How important is structure in the family business?

November 4, 2014

Thomas D. Davidow, Ed.D.

I frequently refer to communication between and among family members as one of the keys to the success of family businesses. I also talk about family members' unrealistic expectations that everybody can read each other’s minds about what they should be doing. An even more dangerous tendency is to interpret what other family members are thinking and/or feeling without “reality testing" that interpretation.

Another instance when family members rely on assumptions rather than talk formally with one another occurs when there are no formal structures in the family businesses. Part of the reason for the lack of formal structure is that a key and valued part of the family business is its entrepreneurial culture. That culture fosters creativity and initiative and abhors bureaucracy.  If the waste basket is on fire, the person who is on the scene responds to the situation.  The responsibility gets assumed, and the task gets done without anyone having to go through "appropriate channels."

The problem is that when the business reaches a certain level, complexity and size (i.e., number of employees), that style of sharing information on the fly or on an as needed basis stops working. The business hits a ceiling, and frustration develops. That frustration about the business backs up into the family dynamic and conflict can develop.  There is too much going on for everybody to be on the same page. Consequently, the business demands a more organized managerial structure. At the same time, the increased family tension reduces the inclination for structured meetings because family members are afraid that the “business meeting" will turn into family conflict. Because of the natural resistance to meetings and the fear of having family emotions spill out, the cure/antidote can be more difficult for family businesses to implement. 

I try to ease family members' fears on the business side by explaining that their inherent family culture would never tolerate too much structure. I suggest that the first step be just a set of weekly meetings with appropriate personnel where they begin to share information and organize their responses to business challenges with coherency and transparency. In that way, they can address the issues that have been standing in the way of the business moving forward.  That dynamic can also reduce the tension in the family. The one caveat is to focus on the business side of the problems. If a relationship issue surfaces during the meetings (which frequently happens), I suggest that that issue be addressed privately.

The overriding message is that family businesses are wonderful operators. It is difficult to pull them away from their inclination towards immediacy when it comes to accomplishing their daily tasks. However, there comes a time in the growth of almost all business when the principals have to shift some of their time from working in the business to working on the business.