It’s an old joke. The non-family director of the family business approaches the boss. “Your son is a bad fit, he has to go,” says the director. “He doesn’t do what he’s told, he won’t listen to anyone, he turns up late and keeps taking time off to play in his band. We have to get rid of him.”
“I hear what you’re saying,” says the boss. “But I’m sleeping with his mother.”
Sacking a family member is a common dilemma in family businesses, in fact, it’s all too common. It’s not only difficult for the business. It can also be traumatic for the family – you’re getting rid of a non-performer but losing a brother in the process.
Michael Stillwell, Bib’s oldest son, a non-executive director on the Stillwell Motor Group board as well as being on the company’s audit and risk committee, says most family businesses don’t know how to do it.
Stillwell, who is also involved with the CEO Institute and Family Business Australia, says: “They either don’t get rid of them or they do it badly.”
The Stillwell Group runs like a corporation with a dedicated family office managed by Bib’s daughter, Marianne Stillwell, who takes care of all matters relating to family in the business – wills, trust administration, tax, personal and professional management and development coaching. Family members are performance managed. But even that model had to confront the issue in the past. When the group brought in a non-family CEO, one of the brothers took the view that it was either him or the CEO. He went on gardening leave and now lives in Perth.
Stillwell says family businesses need to manage this by having clear unambiguous job descriptions, a transparent performance review process – Stillwell has two people managing it – and to have family members on benchmark salaries, earning the same as everyone else in the business.
One of the best ways to manage an intra-family dismissal is to do it through a third party, but still involve the entire family in the process.
Bangkok based consultant Richard Hames was appointed chairman of an Australian family business in Sydney. One of the family members, the oldest brother and the family patriarch, realised they were having problems with the middle brother, the managing director, who happened to be pocketing the till when he left every night, not running accounts properly and basically doing stuff that was downright illegal.
The business was in the rag trade, manufacturing goods in Guangzhou in China, sending them to Hong Kong and then on to Australia where they were sold to stores like Myer and David Jones.
The business, run by three brothers and two sisters from Australia’s Chinese community, was tottering and Hames had been brought in initially to improve quality. The problem was that by the time he came in, the patriarch had distanced himself from the business after discovering what his younger brother was getting up to. That was when he asked the non-Chinese Hames to be chairman and sort it out.
“He didn’t want to deal with the difficulty of reprimanding his little brother or removing him and felt I was in a better position to do that so the family agreed to give me the authority, which was a fairly autocratic authority reporting to the older brother,” says Hames.
“The first step was to make everything transparent, which created one hell of a ruckus because a lot of things came out including personal stuff where the middle brother was having an affair with a senior staff member. It was very nasty.”
In the end, Hames summoned all the family together for a special meeting where the middle brother would get the bullet. The other family members knew what was about to happen and Hames had their full support.
“We got all the family members together, the older sister came out from Hong Kong to Sydney. It was an extraordinary board meeting and basically, I laid all the cards out on the table because by that time I knew everything. I then invited the managing director to be transparent with the family and admit what was going on and how he was managing the business.”
The key, said Hames, was removing him without it impacting on him unduly and ensuring that there was no loss of face. He could see the family wanted him out but at the same time, the man felt he still had something to contribute to the business world. That had to be respected.
“We focused not on his corrupt practices but on what was needed to turn the business around so I was able to talk about the stress on him and the need for him to be less stressed,” he says. “There were ways of putting it that allowed the family to accept it and did not involve a loss of face.
“It had to be a family issue that had to be resolved and basically, I acted as a moderator of the conversation.”
In the end, it was agreed that he would remain out of the family business. He set up his own business as a sole operator, which continues to this day. He still receives dividends from the family business, which has since changed its name and is now thriving.
As Hames says, it is a process that had to be managed sensitively. Personalities were kept out of it.
Doug Munro, an HR specialist for family businesses, says using a facilitator is a good idea. The discussion should not be personal and not be held within ear-shot of non-family employees. “Don’t terminate without having a plan of action,” says Munro. “It must be done with the family’s consent and agreement so there are no repercussions and backlashes.” Ideally, he says the family member could be exited into another business.
But the best way to deal with the issue is to plan ahead and create a family constitution, something I wrote about last week (Rushing towards a constitutional meltdown, 22 January). The constitution created by the family would outline dismissal procedures. It’s a tough decision but the bottom line is the business has to come first to take care of the family.