Role Confusion in Family Owned Businesses

In most family owned businesses – whether Christian or not – there is usually an enmeshment of roles for family members who work in the business. They confuse the four roles that anyone can play in a corporation:

  • Shareholder
  • Board of Director Member
  • Corporate Officer
  • Employee

It’s not uncommon for individual family members to hold all four of these roles and then combine the distinct authorities of each role into one while fulfilling their day-to-day activities. For example, a son who is an employed to be the shop manager and is part-owner in the family owned business routinely asks the Controller for financial reports on the state of the business. This type of thing goes on all the time in family owned businesses because the individuals who own the business see their ownership as a reason to do pretty much whatever they want to do within the organization and get involved in the areas of the business that they like to be involved in – regardless of their actual title or job description.

What these family members don’t realize is that when they usurp the authority given to their employees, they incrementally emasculate those employees whose decisions are questioned or even worse, changed by the family member. In addition, they:

  • Create situations in which chain of command is questioned and blurred
  • Create “shadow” leadership roles for themselves, causing the real leaders to “look over their shoulder” when decisions are made
  • Cause some employees to get two approvals (when only one is needed) – one of their manager, the other from the owner. Should conflicts arise between the owner and the manager as to the approval, the employee may be left to figure out which one will win and where to place their loyalties
  • Core processes that rely on cross-functional cooperation can grind to a halt when the owner swoops in and asks lots of questions before allowing the process to continue – this causes anger and confusion in the employees. Some will just “check out” and see how long they can last before needing to find a new employer
  • Create conflict within the ownership structure of the business which may be negatively exacerbated by the dysfunctionality of the family system

During the day, family members who own businesses need to stay in their swim lane, performing the duties that they are assigned within the authority of their position would normally enjoy. They should not step outside their role during the day and get involved in other duties, roles, responsibilities and/or decisions. Doing so rarely leads to positive outcomes.

In Ecclesiastes 3, Solomon write this:

There is a time for everything,

and a season for every activity under the heavens:

2    a time to be born and a time to die,

a time to plant and a time to uproot,

3    a time to kill and a time to heal,

a time to tear down and a time to build,

4    a time to weep and a time to laugh,

a time to mourn and a time to dance,

5    a time to scatter stones and a time to gather them,

a time to embrace and a time to refrain from embracing,

6    a time to search and a time to give up,

a time to keep and a time to throw away,

7    a time to tear and a time to mend,

a time to be silent and a time to speak,

8    a time to love and a time to hate,

a time for war and a time for peace

When we apply this Scripture to family-owned businesses, I think it’s pretty clear that for those who both work in the business and own the business, there is a time for them to fulfill different roles and they need to be clear about these roles.

The shareholder role is fulfilled at a Shareholder meeting and focuses on electing a Board of Directors. There are other actions shareholders can take, but electing the Board of Directors is a core role that they fulfill. Family owned businesses should have a functioning Board of Directors comprised of both family and non-family members.

The Board of Director member role is fulfilled at Board of Director meetings. This role focuses on oversight, strategy, risk mitigation, good governance, compliance, culture and so forth. One of the most important roles fulfilled at Board meetings is selecting and holding accountable the leader of your business who is usually the CEO. This individual need not be a family member and if s/he is not, then the need for the family members who do work in the business to stay within their roles and decision-making authority is exponentially increased. Owners who work in their business but are not the leaders of their own business need to respect the one who is leading and not undermine their authority.

A corporate officer is one who is vested with certain legal powers and responsibilities on behalf of the corporation. Often, the family members take on these roles as well, but if they higher an “outsider” as the CEO or CFO, they will need to respect and support those individuals they have hired to be a corporate officer

Finally, most family members who own a business also work in the business as an employee. During the day, the family members need to throttle themselves (“limit” is a good word too) to stay within their assigned roles and authorities. They should not reserve to themselves the right to be involved in any part of the business they choose. Doing so just creates confusion as to reporting structures and lines of authority.

Overall, even though one person can fulfill all four roles in a corporation, they should understand that they should not combine these roles during the time when they are working in the business. Doing so does not add value and does not help them grow and further their own business success.