Category Archives: Lois Lang

How to Handle Embezzlement in the Family Business

By Lois LangLois Lang

Hearing about embezzlement in a public company rarely shocks anyone, but when it happens in a family business, people are often stunned. “How could he steal from his own family?” “Doesn’t she know she’s hurting her siblings/cousins/parents?”

As tough and painful as embezzlement is, it’s not as uncommon as many of us would like to think. Sure, the kind of embezzlement that results in jail time is rare, but other levels of it happen daily.

How could this happen? Many factors lead to embezzlement, including chronic financial strain, a general sense of family entitlement, lack of internal company controls, and the reality or perception of being overworked and underpaid. To make matters worse, often the embezzler doesn’t even know that what he or she is doing is wrong.

Here’s an example of how embezzlement can start small and quickly grow: Jim (the business owner’s son) fills up his gas tank once on a Friday and pays for it with the business account, knowing that the miles he drives will be primarily for personal, not business use. He tells himself it’s okay because he has filled the tank on his own some weekends and used “his gas” for business use on Monday and Tuesday. Then he takes a few vacation days and doesn’t record it as paid time off. He picks up gift cards for employee recognition and pockets a few for himself. He knows that Dad pays him less than local competitors, and this is the way he evens it out. He notices other family members treating the business the same way, so it simply becomes the “way we do things around here”—it is their company culture, not embezzlement.

The misuse of company assets, time, and money escalates. Soon, Jim adds a non-working family member to payroll, petty cash disappears, one out of ten customer checks are rerouted to Jim’s personal account, and personal items are consistently charged to the business credit card. Eventually, an employee in accounting notices and agonizes about who and when to tell.

So while embezzlement starts small and often innocently in a family business, it can quickly escalate to something big that damages the business, hurts non-family employee morale, and breaks family trust.

Take Action: What do you do when you realize a family member is embezzling from the business? Action is obviously required, and taking a cautious, thoughtful, respectful approach is wise. To begin, have a pre-meeting of key leaders, without the suspect family member present, to address the following questions:

  • Do we have clear, hard, verifiable facts before we assume fault and intent?
  • Who will be at the meeting to lay the facts out?
  • Are we going to involve the legal system?
  • If we continue employment with this family member, do we need to change their job position?
  • How or will we message this to the rest of the family? To other employees? To the Board of Directors?
  • How or did the company contribute to this problem?
  • If the company did, what steps will we take to prevent it in the future?
  • How or did the family contribute to this problem?
  • If the family did, what steps will we take, as a family, to prevent it in the future?
  • Has this family member had chronic, known problems with finances?
  • Generally, how can we protect the company from future misuse of company assets or embezzlement?
  • How do we protect the whistleblower?
  • Do we have a whistleblower program set-up internally? Are employees trained annually?
  • Do we talk openly in Family Council about our responsibility to financially protect and care for company assets? Do we give specific examples of what is and is not allowed?
  • Do we have a solid non-compete clause in our employment contracts and/or employee handbook in case we have to release the family member from employment?
  • Do we consistently run a professional background check on applicants?
  • If I need to walk the family member out the door, how do I prepare? Computer security, locks, passwords, current company asset retrieval, bank account access protection, social media tracking, last paycheck, etc.
  • Do we need to involve the corporate attorney, Board of Directors, outside legal attorney, CPA, business psychologist? If so, when and how?

Once you’re clear on these aspects, it’s time for the second meeting—this one with the suspect family member. When you begin the meeting, keep it at the level of discovery. Lay out the facts and ask the family member their perception of what happened. Really listen to what they say and how they say it. Remember, it’s common for family members not to realize that they are indeed embezzling. If this is a first offense, and if the embezzlement is not excessive, some education may be the best course of action. However, if you believe the family member knew what he or she was doing and did it anyway, or if the embezzlement is substantial, termination may be the only option.

During the meeting, you need to be vigilant in checking yourself by asking “What would I do if this wasn’t a family member?” and “Is this at a level where I will be able to trust them again?” Your answers to these two questions will reveal a lot about your best action plan.

Keep Your Family and Business Strong: Of course, education of all employees (family and non-family), strict policies about how the company’s assets and resources can be used, and enforced controls that can spot any wrongdoing are the best ways to reduce your family business’ chances of falling victim to embezzlement. Acknowledging what could happen, along with some planning to prevent it, will keep your family and business strong, successful, and honest.

Lois Lang is a speaker and consultant with Evolve Partner Group, LLC where she helps organizations become high performance workplaces. Lois works with clients on management succession readiness, organizational/team strengthening, executive coaching, executive compensation design, wage studies and mediated conflict resolution. For more information on Lois’ speaking and consulting, contact Lois at lois.lang@evolvepartnergroup.com or 209-952-1143.

Five Tips for Family Business Succession Planning

By Lois LangLois Lang

When it comes to family business succession planning, one thing is certain: Most family business leaders don’t do it, they don’t do it well, or they wait to do it until it’s too late. While the CEO longevity in non-family businesses is an average of six years, for a family owned businesses CEOs tend to stay for 20-25 years.

Sure, that long tenure contributes to leadership stability and consistency, but it can also fuel flat growth, narrow business focus, and decreasing leadership drive. Additionally, when the CEO and other top level executive family members do not step aside in a timely manner, it causes a high level of frustration in the next generation who is ready to charge forward and make their mark. Once it becomes clear that the children might reach their mid to late fifties before taking over, it becomes hard to hold on to the ambitious ones. That’s why all family businesses need to have a solid succession plan in place—one that helps the senior generation leave with ease and welcomes the well-prepared next generation.

While succession planning can happen at any level within the organization, we commonly think about the top five to eight key positions for a written, structured succession plan. So as you plan your company’s future leadership, keep these points in mind.

1. Think beyond seniority. Many family business executives choose their future leaders based on seniority (i.e.: “She’s the oldest, so she will be our next CEO.”). In some families, the next in line is the oldest male. Of course, a single owner can make the easy decision to pass the business leadership to the child of their choice. But this “easy” choice can backfire if the adult child or the one with the most seniority has not gained respect from other family members and employees. In other words, often the easy choice or the obvious choice isn’t the best choice. Therefore, be open to broadening your search beyond the next of kin.

2. Embrace a more professional process of skill evaluations, performance assessments, and reviews of career history. The more thoughtful, objective, and inclusive the process of bringing on the next leader is, the more likely that the transition will be embraced. Succession readiness calls for a written transition plan and an individual development plan for the future CEO within three years of the planned succession date. Implementation of the plan may involve identifying other executive team members with succession needs, building a coaching plan, and providing stretch assignments in different functional areas of the company.

3. Rank possible successors based on key criteria. Rather than just appoint the next oldest family member to the leadership role, consider creating a list of all the possible successors and rank them, from 1 to 10 (with 10 being high), in each of the following areas:

  • Past work experience and advancement history
  • Education
  • Geographic mobility, if appropriate
  • Learning agility
  • Prior leadership positions—size and scope of leadership responsibilities
  • Advancement potential
  • Advancement desire
  • Interpersonal skills
  • Assessment of the individual compared to the company’s values and leadership competencies
  • Past performance ratings
  • The ability to take risks
  • Decision-making ability
  • Problem-solving ability

Doing this for each potential successor will help you see which ones are best positioned to move the company forward. Finding a successor with the right mix of skills, attitude, drive, character, and experience that matches your business will ensure the family company succeeds for the long term.

4. Groom the next generation. Once you have a successor in mind, offer him/her additional development through such things as job rotations, stretch assignments, additional profit and loss responsibility, and additional exposure to board members and customers. The more emphasis you place on prepping the next leader, the smoother the transition will be.

5. Consider a non-family leader. When a family business member utters the words, “Let’s consider a non-family CEO,” the first reply is usually a colorful no! However, a non-family CEO frequently brings diverse, in-depth experience to drive business growth, bringing professional alliances, partnerships, and strategy opportunities. They can be a great mentor for the next generation of family leaders—often then known as a “bridge CEO” from one generation to the next. While the family may hold all the stock, it is critical to develop a performance incentive that will reward and retain the non-family CEO and an employment agreement that will fairly treat and protect the CEO.

Choose Who’s Next: Thoughtful, on-going planning for succession is a must for long-term business success and sustainability. Therefore, start now. Develop a clear plan about the succession of senior leader positions, including who will be next, when the transition will take place, and how that successor will be groomed to make the move smoother. The more planning you do now, the better the future will be—for you and your family business.

Lois Lang is a speaker and consultant with Evolve Partner Group, LLC where she helps organizations become high performance workplaces. Lois works with clients on management succession readiness, organizational/team strengthening, executive coaching, executive compensation design, wage studies and mediated conflict resolution. For more information on Lois’ speaking and consulting, contact Lois at lois.lang@evolvepartnergroup.com or 209-952-1143.

The Truth about Trading in a Family-Owned Business

By Lois LangLois Lang

“If you give me some new kitchen cabinets, I’ll redo your website and give you free hosting and SEO for a year.” Trading the products or services of the family business for something in return is more common than most people like to admit. Sure, we all enjoy getting something for “free,” but when it comes to trades, that freebie often has a steep cost.

In fact, even though you may think doing the trade is good for the family business because it builds friendships and can lead to referrals, often the trade is unequal, decreases employee morale, and creates a “who is getting more” pile of resentments within the family. So while trading may be common, it’s a practice you need to avoid or curb immediately. Following are some key points to consider the next time you contemplate trading your family business’s products or services.

Swapping quickly escalates. A little trade with a neighbor usually starts out innocent. Perhaps you swap a few haircuts for piano lessons for your child. Since that turned out well, you may keep trading with the person, but then you branch out and do other trades with more businesses. Before you know it, you start to think it’s okay to use the business any way you want to, which could ultimately lead to issues of embezzlement. So even though trading is not seen as taking the company’s assets, it’s a slippery slope that is truly a misuse of the family business.

Trading decreases employee morale and productivity. Would you like to put in a full day’s work and not get paid for it? Often, that’s how employees feel (both family and non-family) when they have to do trade work. Think about it from their perspective. Whoever would have normally sold the product or service no longer gets commission for the sale, yet he or she still has to process the paperwork and possibly even do the hands-on work. On top of that, the employees see the owner (or the person who did the trade) reap all the personal benefits of the trade, while the business as a whole gets nothing. And despite this extra work now on their plate, the employees still have to meet their usual goals and quotas. But what’s the motivation to do so when the owners or managers let product walk out the front door?

Employees often do what you do, not what you say. When employees see the owner or other family members doing trades, they often take up the practice themselves. After all, why should the owner be the only one with a club membership, white teeth, or new carpeting in their home? Once trading escalates, your inventory gets depleted and your profits shrink. Ultimately, all employees start to think of the business as their personal pocketbook instead of as a stand-alone entity that has a responsibility to all employees and shareholders.

You devalue your offerings. When you trade, the value of the item or service (for both parties) diminishes. Because no money is being exchanged, neither party truly understands the real value of the product or service received. Even worse, when word spreads that you’re willing to work for trades (and it will), the value of what you do shrinks even more. Before you know it, a good number of your sales leads are from people interested in trading. And no company can pay its bills when trades dominate the workload.

You can’t get equal service. More often than not, trades leave someone with the short end of the stick. Because you’re getting the product or service for “free,” it’s difficult to complain when something isn’t quite right. Didn’t like your haircut? Want the yard service to do a better job weeding the garden? Didn’t like the last batch of organic produce? If you had paid full price for the product or service, you’d have no problem complaining. Yet when it’s a trade deal, you often feel that you can’t make demands. When that occurs, feelings of resentment grow, making the trade an unpleasant situation for at least one of the participants.

End the Trades for Good: If someone really wants your product or service, and you really want theirs, then engage in each others offerings the right way—by going through the sales channels and paying for the deliverables. While trading is perceived as cheaper and easier, when you consider all the damage it does to your employees, your product or service’s value, and ultimately your business, you’ll see that trading is actually a very costly option. To keep your family business going strong, swap out the trading mentality before it’s too late.

Lois Lang is a speaker and consultant with Evolve Partner Group, LLC where she helps organizations become high performance workplaces. Lois works with clients on management succession readiness, organizational/team strengthening, executive coaching, executive compensation design, wage studies and mediated conflict resolution. For more information on Lois’ speaking and consulting, contact Lois at lois.lang@evolvepartnergroup.com or 209-952-1143.