In families and in business, emotions can run high. Here's how you can cope.
By Scott Friedman and Eliza Friedman
Many companies in the automotive aftermarket are family owned businesses. Unfortunately, interfamily conflict and financial loss cause nine out of 10 family businesses to fail before making it to the third generation. This continually high failure rate suggests the need for a revised approach to achieving success within a family business.
Combining my nearly thirty years of family businesses advising experience with insights from positive psychology and evolutionary biology, I have developed an approach that could help ensure the success of family businesses from generation to generation. This article summarizes the approach and provides seven basic suggestions for implementation in your own family business. These planning strategies are discussed in more detail in Scott's upcoming book, Family Business and Positive Psychology: Planning & Counseling for Lawyers and Business Professionals, that will be released in 2013.
Evolution and its Impact on Family Business
The human brain evolved over thousands of years to react in fight-or-flight mode and aid our ancient ancestors in catching predatory animals and surviving dangerous situations. Despite all these years of evolution, our brains remain hardwired to react in fight-or-flight mode when faced with modern day forms of fear.
Unfortunately, family businesses often struggle because of their inability to efficiently manage these modern day forms of fear, including the fear of losing control of an opportunity, the fear of not making as much money as someone else, or the fear of not getting enough credit. In response to these (and other) fears, biology causes family members to experience stress, increased heart rate, rising blood pressure, and accelerated breathing in response to these perceived fears.
These fears and other innate biological instincts can cause frustration and tension between family members, ultimately destroying important familial relationships that are crucial to the success of a family business.
Positive Psychology and its Impact on Family Business
Studies in the field of positive psychology demonstrate a strong correlation between positive workplace culture and the success of an organization. These studies suggest the importance of seven strategies for combating the negative impact out evolutionary biology has on successful family business functioning.
1. Focus on Creating a Positive Culture
Studies show that employees perform better then they feel appreciated, motivated, and engaged. Family businesses can work to create a positive work culture by implementing policies that encourage respect, kindness, and compassion.
2. Promote “Fit” Over “Convenience”
Many family members work in their family business because of convenience and status. However, these positions may not suit the individual’s passions and strengths. Employment should be based on the existence of a job opening and a good fit.
3. Improve Communications
Effective communication is often challenging because we overestimate our own communication skills and misinterpret those of others. Accordingly, family businesses would benefit from improving traditional communication strategies such as active listening, maintaining eye during conversation, speaking respectfully, and repeating what was said to ensure understanding.
4. Establish and Commit to Core Principles
Family businesses would benefit from clarifying to all members a vision statement, mission statement, and statement of core values. This ensures that family members follow agreed upon rules and minimizes room for conflict.
5. Establish Governance Structures
Because humans are biologically inclined to be irrational, overconfident, and make snap decisions, family businesses would benefit from having non-family members serve as board members and advisors. Because of their position outside the family they are inherently less biased and can offer helpful perspective and feedback about important decisions.
6. Preempt Conflict
Instead of focusing on resolving conflict after it has happened, family businesses would benefit from preventing conflict from spiraling out of control. Examples include seeking advice from a respected family elder or a non-family board of directors.
7. Focus on Holistic Planning
All of these suggestions are intended to compliment traditional family business succession planning strategies. Instead of replacing traditional methods, there is an exciting opportunity to combine findings of positive psychology with traditional methods to optimize family business success.
Studies have shown that businesses are more likely to prosper when colleagues work collaboratively in a positive environment. The high failure rate of family businesses suggests that a new approach to working with these entities is necessary to ensure family business success. A positive culture, created using insights from positive psychology, creates family businesses more likely to succeed from generation to generation.
Scott Friedman is the Managing Partner at Lippes Mathias Wexler Friedman LLP in Buffalo, New York. He consults with family businesses throughout North America.
Eliza Friedman, a law student at SUNY Buffalo Law School, is the Executive Articles Editor of the Buffalo Intellectual Property Law Journal.