JOHNSON ON DISTRIBUTION MANAGEMENT: Firing Family Members
“How Do I Fire My Son Toby? My Wife Won't Allow It!”“I love Toby. He's my oldest son, he's vice president of sales, but he just doesn't get it. My daughter should be running this business as I transition into retirement. She's brilliant, but she's married to a surgeon and doesn't want anything to do with wholesale distribution. She's quite happy with all the charity work she is involved in. My youngest son has potential, but he's only 22 and just isn't ready to take over a $200 million distribution business. Two events have occurred recently that are wearing on me a little. First, I transferred 75% of my stock equally to my three kids, 25% each. All three receive a salary, although my daughter rarely appears at the office due to her charity work. The second event occurred after I hired a succession consultant to help me transition into retirement. He told me that Toby was incompetent, destructive to the business and I should fire him.” These are excerpts from a real-world conversation disguised to protect confidentiality.
Does this conversation sound familiar? Maybe it's not about your son or daughter. Maybe it's about Aunt Lilly or Uncle Chester. The point is, if you own a family-run business with multiple family members working for the company, chances are you have or will face the dilemma of what to do when a family member just does not meet satisfactory performance standards.
The key word here is family. The closer the family member is to you, the owner, the more difficult the decision and action becomes. If the non-performing party happens to be your son or daughter, it is even more difficult. After all, you have your home life to consider. That son or daughter has a relationship with his or her mother, who happens to be your wife. Don't kid yourself about your level of control at home being equal to your level of control at the office.
You Will Ride The Roller CoasterTerminating a family member will likely be the most difficult decision you will ever have to make as a CEO. There will be ups and downs in the process. However, before you come to the conclusion that you are actually going to hand Aunt Lilly or your son a pink slip, you must be sure that you have exhausted every possible option and scenario imaginable to solve the problem, short of termination. Your closeness to the family member is the major determinant to the amount of patience and effort you put into the process. And of course, the amount and type of destructive behavior is also paramount to the decision you make. It is possible that this family member can be placed in a position that is not detrimental to the company and does provide value. This can be a drawn-out process that starts with frank, open and honest communication with the family member. It will most likely require some form of counseling to be effective and may require a separate family discussion dependent upon circumstances.
If you enlisted the aid of a consultant, remember that as an outsider it is very easy for them to see a clear picture of the business side of the situation due to not being involved in the actual culture of the business. However, it is likely that they can't come close to feeling or understanding the emotions that you will experience during this process unless they themselves have gone through it in a family business they owned. I say that because having fired my own wife, brother-in-law and nephew from my own family business exposed me to the turmoil, the pain, the frustration, the guilt and the personal second-guessing that you too may experience as you go through the process.
Accept Your CircumstanceIf you have exhausted every effort to salvage the situation and feel you have no other alternative, understand going in that it is going to be extremely difficult to terminate a family employee in the same effective manner that you would terminate a non-family regular employee. Complications are even greater if that family member is a stockholder, regardless of the type of legal agreements your lawyer may have drawn up. The first thing a family member will do when facing termination is to seek the support of other family members. If it is your son or daughter, this could actually create a serious challenge at home. It is no secret that one of the primary reasons an entrepreneur starts a business in the first place is to provide income and security for his family. “Blood is thicker than water.”
Personally, I believe the last thing you should want to do is sacrifice family for the business. If you actually get to that point in the process, don't sacrifice your family life, your relationship with your children or the relationship between brothers and sisters.
Sell the business. I repeat, if it comes to that - sell the business.
Put Business Needs Ahead Of Personal NeedsThis sounds contradictory to my previous statements, doesn't it? Well, I am not recanting. I am assuming that the situation has not deteriorated to the point of family destruction. Oftentimes, there are situations where a family member is relieved to not have to work in the family business. Johnny is there because he doesn't want to disappoint Dad. Johnny feels he is supposed to act like an incumbent president because the family expects it, but he would rather be a missionary in Africa or build his own auto parts dealership or pursue some other passion.
Remember, firing a family member doesn't necessarily mean cutting them off financially without some form of remuneration. Everything is negotiable. This is especially true if they own stock, even if there is no legal buy-out obligation. The last thing you want is an angry ex-employee who is a family member and a stockholder. They most likely will know about all the skeletons in the closet, the aggressive tax position the company has taken and many other issues that the company may not want to go public. So, although the family member may not have a legal position to force a minority stock buy-out, it may be in your best interest to negotiate some form of buy-out that is fair to the family member. Consult your attorney, but remember, this is still a family issue.
Don't ApologizeIf you can turn this family/business problem into a win-win situation, there is no need to apologize. Don't backpedal, and don't be afraid to confront other family members that may not be supportive of the process.
This is a business. Once you have determined that this situation will not destroy the family, you must treat it in a professional business manner. Remember, if it is going to destroy the family - sell the business.
All This Can Be Avoided - Right!!!As a family business consultant in wholesale distribution, it would be easy to preach to you about how to avoid this situation in the first place. You can read all the articles, research on the Internet and the books that give advice on family management, offering solutions like the following:
And wolves still roam the streets of Chicago. Yes, these are all good ideas - but give me a break. This is not reality when we are talking about your sons and your daughters, your wife's brother or sister, your brother's son or daughter or even Uncle Joe.
In the end, immediate family does come first. If you find yourself in a difficult situation, take a step back. Evaluate your circumstances from both the business side and the family side. There is no easy answer, but nothing is impossible. Keep the faith. E-mail firstname.lastname@example.org for template tools like the family doctrine, the family management partnership agreement or the family code of conduct that may help you resolve some of your internal family issues.