Privilege and privacy

Andrew Keyt is president of the US chapter of FBN International and executive director of the Loyola University Chicago Family Business Centre

How does a prominent company keep a low profile in the community? Andrew Keyt gives some pointers on what family businesses can do to protect their reputation and guard against intrusive forces, while at the same time, making a contribution to the community

Family businesses are notorious for being intensely private. They are also known for playing an important role in the life of their communities. Through philanthropy, corporate responsibility and other contributions to the local economy, family businesses serve as the backbones of the towns in which they operate. In large metropolitan areas, families can maintain anonymity or privacy because the sheer number of people and activities in their communities create diversions. In smaller towns, however, managing a public ­profile and family privacy is more challenging for large family businesses.

Year after year, but especially at times when business scandals and sagging corporate performances dominate the headlines, many look to family-business leaders to exhibit sterling corporate citizenship. Especially when a business carries the family name, the individuals in that family typically are held to a higher standard.

These high expectations and lack of privacy create a burden for family-business leaders, who may struggle to manage their diverse responsibilities governing the business' performance and activities, while trying to guard their privacy regarding personal matters such as wealth management. Because their companies are inextricably connected to their communities, the leaders of family firms do not enjoy the luxury of separating those roles.

George Peterson's family started its metal fasteners business in 1949 in a small Iowa town, population 2,300. As a second-generation member, George has grown the family operation to a $250 million-a-year business. Peterson Manufacturing is the town's major employer and its economic cornerstone. While this dominance affords Peterson Manufacturing such business advantages as increased political leverage, lower operating costs and plenty of room for expansion, the circumstances also have created challenges for the Peterson family, including fielding jealousy, criticism and scrutiny about how they spend their money.

George and his siblings, Tim and Alyssa, all grew up in the business' shadow. George and Tim, each with more than 30 years of service at Peterson Manufacturing, have come to represent the firm's values and vision in the community. Alyssa – who worked in the business years ago – plays an important community role by running the family foundation.

George, Tim and Alyssa are united in their desire to keep the business in the family, but preparing the third generation to eventually assume leadership positions has not been easy. Because of the family's high profile and wealth, the Peterson children have faced increased scrutiny in school, on the playground and in other settings.
 
The struggle that all children face to assert their own identities, particularly in small towns, is magnified when their parents' role is as dominating as that of the Petersons. As much as George and his siblings hope to pass the Peterson Manufacturing reins to their children, they also want to support their children's happiness and growth as individuals.

Challenges like the Petersons' are common for family businesses that play a large economic, political and social role in a small community. For all such families, managing the family's privacy while attending to the firm's future requires the family to address three major areas:
 
- Supporting family unity by managing the family's profile.
- Preparing the next generation.
- Managing business information.

One day, a staffer in the mayor's office approached Alyssa to express her excitement about the new expansion project for Peterson Manufacturing's facility. Unaware that the company had finalised the decision, Alyssa felt embarrassed to learn the news from an outsider.

Such events illustrate the importance of ensuring that all family members are kept informed of important business activities – for the well-being of the business as well as the family.
 
While company leaders are responsible to maintain family unity by sharing relevant information in a timely fashion, family members also must be given clear guidance on what type of information is appropriate to share outside the family.

How does a family business create a unified front regarding family-business information? Wise family-business leaders create a strong board of directors and appoint a solid group of family members to lead family meetings about such matters and to establish policies governing the release of information.

Families like the Petersons face complex challenges in managing their profile in the community. They may ask themselves: How do we display our wealth? What are the best ways to interact with those around us? How do we contribute to charitable causes? How does our behavior reflect on us as a family?
 
If a family member builds a huge home, or the family builds a community centre that carries the family name, what kind of image is created? How do such activities affect the scrutiny that the business and family members will face?

Again, developing a strong family governance system is the first step toward addressing these questions. A good governance system will articulate the family's values, mission and the vision regarding the business as well as the family.

When family members clearly understand these values – and how their actions reflect on the family business — they can be better representatives for the family and the business.

Preparing the next generation
Children who grow up in small towns often feel claustrophobic and struggle to develop their own identities. For the children of high-profile family firms like Peterson Manufacturing, such pressures can be far more oppressive.

The first key in preparing the next generation – regardless of the firm's size or location – is to practice good parenting that develops children's self-esteem and accountability. Well-parented children recognise their own strengths and weaknesses, possess the courage to pursue their dreams, and understand that their actions have consequences.
 
Teaching accountability is vital because, in community-dominant family firms, the temptation can be strong to can wield the family's wealth and influence to buy their children out of trouble – whether to "protect the family name" or to shield the ­children from pain. This breeds a culture of entitlement that can ultimately cripple the individual, the family and the business.

A second key is to choose an appropriate time and use the family-meeting ­structure to begin a dialogue with the next generation about the history of the business, the family's roles and responsibilities in the community, and the children's budding skills and career interests. Some may find it helpful to role-play with the children, posing as community members with questions and comments about the family and the business.

Third, wise family-business leaders create policies that manage the next generation's expectations about the firm and outline clear employment policies governing family members. Family members who live up to performance standards, then, can ensure their own success and enhance that of the corporation.

Fourth, those who hope to instill in the next generation a desire to work in a small-town family business always must keep in mind that that desire will depend on several beliefs:
 
- living in close proximity to the family and business will be a positive in one's life.
- That the family business is an exciting opportunity for the individual.
- That the business is well-regarded in the community.
- That the small-town environment can enhance the business' growth.

Conclusion
Family businesses that operate as big fish in small ponds enjoy unique advantages and face unique challenges. The firms that succeed will do so by developing family and business governance systems that create statements and policies regarding the family's values, mission and vision, and the firm's employment policies and codes of conduct.

While operating successfully and maintaining some family privacy in a small town is not easy for large family firms, the best ones will accomplish both goals by managing how business information is communicated, supporting family unity by monitoring the family's profile, and preparing the next generation to assume the reins.
 
All of these efforts will strengthen both the family and the business, will ensure the best possible community image, and will set the stage for a successful transition to next-generation leadership.