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Family Business’ Organizational Charts Add Value

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Wikipedia defines an organizational chart as “A diagram that shows the structure of an organization and the relationships and relative ranks of its parts and positions/jobs.”

What is the purpose of an organizational chart?

An organizational chart is an excellent business tool. It is designed to:

  • Describe and outline duties
  • Clarify the chain of command
  • Indicate where direct and indirect contact takes place
  • Establish titles and status
  • Confirm where authority lies within the company

Adhering to, and accepting, the chart are critical to the organization’s future! Presenting the management leadership team and understanding how everyone fits into the organization is the first step. Enforcing the structure and supporting the relationships that it defines is the critical second step in the process.

It is important for any public corporation to be able to clearly demonstrate the roles of its decision makers. However, it is as critical for privately-held, family-owned businesses to embrace an organizational chart. That’s because the chart visibly enables them to both point to a tangible depiction of their company’s infrastructure. It also provides guidelines for judging the performance of each family member involved.

How does an org chart support the company’s vision?

It is documented that family businesses have a competitive edge over other privately-held companies. This is because of the deep and emotional commitment that families bring as well as their willingness to embrace a long term vision.  Typically, family business leaders place less of an emphasis on today’s ROI.  Instead they espouse a strategic perspective that focuses on investing in a sustainable organization for future generations. 

Taking a long term outlook instead of encouraging short term gain is only one of the keys to a family business’ success. The value of a strong, disciplined framework that the company leaders, employees, vendors and customers can rely on is as critical.  Sometimes families attempt to avoid family arguments or confrontations. By doing so the need to provide a clear, visible foundation for making business decisions is ignored. Having an organizational chart in place is helpful in over- coming this tendency to side step disagreements.

An organizational chart can clarify many issues. Family members, like all staff, can better outline their roles and describe their responsibilities.  At the same time, they must be held accountable for accomplishing their goals as depicted in the organizational chart.    

Accountability is key

This is possibly one of the most difficult areas that family businesses commonly grapple with.  The presence of an organizational chart is helpful. But even when there is a legitimate ‘org chart’ in place, too often it is overlooked. Instead, with a subtle wink and a nod, the chart may be discounted. This is especially disheartening when roles are diminished or weakened.  Organizational charts show the reporting structure and the formal assignments that support an established communication plan. But they may not reflect the business’ true structure.

When the chart is not taken seriously, there is always the danger of confusion. According to the chart, family members may be elevated to positions of power that have not been earned. In fact, some of the family members on the chart may not even have the skills or experience to take on the designated tasks. Conversely, others who are actually in positions of power are at times not even mentioned on the chart at all.

When the organizational chart is ignored, the company runs the risk of creating havoc and disarray by sending conflicting messages. This can lead to inefficiencies and less profitability. Eventually, under the worst-case scenario, this can lead to the demise of the entire company and/or cause irreparable harm to the family unit.

What happens when there is no accountability?

It isn’t hard to predict what happens when an organizational chart is prepared with little expectation for attaining its goals: The oldest son may have been named ‘officially’ as the company’s Vice-President of Sales. He is listed on the chart with this lofty title. He has been placed there by his father, who is the CEO and Founder. As such, all sales reps are told to report directly to him according to the chart.

But the organizational chart is not reflecting the reality of the work environment. In fact, the youngest daughter actually has significantly more expertise in both sales and marketing than her brother. She is not on the family business’ organizational chart in this capacity. The reality is, though, that most of the sales team and the marketing team actually confer more often with her.  They would rather bring their issues to her than to her less experienced, but formally titled, brother. This situation can create deep tension between the son and daughter who are both vying for the title and position of VP of Sales and Marketing.

After all, they both want the approval of their father and the respect of their fellow employees. However, this discord and the messiness this type of situation brings can be averted – to be replaced by a positive approach and a strong consensus.

Turn a negative experience into a positive one with a family business organizational chart

To be most effective when crafting your organization’s chart, start by engaging all the company’s leaders in this critical activity.  Instead of presenting a chart as a fait accompli, why not use the opportunity to build camaraderie and consensus? Avoid the clashes and discord described in the example above. Rather, spend time talking about the roles instead of dictating them. Discuss how the company can help each person be successful. Identify where they are likely to add the most value to the company. Gain feedback and fresh ideas by encouraging a dialogue.

Here is a novel approach: Turn your perspective around and up end the traditional process. Design the company’s chart around your team’s technical talents as well as their leadership qualities. This will be more productive than trying to fit your people into the box you think they should own.  The results may startle everyone! This approach can enable you to avoid the seemingly inevitable ‘formal versus informal power play.’  Use the chart to place people where they can be most effective and have proven, measureable results.

Final thoughts on implementing a family business organizational chart

It is evident that an organizational chart is an important tool for managing a family business. Establishing and reinforcing the leadership assignments matters, but it also needs to be realistic and accurate to add value and be enforceable.

This is a challenge in any company but it is further complicated in a family business setting. That’s due to the frequently predictable interactions between the family members and the potential for emotional and personal reactions.  Don’t take the chance of having the chart be corrupted. Instead, all the family members who are engaged in the company, as well as those who are not, should rely on it. It should be used to help them behave in a more disciplined, objective and professional manner.  Those in charge should recognize that they are most likely to do this when they are a part of, not a part from, the design and execution of the chart in the first place!