A business approach to a family problem

Many family companies face this dilemma: A relative who holds a senior position in the business has become a problem. Because this person has an ownership stake in the company, or close relationships with key shareholders, he or she is “fireproof.“ Nothing the CEO has tried has succeeded in mending the ways of this sacred cow.

We’re not talking here about “the kids” in a family-owned firm. These folks all are over age 40 and have worked in the business for many years. They need the job and the salary, but they fail (or refuse) to do the work. They wreak havoc in the office by engaging in one or more of the following destructive behaviors:

•  Interfering inappropriately or undercutting others.
•  Wanting to know, or be involved in, everything.
•  Refusing to follow established policy or procedure.
•  Being indiscreet with privileged information.
•  Spending the company’s money inappropriately.
•  Acting outrageously.
•  Creating interpersonal problems for others.
•  Being chronically disagreeable, defiant or unproductive.

To deal with such situations, you need a variety of skills: problem analysis (to find the cause), decision making (to develop alternatives), timing analysis (to determine the family’s readiness to address the issue) and negotiation (to resolve the conflict). You’ll also need persistence and patience in large doses.

Here are some examples, along with guidelines for managing problem partners.

Problem analysis: Roberta the big spender

Several indignant family members have been carping that Roberta is living large on the company budget. The first step in resolving the matter is to determine the real issue at hand. Asking some specific questions can narrow our focus and separate actual problems from background noise. The analysis should focus on facts, not on a blame game that’s based on hunches and opinions.

1. What is the problem? An investigation reveals that Roberta’s spending problems fall into two categories: (1) her entertainment expenses are too high, and (2) she makes too many commitments to charitable causes on behalf of the business.

An important corollary to this analysis is uncovering what isn’t a problem. For example, Roberta isn’t taking too many personal perks or embezzling funds.

2. Where does it happen? Problem #1 occurs at meals with customers. Problem #2 involves the local church and charity. Again, it’s essential to determine where problems do not happen. In Roberta’s case, the overspending does not involve purchases of goods or services, or personal travel expenses.

3. When does it happen? Over several years, Roberta has wined and dined customers at trade shows and has made overzealous commitments at church meetings. But she has not shown a lack of restraint in responding to sales calls or solicitations sent through the mail.

4. How much is involved? Roberta’s generosity is costing us about $50,000 a year.

This assessment helps us pinpoint what’s wrong. Roberta, who is a manager, assumes she has the authority to pamper our customers. While detailed guidelines for customer entertainment are given to sales representatives, there are no such policies for executives. The company also lacks a philanthropic policy, other than the vague notion that the family is interested in supporting the church and charity. Creating these policies will eliminate the problems (unless Roberta ends up disobeying the new rules).

Decision analysis: Lou the slacker

Dad, the founder of the company, helped create the problem by giving equal shares of the business to his four sons, failing to establish a formal organizational chart and mandating that the brothers be paid equally. Then he retired to a Mexican estate.

After three years of working under this arrangement, the brothers were frustrated middle-aged men, and the business wasn’t growing or prospering. They jointly pleaded with their father to designate a leader. He appointed Jim as the chief operating officer, and Jim proceeded with a deft hand. But Lou began to slack off.

Five years later, Lou was working only half-days, took eight weeks of vacation each year and was well known as a regular in golfing and boating circles. The people affected by his absences were mutinous. Jim, as COO, was in handcuffs. Dad still ruled from Mexico on key matters, and all four sons were still receiving equal salaries and bonuses. But Lou’s brothers had had enough. Something had to change within daily operations to reduce aggravation. Lou needed a new job.

What would constitute an effective solution? The ultimate decision should meet the “must” objectives of all the key players, do the best job on lesser (“want”) goals and create the fewest potential problems when it is implemented.

In the case of this family, three “must” objectives had to be observed: Dad mandated that Lou had to remain employed and continue at a pay scale equal to his brothers’ (two undesirable goals from a business perspective, but they were mandatory as long as Dad remained CEO). Jim, the COO, insisted that Lou do real work with value.

‘Must’ objectives for Lou:

1. Remain employed as a company executive (Dad).

2. Continue same compensation as brothers (Dad).

3. Make productive contributions to the firm (COO).

‘Want’ objectives:

1. Lou’s responsibilities should involve things that he’s good at doing.

2. He should focus on long-term vs. short-term outcomes.

3. He should focus on relationships with suppliers rather than customers.

4. His job should make use of his “schmoozing” and language skills.

5. He should not be responsible for things that require immediate attention.

6. His job should not involve teamwork.

7. He should not supervise anybody.

8. Jim’s administrative assistant should provide Lou’s support.

The decision: No specific structured alternatives (existing jobs) fit this situation, so one had to be developed. Lou became responsible for long-term purchasing of goods and materials from international sources. He had the basic skills and loved to travel. All the immediate responsibilities involved in supply chain activity were assigned to the operations manager.

The consequences: The people who had been reporting to Lou were very relieved to be reassigned to better bosses. The two purchasing employees who formerly had been doing a lot of international travel were happy to give it up. COO Jim knew full well this was a Band-Aid and not a real solution, but his aggravations were reduced substantially. Not all problems can be solved. A few must be endured. It’s helpful to smooth the edges of those few.

Timing analysis: Ted the harasser

Behavior problems tend to grow slowly. They’re not as clearly defined as other business problems. Also, Western society has been redefining the zones of tolerance regarding various types of behavior, especially in the work arena. Such problems can take several forms. One is the behavior of addicts (booze, drugs, gambling, the opposite sex, the same sex, horses, boats, sports, etc.). Another is abusive behavior (foul language, screaming, inappropriate touching or joking, nosiness or invasions of privacy). Ted’s problem is an old-school one: He’s a serial philanderer and a sexual harasser.

After 20 years of personal and work-related effects, Ted’s brother George (the 58-year-old CEO) and the other key family members were wringing their hands impatiently. Various remedies had been tried, with no effect. Ted’s wife had walked. Harassed employees had been paid off to go away quietly. Customers had been lost. The publicity of an employee lawsuit had not done the job.

George recognized that the next step had to be tough love. Would the family really support him this time, or would some of them cave? Ted could be obstinate. The possibility of a nasty, public family or company split loomed large.

George prepared a timing analysis to determine the family’s readiness to present Ted with an ultimatum: Get counseling or face termination. He assessed the situation to determine how each key player viewed the situation, and how much influence each of these players had on the company or on Ted. Graphing the family’s opinions and influence (see chart below) helped him to determine whether the group would support such a severe disciplinary action.

Negotiation: Gerry the do-gooder

Many family companies must deal with a sibling partner with a substantial ownership stake who doesn’t enjoy working in the business. Some people’s true passion lies in art, music, community work or something else. But they want to pursue these passions while enjoying executive compensation and status.

Gerry joined the business in his late 20s, after school and some worldwide adventuring with the Peace Corps. He had a great work ethic, high intelligence, excellent people skills and abundant energy. But he had little interest in the prosaic world of manufacturing, sales, management and finance. He gravitated to the firm’s outside activities and became active as the company’s representative in industry affairs, community matters and county government.

At 41, he had a lovely wife, three kids, a comfortable lifestyle and an excellent reputation. But he was overpaid for his work. His future in the business was limited. The clear candidate to run the business was Gerry’s 44-year-old brother, Andrew, the president and COO. Dad planned to continue as chairman and hand the chief executive baton to Andrew within a year. Gerry, who never wanted to head the company, agreed with that plan.

Gerry’s local political party wanted him to run for either county commissioner or state senator. Both jobs would pay about half of what Gerry was paid by the business. As elected positions, they also would be less secure.

Gerry approached Dad and Andrew in an effort to work something out. If he ran, he would have to campaign. If he won, he’d either leave or be available only part-time. He also wanted the door open in case he lost, or if he won at first and lost in a re-election bid. To replace him would cost nearly as much as Gerry’s salary. But Gerry would need either a part-time job or dividend income to supplement the pay he’d get as an elected official. And he didn’t want to sell his company stock.

The family enjoyed good relationships. Gerry was a valued team member, despite his limitations, and would be missed. It would be easy for Dad and Andrew to cut a deal. But they realized that the other minority shareholders would have to agree to a continuing subsidy.

The three negotiated a range of agreements to cover the various future contingencies. Then they told Gerry that, as practice for his campaign for office, they’d help him with a campaign for family support. Initially he objected. This would require him and his wife to disclose personal information to his cousins and siblings. But Dad pointed out that elected officials must accept wide public scrutiny. This process would help Gerry decide whether he really was ready for that.

In a series of living-room meetings with local and distant siblings and cousins, Gerry made his case for public service for the public good. He also campaigned for a part-time job with the firm with re-entry rights, and requested that his stock be put in a trust. Two weeks later, he had the family’s full support —and pledges for $60,000 in campaign contributions.

Pay attention to specifics

If you’re wrestling with a problem family partner, your first step should be to ask very specific questions, like those shown in the examples above. Then listen very carefully. It’s easy to leap past these specifics and wind up with a lot of wasted time and effort.

The second step is to make sure you have support from family members as well as key non-family executives. As the late Senator Joe Clark warned, “The leader too far out in front of his troops frequently is shot in the tail.”

As we saw in the example of Lou the slacker, family businesses often involve peculiar constraints, often imposed by older generations. In such cases, remember the serenity prayer: “Lord, give me the courage to change the things that can be changed; the patience to endure those that cannot be changed; and the wisdom to know the difference.”

James E. Barrett (jebcmc99@comcast.net) heads the family business practice of Cresheim Inc. in Philadelphia.