Is your family prepared to run a business together?

Owners want good financial returns and dividends. Managers want good salaries and the freedom to manage and grow the business. Families want peace, harmony and love. It could be a recipe for disaster.

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farming is high-risk. We all know about farm murder statistics in South Africa, and if you’re a dysfunctional family and have a family business, you could carry double the risk. Recent headlines such as Family murder case postponed; Two held for E Cape family murder and Daughter dies in family murder have led psychologist Ilse Pauw to suggest that these deeply disturbing crimes have become a South African phenomenon. “What fuels family murder?” she asks. It seems inconceivable for situations to get so bad that a father attacks his own children, or siblings murder one another. I haven’t heard of any murderous family feuds in farming families of late, but emotions run high in families, and when emotions get in the way, logic and reason fly out the window. This is why so few family businesses make it through the generations under the control of the founding family. We see the same pattern repeating itself.

Where does it all go wrong?
Mom and Dad start the business, but they’re so charged up with getting it established that little effort is put into preparing the next generation for their responsibilities. Brothers and sisters take over ownership and management. If they’re lucky enough to have sufficient talent, they build on the base created by their parents. The business grows and provides them with a comfortable living.Their own families grow, and as they age, the cousins get involved, and the trouble begins. The business is wracked by power struggles, sibling rivalry, disinterested heirs, neglected mentorship and failed leadership.It suffers due to conflicting objectives and the divergent vision of family, owners and management. Experience shows that about half of all businesses move out of family control during this phase. About 15% will make it through to the fourth generation under family ownership. But now there are so many shareholders that the business operates like any public company – the difference being that the shareholders are all related, but not so closely any more.

Why do family businesses fall apart?Why is it that so few families keep control of the businesses their forebears founded with blood, sweat and tears?
Family-owned businesses combine love and work in a unique setting. In a family-owned farming business, everyone usually lives together on the land, and ownership, home, domestic relations and business become entwined.

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The successes and failures of family businesses have been a subject of fascination to scholars of business and a subject of study for many years. In the early 1980s, Renato Tagiuri and John Davis published a seminal article in the Family Business Review that very neatly captured the essence of the dilemma. They conceptualised and introduced what they called the three-circle concept to help understand the dynamics of family business.Have a good look at the diagram of the three overlapping circles (right). There are seven separate sectors. Any person involved in the family or the business will fit into one of these sectors. Everyone will be members of the family. If ownership is passed on to subsequent generations, many will be owners, and only some will be involved in managing the business. Its complex and interpersonal conflicts, role dilemmas, and priorities interact with one another when family business decisions are made. So is the question at hand one of ownership, management or family?

Make your family business thrive
Owners, managers and families all want different pieces of the business pie, and it’s a recipe for disaster if not properly managed. If all family members understand their own sector positions in the three circles, they can moderate their behaviour, manage the conflicting roles and objectives, and participate in the development of strategies. If you haven’t yet done so, make a start in educating your family about the issues they will face by giving each of them a copy of Thrive: Making Family Business Work by Tony Balshaw. E-mail Peter Hughes at [email protected] or call 083 626 6338.     |fw