The Ties That Bind and Prosper

Family Businesses

Many companies proudly tout a ‘family atmosphere’ and strive to achieve that environment in the workplace – and with good reason. Family-owned businesses work.

American management consulting company McKinsey & Company noted of family-owned firms in October 2016 that the striking aspect “about their performance is asset productivity and brand value: their asset turnover, or ratio of revenues to invested capital, is roughly twice that of other companies, and they account for eighty percent of the brand value of the world’s most valuable labels.”

Approximately sixty-six percent of all businesses in the world are family-owned, which unequivocally demonstrates their impact on the global economy. Although other businesses are not impervious to hardships, family-owned businesses do present unique aspects with which their business leadership must cope.

Many people will admit that working with family can be difficult. For some, the only way of escaping the conflict is to remove themselves from the confines of the business. Disappointingly, separating from the company, often means separating from the family.

Rob Lachenauer, Chief Executive Officer of Banyan Global Family Business Advisors, echoed this sentiment in a 2018 interview with Forbes.com. “Our experience is they exit from the business, and they exit from the family. They are so ashamed. Their whole identity has been taken away from them,” he said.

Furthermore, scorned family members or those seeking retribution tend to become malevolent, abusing the luxuries afforded to them as members of the business. The scenario serves as a reminder that competent decision-makers need to be placed strategically within the framework of the company to avoid anguish and assure integrity.

Working with family is not all personality clashes, however. A work environment of people you trust and know can be more relaxed and have tremendous benefits for the company too. Family members are more likely to recognize that they are working toward a common goal and are willing to make sacrifices for the company if needed.

An example of successful collaboration would be the Lefave brothers of Superior Auto Group in Sault Ste. Marie, Ontario, where Greg Lefave, company President, has had the advantage of having his younger brother Brad with him every step of the way. In 2014, having family to help run the company also became a business lifesaver.

Greg and his wife Karen had twin girls, Georgia and Charlize, the latter born with a rare congenital heart defect that required constant travel to and from The Hospital for Sick Children – also known as SickKids – in Toronto. It was here Greg realized the value of having support and trust at a time he needed it most.

When assigning roles to family members, personal bias must not be a contributing factor. Like any business, wages and positions should be consistent between family and non-family members. Setting precedents that demonstrate a business-first mindset will attract retainable, outside talent, allowing family members to stay confident and focused.

Due to the personal relationships within family-owned businesses, conflicts are inevitable but can be beneficial if used as a means of resolution and reflection. Robert Sher, family business advisor and contributing author to Forbes online, created a list in the June 2018 issue that contained five musts when managing family business difficulties.

He believed that family firms must respect the decisions and independence of family members and have clear family goals as well as developing what he refers to as ‘an enviable work culture’ that values emotional intelligence and pays fairly, based on performance.

Sadly, an overwhelming number of family businesses close while there is still an opportunity for sustained success. Poor management may fail to recognize fundamental flaws while denying any accountability, and impetuous decision-making is often a contributing factor to an enterprise’s demise. Yet management that is aware of all aspects of the business can avoid such obstacles, anticipate future deficiencies, and allow for a smoother transition to the next generation of ownership.

Professor Boris Groysberg of the Harvard Business School and organizational behaviour expert Deborah Bell examined what makes for a successful generation transition of a family-owned business in their report published in the April 2014 Harvard Business Review. They found that adopting a rewarding workplace culture consistent with short-term and long-term company goals, free from self-serving tendencies, promotes group unity while establishing a trustworthy rapport between employees and management.

When a handover is on the horizon, families looking to make the change in ownership can benefit from identifying common factors that cause so many businesses to expire. Operating proactively will help the new generation while preparing the company for the future. Even so, according to Groysberg and Bell’s research, sixty-three percent of family-owned business’ directors admitted to having little dialogue concerning leadership succession.

As baby boomers look to retire, the next generation of leaders is set to emerge and leave their marks. EisnerAmper, a company offering transition advisory services, estimates that nearly $10 trillion in business assets may be transferred by 2025.

Albeit, according to the Conway Center for Family Business, “more than 30 percent of all family-owned businesses make the transition into the second generation. 12 percent will still be viable into the third generation, with only three percent of all family businesses operating at the fourth-generation level and beyond.”

However, as a result of the majority shareholders being related, family-owned businesses face less pressure from outside influences, allowing them the flexibility to adapt when market opportunities present themselves. It also means that they must be far more creative to survive local conditions.

Sault Ste. Marie, for example, has a population shy of 80,000 and an average individual income of less than $35,000, so low prices alone were not enough to guarantee the sustainability of the Lefaves’ vehicle dealership. Superior Auto Group’s success has come about through community involvement that has benefited not only the company but the Lefave family and people throughout the surrounding area.

When dealing with their daughter’s medical issues, Greg and Karen felt fortunate to have the assistance and support of SickKids, and this prompted them to launch their not-for-profit Twinkie Foundation. By 2017, the organization was officially organizing its first fundraiser to help with the travel expenses of families with ill children, “to help relieve some of the financial hardship,” according to its mission.

Greg and the team at Superior Dodge and Superior Nissan have continued to assist other non-profit organizations through his position as Vice-Chair at Strive, a start-up providing networking tools for young professionals in Sault Ste. Marie, and he has helped set in motion a charity to assist local veterans after losing a close friend suffering from post-traumatic stress disorder.

“It’s what I want to do, and in my opinion, it’s the right thing to do,” said Greg Lefave. “It sounds like it’s a plain answer, but it’s the truth. There’s nothing that should ever ‘drive’ somebody to do the right thing. You should just do it. And yes, we’ve noticed a correlation between our involvement in the community and the growth we are seeing. Many of our customers tell us they deal with us because of what we do for the community. So that’s very humbling to hear and a nice reward.”

Certainly, an alignment of values between a business and the wider community can position any company for lasting success. The essential difference between a family-owned business and others is that those values come from shareholders who have a personal relationship with one other, empowering them to pull together for future generations.

January 23, 2020, 7:20 PM EST