Family Matters

David Shlagbaum uses a joke to illustrate the challenging dynamics of a family business. A father calls his son into an office where there are two hats on the table. One hat says “boss” and the other says “dad.” The father puts on the “boss” hat and says, “Billy, I’m sorry to say this, but you’re not working out. You’re not right for this role. You’re fired.”

Then he immediately puts on the “dad” hat: “Billy, I’m so sorry. I just heard you got fired! Are you okay?”

There is certainly a long tradition of fleets that carry family names on truck doors, complete with the footnote of “and sons” to indicate the expectations of a legacy, but his joke shows the nature of some of the business model’s unique issues.

In many cases, the challenges are not overcome. About 70% of family firms will not survive the transition to a second generation, notes Shlagbaum, president of the Ontario chapter of the Family Firm Institute, which specializes in advice and research for family businesses.

The failures themselves can often be linked to a lack of clearly defined roles and responsibilities.

Fundamentally, any business will need to make decisions that are not influenced by family relationships, he says. It can be easier said than done, but there will be a price to pay if the line between family matters and business issues is allowed to blur. A parent who pays two siblings the same salary in the name of “family unity” may be overlooking the fact that one of the roles could be covered at one quarter of the cost. The business is robbed of the chance of finding the best candidate for the job, unrelated members of the management team see that paycheques are not linked to performance, and overall operating costs are inflated.

“You can wind up distorting the value of the company,” Shlagbaum adds.

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