Ownership & Governance

The Toxic Family Business, and How To Avoid Stepping Into One

As someone who has worked in a family business for nearly 24 years, I can attest that there are some great advantages to doing so, especially at the executive level.

The typical corporate bureaucracy is minimal, the loyalty factor is high, and there’s usually a clear set of “family values” in place that translate to excellent benefits (particularly health care) and a nurturing and supportive company culture.

On the other hand, family businesses can be adversely affected, even to the point of bankruptcy, by things that typically wouldn’t exist (or be tolerated) in a widely-held corporation.

Things like personal matters that have nothing to do with the business, the treatment of company revenue as personal piggy banks, or the failure to deal with incompetent and/or underperforming family executives.

All these things were on vivid display in the recent financial brouhaha surrounding the Los Angeles Dodgers Major League baseball club.   The team owner had his wife and two sons on the payroll, and even while the team was generating more wins, a few playoff appearances, and additional revenue, it appears that this family spent lavishly on themselves with company money – millions of dollars of company money.

On things like swimming pools, private jets, personal clothing allowances, and a $10,000 a month hair stylist.  And, those family members weren’t doing much of anything in their jobs to actually help the baseball team.

Then, to make matters worse, the owner and his wife entered into divorce proceedings, which, combined with the spending sprees, spiraled the team into dire financial straits, bad enough to convince the league commissioner to intervene and threaten to take control of the team.

Yes, there is a downside to a family business, so anyone who is contemplating taking a job in such a situation needs to go into it with open eyes, and appropriate due diligence.

First, you need to take a hard look at the company ownership structure – Is the company privately or publicly held?   How closely held are the shares? Even if there are many shareholders, is the voting power still concentrated with the family? These are just a few of the questions to be asked, to gain a good understanding of the concentration of family control.

Then, check out the organizational chart.  How many family members have high level positions?  What are their responsibilities?  How do the lines of authority work?  Can non-family members make significant spending and policy decisions?

Finally, consider the position you are looking at taking (or going after).  Where is it “sit” on the org chart in relation to the family members?  What has been the stability of the position (i.e. has the job “turned over” frequently)?   What is your promotion potential relative to any other family members?

Get these questions answered before you dive in, and lessen your chances in getting caught in one of those “Dodger-like” situations.

Because if you can find a great family business to be a part of, all those advantages I cited earlier will come into play, and you’ll have a golden opportunity to shine as a leader.

Or, you can just start a great family business of your own – but don’t forget those downsides.

Category: Ownership & Governance

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Terry Starbucker About the Author: Terry Starbucker

Terry Starbucker has been in the business world for over 28-years, as a manager, leader and executive in the financial and service industries. He now writes about his multiple success stories and the art of leadership in his popular…

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  1. One thing to note, look at the family tree. Who is in school now and not in the business, look out 5-10yrs. How many family members will be entering the organizational chart, how will that change the dynamic?

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