10 Basic Tenets for Successful Family Owned Agencies

The presence of family run businesses continues to play a major role in the U.S. economy. From rural mom and popyshops to international conglomerates, family businesses are at the foundation of our economy. Ford Motor Company, Walmart, Berkshire Hathaway, and Dell Technologies are just a few of the many U.S. family-run companies that have proven their ability to thrive and adapt to changing markets while maintaining their core values.

There are reportedly 5.5 million family-owned businesses in the U.S. who employ nearly 60% of the country’s labor force and contribute $8.3 trillion to the U.S. GDP, according to Family Enterprise USA (FEUSA), which advocates on behalf of family owned businesses. Family businesses are also responsible for 78% of all new job creation. (Astrachan. J.H. & Shanker, M.C.) This means family run companies employ over 98 million Americans!

Additionally, 35% of Fortune 500 companies are family controlled, according to Women & Wealth Magazine. Roughly 86% of U.S. family businesses expect to see growth for the next two years, the PwC 2023 US Family Business Survey found. These raw statistics exemplify the massive power that family businesses have in our local, state and global economies.

Women’s leadership roles in family business have evolved significantly over the last decade, as well. A 2019 study conducted by Successful Transgenerational Entrepreneurship Practices (STEP) revealed that 7% of North American family firms surveyed were led by women and 34% had women on their board. While those numbers may seem low, it is a step in the right direction for more growth and female-led businesses. According to Mass Mutual American Family Business Survey, “31.3% of family businesses indicate that their next successor is a female.”

This statistic shows promise for future generations of females who are looking to run a business. Although there is much more to accomplish, women continue to play a vital role in fueling economic growth in America via family businesses.

Family Business Basics

The secret to a successful family business is to treat it like a business, not as an extension of the family. There are many family run insurance agencies. The successful ones tend to incorporate the following 10 basic tenets.

1. Have a clear, concise mission statement. Establishing a mission statement provides clarity about the company’s purpose and the values that guide its operations. This clarity can help family members align their efforts and make decisions that are in line with the company’s overarching goals. A well-crafted mission statement reminds family members why they are with the company and what they are working towards together. It serves as a key to preserving the family legacy for future generations.
2. Do not create a job for a family member. Either you have a job opening for which they qualify, or you do not. Do not create a new position just so you can bring your family member into the firm. If there is no suitable opening, wait until there is the need to hire someone and/or they have the appropriate qualifications. Having the family member work somewhere else first is a great strategy to understanding their work ethic. The family member must prove to themselves, to the owners, and to the other employees that they can succeed on their own. It is far healthier for the business to have them come in with some outside experience, fresh ideas and training. It is not necessary that the experience be in an insurance company or agency, although this would be helpful.
3. Treat family members the same as any other employee. Avoid the two extremes – either cutting them too much slack or riding them harder than other employees. Family members might try harder or they might not try at all. They need motivation from the owner or their manager, just like any other employee. Apply all agency rules to family members and adhere strictly to performance evaluations and salary administration.

Give family members responsibility and authority as they become ready for it. Don’t second guess their decisions within the parameters of authority you have granted. This is difficult to do with any employee and much more troublesome with family members, especially children.

4. If possible, have family members report to non-family employees. Just because someone has the same last name as the owner does not mean they have the same level of authority. Keep in mind, treat them like any other employee. See rule 3.
5. Keep family and business issues separate. Do everything that you can to de-emphasize the family relationship when around other employees. Never discuss family matters in front of other people in the agency. Use the family member’s first name and try not to call each other dad, mom or son during business hours. Likewise, don’t discuss business at the dinner table as this can put a strain on family relationships and blur the lines between work and family time. Essentially, keep work at work and home at home.
6. Be clear about the business succession plan. Family members should be aware of the company’s perpetuation plan, so they know what is expected from them long before any ownership changes occur. In a 2021 Family Business Survey conducted by PwC, in the U.S., “only one-third [of family run firms] have a robust, documented, and communicated succession plan in place…” (Harvard Business Review). In the 2023 PwC US Family Business Survey, reportedly 75% of family run companies have a shareholder agreement, 64% have a last will and testament, and 51% have a dividend policy in place. You would expect these numbers to be 100% across the board, but family dynamics are complex and sometimes hard to navigate. The parental generation may be too controlling, overbearing, or closed-minded that even if their children have functional roles in the company, they are never offered the opportunity to participate in decision-making or leadership roles. Children in the company can be coddled by their parents, not allowing them to take risks or learn from failure.

Additionally, it is important to pay attention to any child that might resent all the time their parents spent with the agency instead of them. Aggressive behavior by a jilted child can be very destructive to the business. Rivalries between siblings can wreak havoc on an otherwise successful business. It is recommended that children who are not associated with the agency should not be owners.

Additionally, non-active owners might not appreciate what it takes to run the business or the day-to-day necessities. Assuming that there will always be someone else to handle business matters can become highly stressful when it ultimately proves unfounded.

7. Have one clear successor. It usually is never a good idea to leave a business to two people (family members or not) based on 50/50 ownership. The buck always has to stop somewhere. Two siblings can already have some built-in differences of opinion that make decisions more difficult to handle effectively. It can work in some cases, but these are the exceptions. At a minimum put one outside person on the board of directors as a deciding vote. See rule 6.
8. Create a board of directors that includes non-family members. When advice is needed on dealing with sticky issues, it’s important to have someone involved without familial emotional attachments. Use outside professionals, such as CPAs, attorneys or consultants. If there often seems to be impasses, it might be a good idea to give voting rights to the non-family board member.
9. Sell the business, don’t gift it. Most people do not appreciate something they got for free. The concept is that if they pay for it, or must sacrifice something for it, they will value it more and do a better job of running the agency. Keep the IRS in mind. You must properly value the ownership you turn over to family members either through gifts or cash transactions.
10. Make sure all participating family members agree to these guidelines. There is no sense in having guidelines or rules if no one agrees to them or if the rules are sporadically implemented. All family members must adopt these “rules” for the business, or they cannot be a part of it. This is where tough love comes into play. Children do best when the rules are clearly spelled out and consistently followed.

The new motto needs to be “it’s nothing personal, it’s just business.”

Topics Agencies