|Accountability: adding up to success
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Business is all about accountability—to your customers, to your employees, to your shareholders, to lenders and to yourself. That's what your company really is all about. From how you involve non-family employees and bring in outside advisers to governing the business as an owner and leader. In a family or closely held business, accountability all is about making sure the family's philosophies and values are upheld.
Setting up systems and a business that is accountable should not threaten the family business, addressing accountability only enhances the process.
"Family firms need to find a means to impose efficiency-enhancing accountability in their operations that complements rather than threatens their instincts to maintain control," says Jim Stroop, senior consultant with Bosporus Business Consulting and author of "Managing Leadership."
Family businesses usually have a leg up on other companies, some of which were rocked by scandals in recent years. A key feature of Enron, WorldCom and other recent disasters at publicly traded companies was the assertion of inordinate power by senior management over their boards, Stroop says. The assertion of power was in part fueled by the perception of public pressure for short-term, rather than long-term results.
"To family business owners, ownership is personal– a thing of value that represents an investment not merely of ready cash, but of time, effort and concern for an enterprise that is a product of family founders," Stroop explains.
Jerry Gumpel, a partner at Sheppard, Mullin, Richter & Hampton LLP, a West Coast law firm, says one of the first keys to accountability is to realize that the company is not the family piggy bank.
"Successful businesses have the same rules across the board. This is a company. It's not our personal pocketbook," he says.
Greg McCann of Stetson University says another plus for family businesses in the accountability arena is that they generally operate on long-term thinking.
"The risks (for such public disasters) are far less likely with the long-term kind of thinking. It's tied to communication," he says, noting family companies define success more broadly.
The family business is, however, a reflection of the founders' and owners' personal values. "That's where some conflict happens," says Carl Robinson, a consulting psychologist and principal of Advanced Leadership Consulting in Seattle.
He worked with a $100-million-plus family-owned company whose board and CEO decided to bring in a non-family chief operating officer to boost their profit margins to be more in line with a particular competitor. In a short time, the new COO concluded the company needed to make cuts to increase profits and that required laying off employees.
"That conflicted with the implicit family values that ran the company. They viewed their staff as extended family," Robinson says. Ultimately, the company's board and CEO decided they were OK operating within their existing profit margin if that meant holding onto their employees.
"That's within their prerogative. They report to themselves," he says.
Reporting to yourself may allow you to make decisions based on your values and philosophies. That doesn't mean making determinations based on what you think is best for individual family members, including yourself.
"Hold family members to higher standards," Robinson says, noting companies should be clear about their expectations for all employees. "Allowing a family member to be a slacker is a de-motivating aspect to other employees," he says.
Jodi Waterhouse of the University of San Diego Business Forum says families should have and enforce policies to avoid the "just because I share the same last name means I'm entitled" thinking.
"We're pushing families to really professionalize their companies," Waterhouse adds.
Professionalizing may involve creating a board of directors, establishing family council meetings, consulting and working with outside advisers, the experts say.
Family council meetings allow the family members to think as owners and shareholders—whether they're involved in the day-to-day operations or not. Regular family council meetings can offer an opportunity to think long term and address business matters professionally in the office so the contentious discussion doesn't come up at a family birthday party. They also give shareholders who have a stake but don't work in the business a chance to be involved, rather than sitting back and collecting dividends.
Waterhouse offers these family council tips:
Boards of directors, non-family management and outside professionals. "A lot of family businesses don't have a board of directors," Waterhouse says. "It's even more important to have a board of directors when you have so many hands in the pot."
Stroop says family-dominated boards tend to have good strategic sense and control. However, the lack of accountability can cause it to pay insufficient heed to the day-to-day proficiency.
"Nepotism, careless use of expense accounts, insufficient attention to the proper management of cash flow, all can cause family-managed firms to become sclerotic and non-competitive," Stroop says.
Eddie Goldsberry of Leading Edge firm PKF Texas, says most family business do well at mentoring and coaching, but don't do any formal evaluation of their business performance.
Robinson explains that boards also are an excellent way to bring in strengths that family members may not have. "Balance the board with outside people who have the necessary skills to help the company." However, the family should be honest about the opportunity for the non-family member.
Waterhouse says an outside board of directors should be handpicked, non-biased, with no emotional ties.
"Closely held and family businesses are nervous, uneasy about opening up the books to outsiders," she says. "They don't want to rock the boat, but they must if they want to take the next leap."
Stroop says families should cultivate carefully and intelligently relationships with professionals such as accountants with family firm expertise who can provide discussion and thoughtful counsel for the benefit of the business.
"Family businesses often are started by entrepreneurs, but as the business grows the challenges and skills to take it to the next level might not be there," Robinson says. "Family members need to think about the whole process. Are they willing to hand over the reins to non-family members?"
Families might want to consider non-family advisers for several areas. Perhaps a formal executive committee of key employees and advisers might lead the day-to-day business, allowing the owners to focus on long-term business, Goldsberry says.
Employee evaluations. Companies also should conduct annual evaluations of senior executives regardless of whether they are a family member, Robinson says. e