Even with a team approach to management, there are hurdles to overcome

There are many common complaints and questions that come up in family-run businesses because many small companies simply overlay large, corporate, hierarchical structures on their small, dynamic businesses without realizing they have options.

“Why does my brother get to lead the company? He may be older, but I’m smarter and more experienced!”

“My little sister is undermining my authority — How can I run a company like that?”

“Both of our children have skills to run this company — How do we choose between the two?”

In sibling-run companies, the traditional structure is still common, particularly when one child has been involved with the business, there is a clear differentiation in skills and age or there’s a strong leadership tradition in the family. Today, however, siblings and extended family members are likely to buck the system and demand recognition for skills over status.

The team approach to management and leadership is growing in popularity and appeals to younger generations. In this case, the office of CEO can be a shared role, in which the organization can develop and use the individual strengths of each sibling in a coordinated fashion to benefit the whole. There are hurdles in this approach, however, particularly in regard to accountability, conflict management, shared vision, decisionmaking and cohesive communication.

One way to get over these hurdles is with Code of Conduct Agreements and Operating Agreements. These offer sibling management teams an opportunity to clarify important management philosophies and duties. These might include information on how key decisions will be made, who’s on the management team, how key team members are selected, how finances are handled, what level of risk is acceptable, who is included as professional advisors, what the exit strategy will be and how conflict is managed.

In addition, the siblings need to have an agreement regarding compensation, benefits and estate planning. While these are often tricky aspects to negotiate, the best time for discussion is when the team is first formed and positive emotions are running high. Remember, it’s best to deal with the emotional issues before emotion becomes the issue.

An experienced Advisory Board can also hold sibling managers accountable. This works best when there is a clear set of objectives, designed to achieve agreed strategic goals and the roles and responsibilities of the sibling managers. It’s also possible to expand the role of selected advisors to include mentoring and coaching of younger, or less experienced, sibling team members.

In addition, it’s a good idea for the sibling management team to convene a Family Governance Council on an annual basis. This is a meeting in which both active family members and “outlaws” (those who are married into the family business, but not a direct owner; or an owner who is not active) can attend and learn about the strategic direction of the organization and discuss aspects of the business that directly affects their lives.

Family Governance Council meetings can be an effective way to counter building frustration and confusion, and help everyone understand why decisions are made and what the impact of those decisions are on the wider family group.

In many effective sibling management teams, the participants identify key roles and duties, undertake training to enhance skills and rotate through roles to increase their understanding and skill levels. Through this rotation, sometimes a clear, individual leader emerges. As a result of this rotational exercise, however, the rest of the family can witness each individual’s strengths and thus the evolving leadership role happens naturally and understandably — often softening the impact on family members who may have wished to take a more prominent role, but can see where their strengths fit.

Finally, it’s important that siblings and all family members learn how to manage conflict. This might start with simply stating a few commonly agreed protocols — such as how decisions will be made, how disagreements will be handled, how agreements will be tracked and how the siblings will hold each other accountable. Conflict is inevitable and learning how to understand and manage conflict and the associated negative feelings are an important component in an effective management team.

Lisë Stewart is founder and director of Galliard Group, a training and consulting firm specializing in family-owned and closely held businesses. She is a nationally recognized author and speaker who draws on more than 25 years of experience to share practical advice for ensuring sustainability of family businesses. You can reach Lisë at lstewart@galliardgroup.com.