Avoid these family business obstacles.

For a family business to operate effectively, several factors must coalesce from both a business and family perspective. Various issues can undercut the ability of the family enterprise to function smoothly and set a solid foundation for the future. This article takes a brief look at some of these "enemies" of family businesses. We will focus particularly on three psychological factors that revolve around paternalism, nepotism, and indulgence.

Paternalism

The very strengths that help a family business get off the ground can ultimately lead to its undoing. The founder brings key, positive personal traits to the business start-up including a strong sense-of entrepreneurship. The founder often displays incredible drive and energy, force of personality, and the desire to run things his or her way. Over time, a dominating and autocratic climate may prevail making it difficult for other family member working in the business to assert themselves and wield influence. In an autocratic atmosphere, the business may even attract or maintain family members who are dependent and lack initiative -- features potentially damaging to the long range health and viability of the business. In other words the strong, hard driving qualities that were essential at the earlier business stages may become less critical as the business grows and matures. An autocratic leadership style may prove to be increasingly less functional over time and may actually sew the seeds for an organizatio n that is equipped to change and adapt in the face of new business realities and demands.

Nepotism

Even as it provides unique career opportunities for family members to become actively involved ii the business, family businesses face a major challenge in holding its family members to no less a performance standard than its non-family employees. Family businesses are often vulnerable on performance related matters. Tolerance of ineptitude and being blind to weaknesses that family members display can create cynicism among coworkers and eventually clients and customers. Inequitable compensation and reward systems can further undermine the family business in the eyes of more competent but perhaps less valued non-family employees who come to believe that family counts more than bottom line performance. Moreover, to the extent that family driven conflict, faulty communication, and other deleterious behavior become a part of the work culture, without consequences for the family members responsible, the family business will additionally suffer. Favoritism, which conveys the message that family, matters more than business rationale and objectivity, also ultimately leads to the undoing of the family enterprise. Under these conditions, employee morale will also likely decline, and it will be difficult if not impossible to attract and keep top flight talent in the family business.

Indulgence

The autocratic management style described above can easily set the stage for the emergence of another family business "enemy", namely indulgence. If the founder or senior executive comes to view himself as indispensable, is reluctant to let go, and in the process insufficiently educates and prepares the next generation for succession, problems can result (this assumes of course that the next generation is indeed interested in assuming command).

Under these circumstances, perhaps out of guilt, senior management may lavish the next generation with excessive pay and material possessions in exchange for this relative lack of formal family business training and preparedness they so badly need. This can in turn set the stage for the "spoiled kid" syndrome. The next generation may get the subtle message early on that one can get something without working for it, and they may come to view themselves as rightful heirs to the throne rather than viewing leadership as earned. Other adverse spin-offs include an attitude on the part of the next generation that the business is something to play with and need not be taken too seriously, disequilibrium between contribution and compensation may also result, and the next generation may be looked to for important decisions they unfortunately are not yet ready to make. The spoiled kid syndrome can create the worst case scenario where the next generation is ill equipped to carry on, makes little contribution to the bott om line, and places a financial drain on the company. Over-indulgence usually represents a losing situation for all concerned.

What then can be done to avoid paternalism, nepotism, and indulgence? First, the founder or succeeding family business CEO must be able to view the business objectively. A rational view of the business will go a long way in making determinations about what the business needs in the way of employee contributions. Fair appraisal of the skills needed and from whom must be specified. Secondly, family members must gain experience outside the family enterprise before taking on a responsible role in the business. Toward this end, rules for family participation in the business must be developed. Lastly, compensation for family members must be at market rates based on skills required and contributions made.

Tim Giddings is a freelance writer.