Keeping it all in the family spells disaster

The family business is the engine room of the Australian economy. According to Family Business Australia, 74 percent of all businesses here are family businesses. About 50 percent of the private sector workforce is employed by family business.

That's not all; family businesses have a 30 percent better return on investment than listed companies, according to a study from the Australian Centre for Family Business at Bond University.

The family business is a big gap in management literature. Most of the focus of management consultants and books is on the listed and professionally managed companies. And yet most businesses are owned and run by families.

Many resellers have family businesses. If they didn't go into the family business, there is a wife or partner in the background doing the books and making sure everything is running smoothly.

Work for a family business and you get a sense of belonging and purpose, and when everything is ticking over well, there's a lot of commitment and passion.

Many in family businesses regard themselves as having an edge over the competition because of strong relationships with customers, suppliers and employees.

But family businesses can also be problematic. Conflicts blowing up between family members can throw everything off course.

And then there are conflicts of interest. Impossible? Try working for a company where, for example, the sales manager or human resources manager happens to be the boss's partner. A 2008 KPMG study found that for all the advantages, family businesses can be hindered by a lack of formal planning and governance structures. For example, 63 percent of family business chief executives are aged between 46 and 65 years and are putting in as much as 69 hours a week on the business.

One in three plan to step down but fewer than one in six (17 percent) have actually planned for what's going to happen after they leave. Succession planning is not a strong point in family businesses which might explain why, as experts point out, fewer than 15 percent last beyond the second generation.

Sixth-or seventh-generation family businesses such as Levi Strauss and the Rothschild banks are very rare.
The hardest issue to discuss in any family business is about division. Not between male and female, or young and old but between what's personal and what's professional.

This is a mistake that many family businesses make. Usually, it's about the founder's inability to put a barrier between his personal money and that of the business. When the amount is significant, it eat
into cash flow.

How can problems be resolved? Peter Drucker, one of the great management thinkers, wrote that a number of rules need to be observed if family businesses are to survive.

The first is that family members working in the business must be at least as able and hard-working as any employee. In a family-managed company, relatives are always "top management". Mediocre or lazy family members are quite rightly resented by non-family co-workers.

When that happens, respect for top management and the business as a whole rapidly fades away. This is bad because talented non-family people will not stay, and the ones that do soon become toadies.

Another important rule is that no matter how many family members are in the company's management, one top job must be filled by a non-relative. This is absolutely critical for maintaining a balance. An outsider can be more objective and does not have to worry about the reactions of family members.

Key staff positions need to be entrusted to those outside the family; the demands for expertise are far too great. No matter how competent family members are, they are unlikely to be best in their field. Once hired, these non-family professionals must have "full citizenship" and rights in the firm.

Finally, succession planning should be trusted to someone outside the family and business.That ensures the emotions are kept out. Often, one of the best succession plans is for a management buyout. That ensures the family run business will remain on track and with a similar drive and culture.