The Absurdity Of Family Business Decision Making

Do you think your family business has advantages over your larger competitors because you’re more nimble and therefore capable of making faster, better business decisions?

After spending over twenty years working in, managing, owning, buying, and observing family businesses, I respectfully challenge this conventional wisdom.

When it comes to operations, family businesses typically do have first-rate decision making skills. Because of their experience in their particular area of the furniture industry and the fact that they’ve specialized in furniture for one or more generations, they are capable of making speedy decisions when it comes to operations. When it comes to other areas – particularly strategy and long-term direction for the family business – decision making abilities erode considerably.

Most family businesses in the first generation have one primary decision maker who functions as both owner and general manager of the enterprise. First generation family business owners are often like player coaches issuing directives left and right and watching lower employees execute their decisions. However, when the founder has aged and the successor generation enters the business in a significant management role, big picture decision-making gets bogged down. As the senior generation ages, it grinds almost to a halt. Why does this happen?

Most family businesses which are beyond the peak earning years of the founding generation make strategic family business decisions by “consensus.”

Remember what Abba Eban said, “Consensus is what many people say in chorus but do not believe as individuals.” After all these years, I am still not certain what consensus means in the context of family companies. Best I can tell is that consensus decision-making in family businesses means unanimous decision-making. This desire for unanimity gives effective veto power to any dissenter in the group. This destructive decision making often bottlenecks important, strategic, long term decisions that relate to the health and vitality of the future of the company.

Here’s an example. A furniture company is run by six family members: Dad, the founder, age 80; Mom, age 77; the oldest son, age 57, who is the president of the company; the next son, age 54, who is the vice president; another son, age 51, who is director of operations; and the youngest child, a daughter, age 46, who is also vice president. The family has been considering for several years some strategic decisions that could modernize the business and allow them to resume the growth that stagnated in the last several years. Most of the six family business members are enthusiastic about the idea. The difficulty is that the third son, the vice president of operations, is not enthusiastic about the proposed changes at all, and has made his displeasure known through several heated exchanges.

Given the fact that more than 80% of the family members are on board for the proposed changes, what is this business family likely to do?
The answer seems simple. Most outside, objective observers would say since five of the six stakeholders have made it clear that the project should be a go, the decision is a no brainer.

However, when it comes to the absurdity of family business decision making, it’s likely the family will NOT move forward with any strategic initiative, at least in the short run.

Why is this experience so widespread in family businesses? Why do people of good minds and common sense give any one person in a group of six effective veto powers over decisions that the group would likely make?

They won’t move forward with their strategic plans because they don’t want to upset the family unity. In their pursuit of family business harmony, families often determine that it’s better to live with things as they are in an uneasy equilibrium rather than undertake a project that one or more family stakeholders oppose. This seems short sighted, but it’s common behavior. People will put their dreams and aspirations on hold in order to avoid stepping on the toes of the lone dissenter. Veto power is arbitrarily handed out to anyone who moves away from the wishes of the larger group.

If this dissenter continues to veto family business initiatives, he will create much greater conflict. As the dissenter’s power grows, and he becomes the de facto leader of the company through his willingness to use his veto power, resentment and frustration builds in the other members of the group.

Ultimately, this convoluted effort to preserve short-term family harmony actually serves to undermine good relations over time by allowing an imbalance of power.

Perfect harmony is an unrealistic goal. A shortsighted strategy of preserving peace and will ultimately result in increased family business conflict and disharmony over time. Consensus is only a strategy for deferring conflict, not dealing with it constructively.

What should families in business together do when faced with group decisions and an absence of unanimous agreement?

There are several steps they should take:

1. Recognize that not making a decision is, in fact, a decision.

2. Embrace change. It’s inevitable, it cannot be halted. Once people accept that change is simply a fact of life, it somehow ceases to be as threatening and problematic.

3. Take steps to better understand yourself and your other family members (and other key family business employees). There are many instruments available to help you assess your own personality as well as the personalities of those you work and live with. (The Lively Merchant recommends the MBTI, and the FIRO-b. Go to www.cpp.com or email DavidL@furninfo.com  for more information about these tests.) Use them to learn about effective communication. When we fully understand how others wish to be treated, we can speak to them in a way they’ll appreciate.

4. Determine in advance what you as a family and a business will do in the event of ties, deadlocks, or absence of unanimity on decisions.

5. Resolve the decision-making conflict; don’t avoid it! While it might not make sense to force a decision immediately, it doesn’t mean that you should avoid making decisions altogether. The biggest danger in family business decision-making is letting the fire burn too long. Successful family businesses take steps to make real, thoughtful decisions.

A lack of determination and transparency will destroy your family business in the long run.

Upcoming topics:

• The dangers of inheritance.
• Which hat today?
• How do you compensate your children?
• The latest in family business research.
• Some just don’t get it.

David Lively, partner at The Lively Merchant, has over 20 years hands-on experience in the home furnishings industry, from the warehouse to the sales floor to the boardroom. He has walked the walk and talked the talk from the family-owned, single-site store to the multi-state, multi-million dollar operation; from sales training to computer programming; from warehouse construction and operations to financial management; from new store construction to complete renovation. Twice named to the "Beyond the Top 100" list of independent retailers and 1997 "Ohio Retailer of the Year," David's wisdom was won on the front lines of a furniture store and his battle scars have given him compassion for counseling today's retail warrior. David’s unique perspective and experience has led him to the forefront of a new phenomenon that will soon rock the home furnishings industry like nothing that has ever come before: the transfer of authority, responsibility and wealth from one generation to the next. Four out of five family-owned furniture stores are still led by their founder, and 40% of them will change hands in the next five years. The surviving legacy of your family business depends on your plan for transition, and David has developed a proprietary and unparalleled system for helping to identify goals, strengths and opportunities during this crucial time. Questions on family business or other furniture retail issues can be directed to David at davidL@furninfo.com.