Patricia Annino
Patricia Annino
Understanding the systems perspective when running a family business
Help clients achieve family harmony so that the needs of the business can be addressed rationally and productively.

November 15, 2012
by Patricia M. Annino, J.D.

For families who own businesses, the health of the family is inextricably entwined with the health of the business. Dinner discussions, vacations, and family events inevitably revolve around the business. Family members (including in-laws) who are not in the business may feel out of place or snubbed. This lack of a boundary between the family and its business often breeds chaos.

One way to replace chaos with order is to view the situation from a “systems” perspective, and understand how and where family and business intersect. Only by understanding the intersections can the family determine where to place boundaries.

The systems perspective is in contrast with the oversimplified “cause and effect” approach that is generally characterized by looking for where to place blame.

Instead, consider looking at the business and family systems as you would a visit to your cardiologist. A cardiologist might look solely at your heart to make sure it functions properly. But without also exploring the heart’s connection to your brain, liver, and the rest of your body’s systems, the doctor wouldn’t know that, although your heart could be well, your body might fail. Your personal health, as well as the health of your business and your family, needs to be viewed holistically. How do all these systems work together, and how do we keep them functioning at an optimal level?

The first step is understanding the two systems and how they interact:

The family system: The family system is emotion-based, focused inward, and typically includes the founders and their descendants. The family does not select who is included in the family, and each family defines its system differently. In some families, in-laws are immediately considered part of the family, while in others that relationship takes time to develop. The family members’ emotional ties bind them together to create a system that places a high value on providing members with security, nurturing, loyalty, and participation. The family system operates to minimize change that could disturb the balance and integrity of the system.

The business system: The business system is task-based and comprises people who are organized around a common interest: the work of the business. The business system is oriented outward toward the production of goods and services, and the competency and productivity of its members are highly valued. Unlike the family system, there is a choice as to who is in the business system. The system might include both family and nonfamily members, and the process for choosing which family members to include in the business system varies greatly. The business system operates to exploit change in the interest of growth and survival, and is designed to understand and cope with ever-present and unavoidable change.

Some overlap between the two systems is both natural and desirable. The mere fact that some are in the business by virtue of their family membership represents a minimal, unavoidable overlap between the two systems. However, both systems can become dysfunctional when the overlap between the two is so great that they lose their distinct qualities—as when important business decisions are made for family reasons. This situation frequently undermines both family harmony and business operations.

Practical application of the systems

For an adviser working with families and their businesses, a key goal is to help clients gain a perspective that allows them to more clearly differentiate the issues that exist within the family system and the business system. Advisers should work toward reducing the emotional entanglement of the two systems by addressing separately the issues within each system—with the goal of achieving sufficient family harmony so that the needs of the business can be addressed rationally and productively.

In other words, decisions that pertain just to the family should stay in the family system. Decisions that pertain just to the business should stay in the business system—and a firm boundary should be placed around each.

I met recently with siblings who operate a successful family business. Although the scheduled agenda was to discuss corporate matters, the conversation quickly turned to what was really on their minds. They had experienced a difficult summer because their children were working in the business but playing by their own rules and not adhering to expected standards or work ethic. When I asked why they did not make the rules of the business clear to the children/employees, they said that because of behavioral issues at home, their spouses had insisted that the children work for the family business and not spend the summer at home.

I pointed out that if the children were out of control at home, it was not surprising that they were out of control at work—and that my clients needed to create a hard boundary between family and business. Business issues must be dealt with on business terms. The child working in the business is an employee of that business and should not receive any special treatment or sense of entitlement. The terms of employment and an evaluation of the child’s job performance should be governed by the rules of the business. Similarly, behavioral issues at home need to be addressed in the family system.

Lowering the boundary to allow at-home behavioral issues to leak into the business system corrupts both systems. The business cannot be a shelter for family issues. My clients admitted that they knew that, but that they did not know how to address the issue or solve the problem. So we developed a strategy where they would address family system issues at home with their spouses and, if needed, bring in professional therapists or educational consultants.

They also agreed to develop a code of conduct for the business. Any family member working in the business would be expected to adhere to the code of conduct and the expectations placed on them would be greater than, not less than, what is expected of any nonfamily member working in the business. We also decided that the code of conduct would be aspirational, not punitive—that the intent was to ensure that all family members understood that if they wanted to work in the business their employment was not based solely on the fact that they were family members.

By reframing the issue as one of overlapping business and family systems, we were better able to identify the problem and develop a realistic, workable solution that my clients could address in both systems. It is important for advisers to understand the systems perspective and educate clients who own a family business so that they have the opportunity to create order from chaos.

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Patricia M. Annino, J.D., LL.M., is a partner with the Estate Planning practice group at Prince Lobel Tye LLP in Boston. She is a fellow of The American College of Trust and Estate Counsel.

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