Educator Says Communication is the Key to Successful Family-Owned Business

Over time, as the family grows in size, member interests, goals and values become increasingly different,” according to Craig E. Aronoff, co-founder and principal of the Family Business Consulting Group Inc., discussing perpetuation of family-owned businesses. “Values, attitudes and goals cannot be shared through osmosis.” Communications is the key to family success, whether as a private entity or a business.

One of the family’s greatest contributions to a family business can be its values and that in a family business values must be communicated across generations. “It’s hard work putting values to work,” Aronoff explained. “It’s necessary to discover and articulate values, translate values into goals and communicate values and goals to appropriate constituencies. These include the board, employees, shareholders, customers/suppliers, family and next generations.”

Statistics indicate that family businesses with values have a strategic advantage and outperform and outlast others. This is because of stewardship, commitment, a willingness to sacrifice, taking a long-term view, building, not taking value, and accumulated wisdom.

Principals should develop a family mission statement outlining explicit values, goals and priorities. Individuals should prepare the statement and read it aloud, then focus on common ground, apply family priorities and achieve consensus, Aronoff said.

Because family businesses are usually run with two or more generations involved, conflicts are typical, Aronoff said. For example, the older generation often uses pay incentives to resolve issues, which is not a long-term solution. In other instances, he said, family businesses are willing to pay their offspring more, simply as a way to keep an eye on what they are doing.

“The older you are, the more conservative you are financially,” Aronoff explained. “The company owner who is 58, 59 or 60 asks, why work hard and take risks? So at that stage family-owned company growth slows or even declines.”

He said the older generation often realizes that the business is declining and just hopes that they will decline faster than he does. When that owner dies, he leaves a wreck for the next generation and it takes them years to build the business back up.

Aronoff advised succession planning, in which there are financial transitions. “Generational conflict in family business is often financial, even when it seems related to other things,” Aronoff explained.

Lifestyles between generations are often out-of-synch, pitting conservatism with next generation entrepreneurship, the older generation is afraid of losing control and becoming dependent, so it is essential to provide security and meet the financial needs of the parental generation.

Aronoff described one business in which a son took over the reins from the father as president 10 years before, but the former president wouldn’t let his son do anything on his own.

It is essential for the older generation and the younger generation to open up lines of communication and to attempt to understand what motivates each other. “The trust factor has two components,” he said. “Low trust means high risk and high cost of capital; high trust means lower risk and a lower cost of capital.”