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Family Business Matters       04/22 10:47

   Thorny Management Issues in Family Business

   When it comes to managing a business, family businesses often struggle to 
discuss several key issues, including compensation, individual performance and 
transitions.

Lance Woodbury
DTN Farm Business Adviser

   Family farms and ranches are similar to non-family agriculture companies. 
Both kinds of businesses offer a product or service to the marketplace. They 
use capital, buy inputs, manage labor, run equipment, deal with vendors and 
serve customers. Furthermore, most business principles are the same regardless 
of family or non-family ownership. Taking care of the customer, treating team 
members well and managing working capital are principles found in almost any 
kind of successful business.

   When it comes to managing a business, however, family businesses often 
struggle to discuss several key issues, including compensation, individual 
performance and transitions. Indeed, the desire for family harmony, assumptions 
about people's intentions and the habit of taking family members for granted 
cause families to avoid some of the most important topics in any business. 
Consider the following:

   -- COMPENSATION. In a family farm or ranch, regular pay for family members 
is often approached conservatively. Since the family members are the owners, 
they get the profits, and they understand that if they don't make money, any 
extra compensation is creating a loss. Thus, the family is often expected to 
contribute their labor, or "sweat equity," to the enterprise. This can lead to 
below-market compensation with a future promise of reward in the form of 
profits or ownership.

   The problem is that the future reward is seldom established in writing, as 
it would be with a non-family manager. Someone not related to you would be wary 
of only a verbal promise, but it is assumed a family member will stick around. 
Without specificity, and when sweat equity doesn't materialize in the way or 
amount or time frame expected by the person who made the contribution of labor, 
feelings of wasted time or effort, or even shock, are pervasive. The family 
relationship may become strained or permanently damaged.

   Additionally, it seems difficult to acknowledge different levels of family 
member contribution to the business, and the result is often that family 
members are paid equally. Money is seen as a proxy for love or recognition, and 
it doesn't feel good to be loved less (paid less) than another sibling. Many 
parents struggle with the idea that by differentiating compensation, they are 
signaling one family member has more, or less, value than another.

   -- PERFORMANCE. In most positions held by non-family members, there is a 
clear expectation of performance often embodied in a job description or 
evaluation form, and there are clear consequences for not meeting those 
standards.

   But, for family members who don't perform, giving them an ultimatum or 
firing them feels like a threat to their family membership. The accountability 
for poor performance -- termination -- isn't a true reality for a family 
member, so bad behavior goes unpunished. This lowers the morale of the entire 
organization.

   -- TRANSITIONS. Family commitment is a strength, setting many family 
businesses apart from their non-family competitors. But every strength taken to 
an extreme becomes a weakness. Family members can be so committed that they 
won't give up their role, pass on their knowledge or encourage other people to 
learn and grow, which is terribly frustrating for younger managers.

   Or the senior generation member may delay any transitional activity by 
annually announcing he or she will slow down "in about five years." This also 
causes frustration and bottlenecks, and puts the business at risk, as so much 
knowledge and responsibility are tied up in the generation approaching 
retirement.

   I often suggest that the key to being a good family business is not acting 
like one. When it comes to compensation, individual performance and 
transitions, try to act as if no one is related. It will help you act more 
professionally, increase respect and ultimately be a better family business.

   Lance Woodbury can be reached at lance.woodbury@pinionglobal.com




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