Family Business Matters

These are definitely trying times for many business owners. Layoffs, salary reductions, looking for ways to eliminate or control overhead expenses, shutting down facilities, postponing acquisitions and putting off company expansion plans are all part of the landscape for just about every business today.

In a family business, the challenges presented by the current economic situation are perhaps even greater for the family CEO or CFO, if several generations own shares and not all of them actually work in the business.

One would think that the stressful position of the family business CEO/CFO would generate support, compassion and understanding from the family members who only own shares.

However, at the same time the CEO and/or CFO is trying to hold the family enterprise together to ensure its financial future, I suspect many family shareholders are calling the embattled family CEO and/or CFO to ask why their quarterly distribution has declined, what will happen to the normal mid-year distribution of previously taxed earnings and why there is a reduced budget for the next family council meeting.

I also suspect that many of these communiqués are being directed to the family CEO/CFO at home, late at night, at a family birthday party or even after church.

When family shareholders who are not involved in the daily operation of the family business overreact to the prudent and necessary changes the family CEO/CFO has to make in their financial benefits, it simply adds stress to an already stressful situation. If the family does not have financially-fit family shareholders, recessionary periods make it much more painful for the family business executives. If family members have become reliant on company dividends to support a highflying lifestyle, in times such as these, the level of phone calls, emails and notes will undoubtedly increase.

A constant barrage of phone calls from previously disinterested family members distracts the family executives from their job at hand, which is to make sure the business remains healthy and survives this recession.

I also suspect that some non-operative family shareholders would go as far as to call senior managers directly if the family CEO/CFO doesn't immediately respond to their latest demand for information.

One family executive reported to me that his sister had called a plant manager recently asking if the family business could make the next payroll. This is demoralizing and embarrassing for the non-family managers and can interfere with the level of concentration they must apply to their particular jobs at hand.

Along with the general public, family shareholders hear the continuous negative news about the worldwide economy. One can see why their level of concern increases when they see a blue chip stock fall by 40 percent, or hear that banks will never loan again, or see the unemployment rolls increasing daily.

However, demands for updates from the family CEO/CFO as frequently as the 24/7 media provides are unproductive and unrealistic. In addition, these panicked calls and emails compound the stress that conscientious family executives already feel. It is well known that continual high levels of stress can create irrational responses to challenges such as critical business financial decisions, which is not the result family shareholders want.

What is a better way of getting out the news to family business owners?

Several of my previous columns have recommended setting up appropriate communication processes to handle the orderly dissemination of important information to the family shareholders. Many families have set up a regular method of communicating news and updates about the family business long before this recession hit.

By having the family communication process in place during "normal" economic times, it is much easier now to hold regular "broadcasts" of current information for family shareholders. Whether you schedule a Webcast or a regular conference call, keep whatever calendared form of communication to no more than a half hour. If you send financial statements to shareholders, note any changes in the budget or variances in expenses. Lastly, make sure that the shareholders understand that requests for information are to be directed only to the family CEO/CFO, and why that is so critical.

If you are the CEO or CFO, stress how important it is for you to have time to DO your job, part of which is to manage shareholders' expectations. This wonderful role as family business leader calls for you to warn the shareholders well in advance that spending less is sound financial behavior in light of anticipated lower dividends.

It might also be appropriate for the family business executive to remind shareholders that the success of the family business involves more than just their own financial comfort -- it involves the lives of their employees, vendors and customers.

Finally, during times like this, a family CEO/CFO can "lean on the legacy" of prior generations who may have started the family business in the early 1930s. Many family businesses were born then out of necessity, ingenuity and just plain spunk. Although these qualities are not necessarily genetically transmitted, at the end of a financially difficult day, third-generation family business CEOs/CFOs can look to the past to support their hope for the future of the family business -- and turn off their cell phones!