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University of Massachusetts Amherst

Family Business Center

On Trilobites, Troglodytes, Armored Knights, and Owners' Rights

by Shel Horowitz

On his third trip to the UMass Amherst Family Business Center, Don Jonovic didn't have to face a power failure -- but he still kept his legendary good humor. His imaginatively titled September presentation -- “On Trilobites, Troglodytes, Armored Knights, and Owners' Rights” was, as usual, full of good one-liners.

While trilobites don't seem to have much relevance to today's family business owners and managers, Jonovic structured his talk around a series of more relevant evolutions he's seen in the last few decades that go right to the heart of today's family business culture:

  • From Feudalism toward Federalism
  • From Secrecy toward Transparency
  • From Stockholder toward Stakeholder
  • From “Business” to “Opportunity” Transition
  • From Prognostication toward Expectation
  • From CEO to The Plan
  • From Plutocracy toward Meritocracy

What do these “evolutions” mean? Let's look at a few of them.

Feudal to Federal

In a feudal society, there's one big boss -- the business founder. Once profitability is achieved, there's also the person in charge of the money, whom Jonovic calls "the family business dragon" -- and a lot of serfs. But as a business transitions to subsequent generations, "the feudalism thing doesn’t work too well. The idea of one dictator only works with a patriarch or matriarch who has all the power." With multiple generations, siblings, cousins, Crown Princes and Princesses, spouses of the Royal Children all strive for influence, but none have The Hammer.

Secret to Transparent, and Stockholder to Stakeholder

For Jonovic, replacing secrecy with transparency is a no-brainer: "Worried about your competitor finding out? He can’t even read his own statements, what’s he going to do with yours?

"You’ve got two choices when you’re naked on stage with a London Fog raincoat: open it up or keep it on. We’re already open with banks, with the IRS. So why not give the information to our employees, fellow shareholders, the industry, and our in-laws? To do that gracefully requires a three-piece suit or a number of feathers, at least.

"I’m seeing in the successful companies, an almost orgasmic release of information; and with it, people start to understand the business. You take them out of serf status and bring them inside the walls." And this flow of information turns stockholders into stakeholders: people who know and care enough to bring creativity and commitment to the table.

Sometimes that results in an understanding that the best place to look for a CEO may not be in the owner family. "Is the best way to recruit our people through procreation? It’s fun, but slow and inefficient. As a second-generation leader of one of my client companies once noted, ‘…there are 250 million people in the country and 18 in our family’s third generation. What’s the likelihood that we’ll find our best leaders among those 18 rather than the 250 million?’”

A related insight: family members may be receiving plenty of wealth from the company, but they should "stop thinking they've got to earn it." Instead, think of that cash flow as a dividend, and reward managers of the business (family or non-family) with creative performance incentives separate from dividends. "This can allow for attracting some top-notch people without using equity. 10 years ago, I thought equity to employees was one of the most effective options. But then I was primarily a consultant; now [that he sits on 12 family business boards] I see the downsides."

CEO to The Plan

"I’m even wondering if the requirement for a CEO the given it used to be. The next generation of managers doesn’t think quite in these terms. Boomers are hierarchical, but 30 or 40-year-olds have evolved new approaches to authority, duties and management.

"An alternative is to make ‘The Plan’ the boss – combine history and expectation into a set of financial expectations that have teeth. Then, if three brothers refuse to work for each other, that plan becomes their boss. Does this work as well as the CEO concept? Well, it gets over the endless argument about who’s going to be the boss. Put them on an executive committee, all with their areas of oversight, and their job is to work The Plan.”

A Final Observation

"Samuel Butler said, 'A hen is only nature’s way of making another egg.' Substitute 'Family Business' for 'Hen' And ‘opportunity’ for “egg.” If we’re going to succeed in this wildly changing world, doesn’t it make sense to see that chicken stays as fertile and healthy as possible, fully understanding it will one day end up in the stew pot. We need to manage the current business as the creative beings we started as, not as preservationists."

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