Football is one of my favorite sports and football season is one of my favorite times of year! It has been said that football is the ultimate team sport. Success on each play requires each player understand their role, work together, communicate effectively and ultimately execute to achieve the desired outcome. The teams that win consistently have committed players who know their role, play their position and trust their teammates will do the same each play. From my perspective, there is a striking parallel between football and family business. To successfully compete and operate a family-owned dealership or dealership group, requires each family member, manager and employee to understand their unique role, work together, communicate effectively and operate interdependent departments well. Whether you are a team member of a family business or a superstar on a football team, knowing your role and playing your position are key ingredients to success.

Sounds simple, right! Unfortunately, in the family business arena the lines can become blurred especially when family member assumptions about perceived rights, responsibilities and privileges come into play. This can wreak havoc both in the family and in the business, which I have witnessed to varying degrees over the past two decades.

With the best of intentions, many Dealers engage in estate planning and are encouraged to transfer stock to their children in an effort to equalize their estate among their children or to satisfy manufacturer ownership requirements. Often times there is little consideration given to the impact of thrusting children into a partnership can have and what the rights, privileges and responsibilities are for each family member. To compound matters, often times there is limited to no communication with the next generation about what the plan is and how they will function in the absence of the controlling owner. This lack of clarity creates dysfunction that in many cases is detrimental to family relationships and to the business as a whole.

What can you do to ensure each family member knows their role and plays their respective position? Understanding the differences between being an owner versus an actively employed owner is a good place to start. Below is a list of rights, responsibilities and privileges that may be helpful whether you are on the cusp of bringing a family member into your business, you are experiencing family business heartburn as a result of incorrect assumptions (about compensation/benefits or something else), perceived rights or you are trying to eliminate a sense of entitlement from your family business.

Rights of an Owner

  • Certain legal rights (statutory rights) or as specified in the Bylaws, Charter or Operating Agreement of the company
  • Elect the Board of Directors
  • If serving on Board of Directors, right to vote on major issues (although minority owners have limited influence unless acting in concert with each other)
  • Participate in the profitability of the company subject to corporate distribution policy as determined by the Board of Directors
  • Participate in the losses of the company
  • Receive financial performance and strategic planning updates on the business from the President and CFO/Controller
  • Access to financial information (accounting of profits/losses) regarding the business
  • Ability to sell or transfer stock which is typically governed in a Shareholder Agreement, Partnership Agreement or Operating Agreement in the case of an LLC
  • Majority ownership has ultimate control (51% or more unless stock is capitalized using Voting/Non-Voting stock) or Manager/Managing Member in an LLC

Rights of an Owner who is a Family Member Employee

All of the rights listed above in addition to:

  • Similar rights provided any other employee under current employment law
  • Involvement in operational issues, if within the scope of employee’s duties
  • Access to operational information that transpires on a day to day basis
  • Earn fair compensation based upon the position that he/she fills
  • Opportunity to participate in incentive trips, if qualified based upon position

Responsibilities of an Owner

  • Be a good steward
  • Lead by example
  • Elect a Board of Directors who have responsibility to manage the company in the best interest of all stakeholders
  • Be informed on business issues and monitor financial records and performance
  • Ensure the operating businesses have adequate working capital
  • Respect the duties and responsibilities of operational employees
  • Communicate openly and honestly with other owners and stakeholders in the proper forum
  • Support and encourage actively employed family members and non-family managers
  • Effectively plan for the succession of the business – “protect the goose that is laying the golden eggs”

Responsibilities of an Owner and/or a Family Member Employee

  • Be a good steward
  • Lead by example
  • Serve as a role model employee especially as it pertains to work ethic, humility, attitude and utilizing your unique talents
  • Be willing to accept coaching
  • Be willing to make mistakes as “success is based upon the failures you learn from”
  • Abide by the Family Business Employment Policy and Family Member Employment Expectations (if you do not have an employment policy, now is a good time to develop one!)
  • Support and encourage actively employed family members and non-family managers
  • Endeavor not to bring work home with you as it can negatively impact family relationships
  • Foster teamwork

Privileges of an Owner

  • Select perks as determined by the Board of Directors
  • Opportunity to become actively employed in the family business
  • Opportunity to pursue passion outside of the family business
  • Opportunity to positively impact the lives of others
  • Opportunity to provide input to the Board of Directors

Privileges of an Owner who is a Family Member Employee

All of the privileges listed above in addition to:

  • Ability to actively participate in perpetuating the family business legacy
  • Earn fair compensation based upon the position that he/she fills
  • Opportunity to participate in incentive trips based upon position, business performance, 20 Group, NADA etc.

Families that avoid making assumptions and openly discuss the rights, responsibilities and privileges of ownership and family business employment typically enjoy healthier family business relationships and experience less family friction. Knowing your role and playing your position; focusing more on we and less on me; these are keys to success in family and in business!

 

David Ciambella, CFP® is a partner of The Rawls Group which has helped business owners with their succession planning since 1973. Well-respected in his field, David is a highly requested speaker and has published numerous articles on this subject.

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