“WE learned about honesty and integrity – that the truth matters… that you don’t take shortcuts or play by your own set of rules… and success doesn’t count unless you earn it fair and square.” – Michelle Obama
Welcome to 2014! And it’s time to get everything in order. So whether you are transitioning or handing power to the next generation or starting a business together with the family…they all offer a lot of exciting opportunities but it also has its negative side which could be prevented by having clear rules. Rules are significant, because it provides all members with proper guidelines as to what are acceptable and what are not in the family business in order to ensure its successful operations.
Family members mean no harm. It can be assumed that they would want the family business to start and go on smoothly. However, it will be better to put aside this assumption and be more objective, because no one can ever be absolutely sure of what lies ahead. Observing rules can lessen the chances of failing. You might be thinking that the members of your family might get offended when you ask them to come up with rules with you and abide with it, because it might seem that you doubt their commitment and that you might be distrusting them. Explain to them that the rules are for the good of the company on the professional level. Everyone who is willing to join the family business must understand and accept such rules, because it would serve as basis for everything –steps to resolving problems (standard operating procedures), qualifications to employment, duties and responsibilities, financial security (division of shares), compensation, benefits, rewards, awards and recognition, perks and privileges, and most importantly the direction of the company when it comes to decision making. Make them aware that these rules could protect them with their rights especially when the family business has become stable and expanding.
Aside from the points mentioned above, one important reason to backing your family business with rules is the varying levels of motivation of each and every family member you would want to include in the family business. What if the other members of the family eventually get tired of the demanding and pressuring effect of running a business, lack interest or become overwhelmed with all the work? Having a family business could be very rewarding financially, but when the market is down and profits are coming in slow, would all of them keep up? If you are willing to do everything in your power and right mind to carry on with the business, do you think they also have that quality and strong motivation? Not everyone in the world has the motivation to become an entrepreneur. Only the persons with the entrepreneurial spirit could remain motivated in the family business no matter the circumstances are. So, if you are not certain that the other members of the family will have that same fire like you do, allow yourselves to talk over what rules could be helpful. With proper rules that address the duties and responsibilities (especially concerning the deadlines for specific tasks) of all who work in the company, and rules on the resignation period, you will not find yourself being suddenly left alone.
Another reason is the ability of your relatives to find solutions to problems and to respond proactively to different situations. Develop processes that can be used to overcome potential problems. Standard operating procedures, regular meetings, evaluation of performance, and reporting structure can be considered in the rules.
Rules are set to be observed, but when it is not followed, there has to be some form of consequence. The consequences would have to be just and depending on the gravity of an offense, it would have to be gradually imposed. Normally, family members will think that they have some kind of immunity, so let it be known that rules and its consequences are effective to everyone who agrees to join the family business. Consequences can be constructive and not be like a form of punishment and reason for humiliation. In other cases, when termination is not an option, additional training, a visit to an expert like a family business psychologist for advice, or rendering other services can be consequences that are productive and supplemental instead.
After coming up with the rules, make sure that the rules are put into formal writing. Develop an agreement contract that identifies and describes the terms and conditions clearly. The signing of the contract binds and confirms that you are with people who really want to join the family business with all their heart and willingness to comply with the rules for the sake of the company. In addition, create a handbook. We cannot always trust our memory and you will not always have the time to explain all the rules every now and then, so better have the rules completely written in a handbook.
Stick with the rules, but be open to constructive feedback and change. Rules are only effective when it serves its purpose. Assess and evaluate the situation when particular rules are deemed for change. Include all concerned in the process of changing the rules. Never change a rule, without informing those concerned. It would only create confusion, so see to it that rules subject to change are known to everyone first.
Prof. Soriano is the chairperson of the Marketing Cluster of the Ateneo Graduate School of Business. He is also a Senior Consultant of Wong+Bernstein Business Advisory Group. For comments, send email at firstname.lastname@example.org