My interest is always peaked when a blog post references family businesses. I teach Family Business Management, consult with them and have 30 years experience in a major family business.
His most recent post, Messing With The Family, http://boss.blogs.nytimes.com/2009/12/22/messing-with-the-family/ discusses the difficulty of Open Book Management for family-owned companies and tells the tale of Jacks friend who was hired as a CFO to as he says "… help a nice little specialty packing company in the Midwest go open-book". Jack hears many excuses why businesses can’t open their books to employees and hears it more frequently from people who work at family-owned businesses. His point is "families have gotten used to running the business a certain way and trying to go open-book is a massive cultural change".
Many family business run non-business-related expenses through the business… for those of us who teach Family Business and consult to Family Businesses… no big surprise here. In fact sometimes one family member is unaware of what the others are charging to the business. So if you opens the books, it's all out there for every employee to see and of course question.
Now I agree with Open Book Management, but in a family business, that is akin to pushing water uphill. It just won’t work 85% of the time. Why 85%? Read further :)
Few people really know the basic structure of a family business.
A family business is best defined in a Venn diagram of three overlapping circles, Family, Business and Ownership. It is the overlap of each where things just get messy and conventional business strategies and tactics fail. The vast majority of business professionals do not understand the dynamics of a family business and hence try to apply these, for the most part unsuccessfully. It is no wonder that 85% of family businesses fail prior to the 3rd generation.
Usually Nepotism is pointed to in situations such as this but that over-simplifies the problem here. Family businesses are surrogates for the family system and as such they act more like a family than a business. So, can you imagine running an Open Book family? How many of us knew or know what our parents made or their net worth? How many of us remember our parents warning us never to tell anyone how much dad or mom made? "Family Secrets" rule Family Business… and one of those secrets are money and wealth.
Also, another thing that bothers me… Family Business is referenced repeatedly as some sort of homogeneous business group. Larger family businesses are different from the typical mom and pop family business picture we conjure up in our minds. Those will never open their books… they do not have the business sophistication to understand what you are proposing.
In the business he blogged about, they were 3rd generation. At that point, a family business naturally moves toward more structured methods in their operations and has a more management focus. By the 3rd generation a Family Business is ready for some house cleaning so the Open Book project he blogs about just moved things along a bit faster.
I asked Jack to have a follow-up to this story.
I find there are not enough business stories on Family Businesses and for those in family businesses, stories such as this can be "teachable moments" that may help them sustain to the next generation. For those who interface with family businesses, either as outside professionals or managers, these are examples of the necessity to better understand the unique characteristics of family business and to modify their classical business techniques to effectively deal with the Family, Business, Ownership boundary overlap.
Dom
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