There are 3 common “giving” pitfalls that create future havoc on your succession plan. Most of the time family business owners believe they are doing the right thing, but are unaware of the long-term impact of giving or creating unearned rewards such as a job, title or a paycheck.
Giving-Creating a Job
Many family-owned business owners are fond of giving their children a job in the family business. You can actually do this. You can give your children a job. Because you own the business, not only can you give your kids a job, you can, in fact, create a job where one doesn’t exist, solely for their benefit. You could, of course, do this for anyone, but most business owners don’t do this for just anyone. But, they do for their kids.
If you’re real honest you’ll also recognize the “blood is thicker than water” reality. Your decision making can be impacted, allowing you to fire or otherwise remove another employee, or even a key manager, in favor of giving your son or daughter a spot in the family business. Based upon years of experience in seeing the outcome of and dealing with the impact of creating jobs, I do not recommend giving your kids a job. They need to earn it. They need to come into your business on the same terms as everyone else. Namely, with credentials and an employment history that has prepared them for the job available. If no position is currently open, don’t create an opening unless there is a justifiable business need for the role. If there is another candidate more qualified, strongly consider them.
If you are anticipating the entry of your kids into your family business, at some point, take some time now, before there is any pressure on you, to develop the criteria upon which you will welcome your kids into the family business. It will pay great dividends.
How you historically handle giving to your children impacts their appreciation for future gifts. If you create opportunities that don’t really exist or just give them things without having to work for them, they will expect that sort of behavior from you in the future.
Giving-Creating a Title
Once your children find their way into the family business, titles are often given away before they deserve one. Sometimes it’s a made up title. The title did not exist before your child entered the business and was created out of pressure from them to have prestige.
If a title is important to your child, it should be a ‘red flag’ of caution to you. Typically, the need for a title can be interpreted as “I’m not confident in myself and need a position to garner the respect I feel I need.” Or perhaps they are afraid of not measuring up and bestowing a title makes them feel they are meeting expectations.
Unfortunately, a title does not solve any underlying issues. If you view your son or daughter as your potential successor, they need to come with a package of what we refer to as the 5 Cs: Character, Capability, Competence, Commitment, and Community. The need for a title represents potential issues with Character and Competence. Perhaps their self-esteem is in need of some work. Perhaps their work ethic needs improvement and they need to illustrate nothing in your business is “beneath them.”
Yes, you can certainly give them a title. The better rule of thumb is to position them to earn any moniker that enhances their name. You would do well to sit down and think through the question “How will my children advance in the business?” If your response is, “I’ll know it when I see it” you are being a lazy thinker. There are definite things you are looking for and when you see those things in your employees they cause you to think “they’re ready for advancement” or “they are a real up and comer.” Slow down long enough to identify what it is you’re seeing. Only then can you communicate to your children the behavior/attitudes that will position them for advancing on their own merit, so they earn their way into any title conferred upon them. ”
By earning their way to the top, when the time comes for transferring assets, your children will be equipped with the skills, knowledge, experience and character to appropriately appreciate and manage the assets
Giving-Creating a Paycheck
Now, most people in the world are not “given “paychecks. This is a special benefit that only exists for children of business owners. It is certainly your prerogative to give your children a paycheck. Far too many of you do. I recall one situation where a business owner’s son was on a guarantee of $280,000 per year. No one else in the business had a guarantee at all, much less to the tune of $280k a year. I have also encountered countless children not involved in their family business, who receive paychecks. The idea sometimes is that it’s easier to just pay them to go away.
Let me be clear – there is no greater harm you can do to someone’s sense of dignity and self-worth than to give them a paycheck. Rest assured, they will overcompensate for their low sense of self-worth and present themselves in the public eye with the highest degree of misrepresentation imaginable. The mark this stamps on you, your business, and your family’s reputation in the community is not one that is easily overcome. Sure, people can swallow it and do business with you anyway, but the stamp is there and its impact is noticeable. The blot on your child is substantially more noticeable and hinders their development forevermore.
In sum, what you cannot give your children is respect. For your child to be a viable successor to you, they must earn the respect of those they would aspire to lead. Giving them a job, a title, or a paycheck may be beneficial to them and you in the short-run, but is ultimately the kiss of death to your child, and potentially the future of your business.
Don’t give it to them. Create an environment in which they are delighted to earn the respect they will need to lead your organization. It will pay great dividends.
One last thing – remember to encourage them that having earned their way to leadership doesn’t mean their job of earning respect is over – they have not arrived at their final destination. The things they did to earn the respect they have garnered are the same things they will need to continue doing to experience enduring leadership. The power and influence of having earned respect is extraordinary.
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