Andrew Keyt is president of the US chapter of FBN International and executive director of the Loyola University Chicago Family Business Center
Divisions and squabbles are a feature of the human condition but they do nothing to help a company develop. Andrew Keyt explains how a bit of give and take is essential when it comes to appreciating the roles and contributions of family members and employees
What good is my ownership in the family business if I don't get any financial return? Why should my sibling get money from the family business when I'm the one who is working day in and day out to make this business successful? Why should my sibling who works for the business be paid so much? He gets special treatment. It's just not fair. These are all comments that we commonly hear from shareholders in family businesses. These questions, while valid, are tinged with an underlying family emotion that is a destructive dynamic for the family business in the long term.
A term rooted in the law, entitlement is defined as a right granted by contract or law. Using this definition, an owner of a family business has a contractual right to hold management accountable for the performance of the family business. Management has a legal right to be treated fairly. Having a sense of entitlement in a family business is often a distortion of this definition, where family members develop expectations of the business and those working for it as if they were legal rights, rather than merely expectations.
Shareholders working for the business may feel that they deserve more recognition because they are the ones working day in and day out to create profits and grow the business. Much like their parents before them, a great deal of their personal identity becomes fused with their role in the company. In a sense they develop the belief that those working for the family business are the "true" owners and their opinions should count more than that of the "inactive" shareholders.
This sense of entitlement is not the exclusive domain of the active family shareholders. Inactive shareholders also often exhibit a sense of entitlement around their ownership. As an owner, they see their siblings and cousins working for the business benefiting financially and being recognised for their contributions and ask what is in it for me? This becomes a sense of entitlement, when there is a lack of understanding of what it means to be a family business shareholder. Sometimes this manifests itself in a desire to dictate management decisions, other times it is in relation to the distribution of company resources. Instead of working in a shareholder's role to provide accountability to the board and management, work to educate themselves about the company and the industry and monitor their investment, shareholders sometimes reduce their ownership to it's financial value and demand more financial returns.
The most common arena for this sense of entitlement to be displayed is in the distribution of the financial resources of the company and the family. Those working for the company complain that they are not paid enough or perhaps they believe that all of the profits of the company should be re-invested in the new growth initiatives that they have devised for the business moving forward. What is often seen are feelings of jealousy and resentment coming from the family ethos that all family members should be treated equally. The emotional translation in this case, if one family member receives less money, is that somehow they are less loved or less important to the family.
Our job as a family is to create a stable and nurturing environment so that family members can grow and succeed. Based on this ethos, equality makes sense. But the reality of the capitalistic world of ownership and management is that everything is not equal and to proceed solely on a family ethos of equality disregards the ownership and management viewpoints that are equally as valid in a family business setting.
The reality is that owners have the right to expect a fair return on their investment and ideally to have a way out if they would like to sell their shares. Management has a right to be fairly compensated for their performance, and ideally recognised for their contributions to the organisation. Family members have a right to the love support and respect of their family members. As we all know this does not always play out in family business reality, but with focused effort, the family governance system can work to prevent the development of a shareholder group that has a sense of entitlement and ensure that expectations surrounding ownership, management, and family issues are realistic.
How do we go about preventing this negative entitlement from building in our family businesses? The answer is through using family governance as a tool to foster an open dialogue around important family issues. This is the most important responsibility of the family governance system. Through family meetings or through the family council, your family must recognise the hot button issues that divide family members and create a positive discourse around those issues. This discourse should be used to to continually move the family towards the creation of a unified vision of the future of the family and the business.
While we have highlighted how a sense of entitlement can be destructive to the family business and show itself around the distribution of the family's financial resources, divisions can often manifest themselves in other issues such as risk tolerance, corporate values, performance expectations and more.
As we have mentioned before, entitlement does not just show up overnight. Typically it emerges when there is a pattern of emotions and rivalries driving discussions on management and ownership issues. The result is often communication where family views on both sides are not heard, or are discounted out of hand. The resulting isolation and infighting can create dissident shareholders and deepen the divide between family members.
Once your family governance system has recognised and prioritised the potentially divisive issues for your family, your task is to create an environment where family members can explore these issues in an environment of trust.
Some ways in which families have sought to create this environment include creating codes of conduct, clear processes through which to manage disputes and conflicts, and articulating the family values, vision and beliefs about the business. This in addition to holding regular family meetings, will create an environment where family members can seek to truly understand each other's points of view and work towards an amicable resolution of their disputes.
Your family governance system must remain vigilant to the dynamics of managing your shareholder base. Entitled shareholders can become dissident shareholders, which can be both financially and emotionally costly to the family business. You as a family must invest the time, energy, and money in building respect for disparate viewpoints, and working towards a common vision.