Family Business Insights
Navigating Family Business Politics

Family businesses have their own internal dynamics and complexities - this article examines some of the pitfalls and challenges both for family members, and those on the outside.
The power struggles and compromises of politics are well
known and yet the politics of family-run firms – still a backbone
of many economies – are not always as well chronicled. When
succession and business transfer are up for discussion, these
issues come into sharper relief. Wise planning is
essential.
Keith McAlister, partner, Thomson
Snell & Passmore, talks about the “politics of family
businesses”. Although he is based in the UK, many of his
arguments resonate more widely, so the editors hope that readers
in other countries find this article of interest. As ever, the
editors do not necessarily endorse all views of guest
contributors. Readers who want to comment should email tom.burroughes@wealthbriefing.com
To many people, the thought of having a family company that you
can join and work for is a blessing. And of course, it often
is! However, for second, third and beyond generations,
joining an established family company can also be fraught with
difficulties. Below are some of the issues that we have seen
arise and how they were dealt with.
Nepotism
Well, it is hard to argue against this. However, a well-run
business needs the right people doing the right jobs and there is
no reason why those people shouldn’t come from within the family.
We sometimes come across the next generation who are involved in
the family business from their schooldays and who are fantastic
assets the minute they enter the business. But not all businesses
fire the imagination of the young and often a family business
will benefit from the next generation picking up skills and
qualifications in other sectors or industries, before they enter
the family business and bring all that different knowledge with
them. Most family businesses benefit hugely from the new ideas
and alternative ways of working that outsiders bring and if the
outsider happens to be a family member all the better.
Impatience
As with non-family businesses, a family business needs ambitious
and driven people. Younger members can sometimes have fewer
inhibitions within a family business than they would in a
non-family business. We always advise firm but sympathetic
management of the next generation, giving them encouragement and
space to learn but with a clear understanding of their role and
how that fits in to the overall business.
Earning respect
Family businesses, like families, can take different approaches
to learning and development. For some, careful, structured
planning is key, for others it is sink or swim. Whatever the
approach, the next generation coming into the business needs to
earns his or her spurs but, more often than not, they need help
and guidance. A good recent example of bringing a new family
recruit into the business, which we were involved with, involved
the board (currently all family members) providing a clear and
genuine job specification. The reporting manager, a non-family
member, was told bluntly that the new recruit was to be shown no
favours.
Responsibility
Family dynamics are easily replicated in the business. However, a
dominant parent or the first generation of the family business
can often find it hard to accept the next generation as equals or
as having a better skill set in some respects. We are finding the
rapid change in technology and the use of social media to
sometimes be the next generation’s best way to demonstrate to the
previous generation their competence and importance. They will,
of course, have other strengths but it is important to give the
next generation responsibility and support as they start to prove
their worth.
Remuneration
A family business can quickly run into trouble if the family
members use it as a cash cow. Tension can also arise
where family members who work and contribute to the business do
not get a fair remuneration that reflects their efforts. As
delicate as it can be with families, those involved need to
receive a fair wage in addition to any dividends that are more
generally distributed to the family shareholders. There is no
reason why a family-run company should not have bonuses, share
schemes or similar incentives for family members as would a
non-family business. With that comes accountability, which is
vital to any business.
Non-family members
Integrating non-family members into the business can often be a
challenge. All but the smallest of family businesses will almost
certainly need outside help. Where we often see the greatest
potential for disquiet is where non-family members are brought in
above the heads of some of the family involved in the business.
To do this successfully, there needs to be transparency within
the business as to why the non-family member is being brought in.
We have seen the benefits of individuals with skill sets that the
family business does not have coming in and, in some cases,
shoring up a problem, in others transforming the business and
unlocking potential. We do also find that, in certain
circumstances, an equity interest can be appropriate. This
can help align the non-family member with the family or, where
the intention is for a sale of some or all of the family
business, help incentivise the non-family member in increasing
the capital value of the business.
Remember, working for a family business should never be seen as a
right but instead should be seen as a privilege.