Remember drawing your family tree? One of the first ways we are taught to think about our families is to imagine them on a hierarchy, placing the elder generation on top and the youngest generation at the bottom.
In practice, of course, family dynamics are much more complex and variable. Who sits at the head of the table, who borrows money from whom, who trusts this relative and resents that one—all of these details magnify, ebb, and evolve with time. And yet, we frequently, unconsciously, attempt to fit our family members into a neat little diagram. A childhood trait becomes a stereotype that follows a person throughout their adulthood. A miscommunication forms the foundation of a years-long standoff.
Family dynamics influence every family business, regardless of organizational charts. During my recent appearance on AHA! Business Radio, for instance, host Allan Hirsh shared an anecdote about struggling with his sister over leadership:
[My father] turned over the business to me when I was 33. He decided he didn’t want to run it anymore, and he loved to be out there selling and doing that part of the business. He said look, “you know how to run this thing, you run it. I’ll work for you.” And we transitioned it. But my sister couldn’t understand. She moved back from North Carolina and really couldn’t understand. She saw me as a lazy athlete who didn’t do much, and wanted to come back into Baltimore and become a major part of the business. It’s not necessarily the father–son or the father–daughter. It could be a sibling problem.
You, too, may be in the midst of a disagreement over running your family business, or perhaps you are planning for an ownership transition. Maybe you’re launching a new venture alongside one or more of your siblings, parents, or children. Or, you are simply looking for ways to structure a family business fairly and effectively.
Whatever the situation, here are a couple of considerations for establishing roles in any family-run organization.
Define Roles and Stick to Them
Although every family business conforms to its own administrative structure, leadership functions fall into a few broad categories in general:
- Someone who has equity in the business is an Owners have the authority to benefit from, transfer, or sell their businesses. An owner’s financial status is also intrinsically tied to the business, and they reap its net profits and bear its commensurate risks.
- A director, president, or CEO is a business’s key planner, public face, and decision-maker. These chief executives drive their organizations’ missions and big-picture operations.
- The board of directors governs the organization and evaluates the chief executive’s performance. Board members also control an organization’s budget and resources, and may offer strategic advice.
- Managers carry out executive decisions and are responsible for leading the organization’s day-to-day efforts. Managers communicate directly with employees, vendors, and others who keep the business functioning.
In any business, particularly family businesses on the smaller side, a leader may occupy several of these roles at once. If overlap occurs, codify it as a discrete position. Give everyone who runs the business a title, along with a list of responsibilities, and make sure each member of the leadership team is aware of each other’s duties. By drawing boundaries between roles, you’re helping insulate the individuals who fill them from deep-rooted family dynamics. A father’s criticism of his daughter takes on a whole new meaning when it’s a manager criticizing the CEO.
Decide Which Qualities Matter Most
Ask yourself what you are looking for in a business partner, and apply the same criteria to the members of your family involved in your organization. Consider how each of the following align with your business’s values:
- Age and seniority: Are you looking for proven leadership ability, or someone to train and groom? The older members of your family may have greater confidence and the wherewithal to make momentous decisions; while sons, daughters, nieces, nephews, and grandchildren may have more capacity for innovation and a firmer grasp on newer technology.
- Experience: Apart from their age, how much experience each relative has in your industry—or professional environments in general—should enter your reasoning as well. When deciding on roles, ask your family members for résumés, and analyze their experience levels against their personalities. If you’re assigning positions in a family-run cybersecurity company, for example, an ambitious niece just out of college may make for a stronger engineer than the stubborn brother with twenty years in IT, who may serve the company better as an advisor.
- Skills: Determine early on what skills a person in each role needs to exhibit. Is it more important that the CEO knows everything about running a business or is the best communicator on the team? Keep a list of “must-haves” and “nice-to-haves.” If you can point to distinct, measurable qualities when justifying your organizational structure, you can circumvent the emotional conversations and claims of favoritism that would otherwise follow.
- Interest: How passionate is each individual about their prospective role? How much do they care about the business in general? Enthusiasm goes a long way. Without it, your relatives have little incentive to help the business succeed other than a sense of obligation to the family, which is a recipe for conflict.
Get Everything in Writing
It may be uncomfortable, but if you do not formalize your family business’s operating structure with written policy and agreements, disagreements are bound to happen. Do not rely on oral contracts. Paperwork ensures your family members are held accountable, know their individual roles and responsibilities, and can convey their work to outside parties such as investors and licensees. These documents are also essential for any legal proceeding, investigation, or merger or acquisition.
As you structure business roles and begin to draft agreements, talk to a lawyer. A family business attorney will keep every member of your organization on the same page throughout every stage of the family business lifecycle.
In my next article in this series, I will offer a few impartial questions to ask before hiring family members. Until then, you can find more family business guidance on the Offit Kurman blog.
And if you are located in the Baltimore or Frederick areas, consider joining the Family Business Roundtable—a monthly meeting that brings together family businesses in your area to exchange worthwhile ideas and useful advice. Click here to learn more.
ABOUT MICHAEL N. MERCURIO
Business attorney and M&A lawyer Michael N. Mercurio serves as outside general counsel on matters related to business law, M&A, and real estate law As a strategic partner to firm clients, Mr. Mercurio regularly counsels entrepreneurial individuals and assorted entities on all aspects of business and commerce, with a core specialty in mergers and acquisitions—both from the sell side perspective and buy side perspective.
ABOUT OFFIT KURMAN
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