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Details

  • Service: Enterprise, Family business
  • Type: Business and industry issue
  • Date: 4/19/2012

The benefits and challenges of the family business component [Part 1] 

The benefits
Anything can cause conflict in a family business. From the pay and ownership structure within the business, to the choice of the colour of the doors on the new housing complex that a family is involved in building.

Then of course there are changes to the family through birth, death and marriage, when conflict might occur as plans need to change to accommodate these developments.


Families don’t always see eye to eye – here we discuss challenges faced by families in business.

The challenges of the family business component

  1. Conflicting goals/values. Family members, especially across generations, can have different personal and business goals and values. These goals/values need to be clearly expressed and understood by everyone to avoid unnecessary stress and potential conflict among family members.
  2. Conflicting personalities. Everyone is different, and personality clashes can often lead to sibling rivalries and intergenerational conflict. Left unattended, they can destroy family relationships and business harmony, and in many cases, damage the business.
  3. Expectations. Family members have different expectations from the family and from the business – about employment, management, ownership, compensation, work assignments, training, use of business assets, etc. These expectations need to be addressed and managed in order for the family and the business to operate smoothly. Left unmanaged, they will negatively impact the business, challenging its long-term survival.
  4. Work ethic. As the family business moves through generations, the work ethic tends to differ significantly.Younger generations tend to be less prepared to invest the kind of time their parents invested in the business. This can cause considerable stress and discord between the generations, and also unnecessarily delay the transition of both management and ownership.
  5. Employment of family members. Who gets to work in the family business? Who gets what jobs? Can spouse and in-laws work in the business? Will employment be based on what the families want (bloodline) or what the business needs (competencies)? How are these employment decisions made? If not effectively addressed, all of these issues can turn into liabilities for both the family and the business.
  6. Compensation. The inappropriate use of compensation to achieve family or personal goals instead of business objectives continues to be one of the most challenging issues facing family businesses. The expectations to be fair are often in conflict with the desire to treat family members equally, and emotions can run high.
  7. Reluctance to plan. Generally, family business owners (especially the founders) aren’t very good at articulating and sharing their vision for the business, or their long-term business goals. Business, successions, and financial planning are often viewed as an ineffective use of time instead of necessary business processes. As the business moves through the generations, the owners’ vision tends to get lost or blurred, and the next generation of owners often find themselves without direction as they plan for the future. The dining room table often replaces the boardroom table, and whatever planning is done tends to be informal and irregular.
  8. Time. The family component gets more difficult to manage as the business moves from one generation to the next. Learning how to manage this early on in the evolution of the family business will pay dividends down the road though.

Christophe Bernard

Christophe Bernard
I am a KPMG partner based in the French firm’s Paris office, responsible for encouraging the growth of our firms’ middle markets practice across Europe, Middle East and Africa, a majority of that market comprises of family businesses.
 

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