This is one of those predictable problems which takes on additional angst because it involves a family member. As a predictable problem, its’ resolution can be proceduralised by specifically mentioning this situation in a family constitution so that there are no surprises if and when a situation like this occurs. But first things first.
Why do people underperform?
There are 4 reasons, 3 of which are the responsibility of family business management.
- The person cannot meet expectations
- The person does not know what is expected of them
- The person does not know that they are not meeting expectations
- The person will not meet expectations
The first 3 reasons are management issues. Identifying the reason is the start point for the discussion. Are expectations too high? Are expectations too vague? Is the person’s role clear? Are the objectives set SMART? Are there regular reviews of the person’s performance? Is training or coaching provided to help the person improve/develop?
The fourth reason is potentially the most problematic as it represents attitude and behaviour. A poor attitude may be due to a sense of entitlement or being untouchable because they have the family name. Yet a failure to deal with the problem creates issues with non-family employees and may lead to the business under-performing.
I have this problem now, what can l do?
Consider having a non-family manager line manage the underperforming family member to take the emotion out of such situations. In this case, using established management disciplines such as ensuring a job description, setting objectives, regular performance reviews and coaching, training and on-going feedback. Further underperformance probably then means going down some form of capability procedure.
Although nothing changes if a family member is the manager, there is the added emotional element of having this difficult conversation with a family member. Some form of coaching may be helpful for the manager to rehearse what needs to be said before dealing with the rational management approach. Although it is potentially parking the problem, one solution adopted by many organisations, is to create a role that better uses the skills of the family member.
Assuming the under-performing family member is willing to engage in the process, then consider coaching of this person. My process involves getting the manager and family member together to discuss the issues, describe the desired outcomes and assess the motivation to change/improve/support. As a result of this meeting coaching may not be appropriate but other options may present themselves. Where there is a desire to work things out and improve then a coaching programme over a period of months is the typical outcome.
My start point is asking the family business head what s/he want to achieve. The obvious answer might be compromise and to balance the needs of the family with the needs of the business. That might be the outcome. Another, possibly more enduring, outcome might be a realisation that this situation crystallises the need for change and a need to start to professionalise the approach to the business. There isn’t a right or wrong outcome other than this situation provides an opportunity to reflect on what is going on and perhaps start to make some changes.
How can l avoid this in the future?
This is a predictable people problem. At the risk of providing a structural approach to a people problem, having a family constitution enables such problems to be discussed, and procedures agreed, before they occur. The greater the number of family members currently involved, or who may potentially be involved, the greater the likelihood of conflict, different agendas and disagreement.
Consider a situation where in moving to the second generation of the family business, the number of family members involved in the business increases from 5 to 10. The number of relationships grows dramatically, with the likely outcome being an increase in potential conflict and so the need to think through the predictable problems.
Whereas conflict is potentially positive, given what is at stake, it is best to consider how such issues are to be dealt with before they occur.
So 3 immediate policies of relevance to this situation are:
What are the rules regarding the employment of a family member? What work experience do they need to have? What is the application process? Who does the interviewing? What happens if there is a better non-family applicant?
How is an individual family member’s performance (and remuneration) going to be measured? Is performance going to be measured equally across the business? What is the family business policy going to be towards pay? What is the dividend policy? Is this part of the remuneration package or separate?
Where there is on-going underperformance, what are the sanctions going to be? What happens if the family member is asked to leave the business? What is the impact going to be on share ownership or on receipt of dividends? What restrictions on future employment might be put in place?
There is no right answer although there are legal processes which would provide the basis for an agreed solution. These are difficult and complex questions. They are difficult to ask and answer objectively in the heat of the moment. So the opportunity for the family to ask these questions rationally, without being under pressure, is vital. It enables the what-if questions to be asked and a rational response considered that feels right and fair for the family. Having a cross-generational working party discuss these issues makes it more likely that the policy will consider different perspectives and so be more workable in practice.
For a confidential discussion on how to deal with the current situation in a practical way please contact stephen.cowburn@hcbusinessadvisors.co.uk or Stephen direct on 07974 425361. Stephen provides coaching and consulting services to family businesses and is used to facilitating family groups on achieving the policies that are right for them whether as discussions in family councils or ultimately in written form via a family constitution.