team.
Christine Stadler completed training through the Galliard Family Business Advisor Institute in February, 2014 and is a Certified Family Business Transition Advisor™.
