Father Figures - Paternalistic Business Owners Can Deliver Many Benefits But There Are Certain Circumstances When It Can Be A Double-Edged Sword

'Taken from/Copy of an article by Sue Prestney, Charter Magazine,
February 2007'

A privately owned business can be a very personal operation and it is not unusual for an SME owner to take on a patriarchal role with employees. Unlike a large corporate, owner and employee are not separated by multi-levels of hierarchy. The owner/operator can be clearly identified as the person who makes the rules, disciplines and praises. This person is ultimately responsible for the success of the business and therefore for the financial health and security of the employees.

This pseudo family atmosphere can bring real benefits to the business. The sense of personal belonging and family culture generates loyalty and longevity of service. One business owner I know has more than 100 employees, knows everyone by name and regularly tours the factory to speak with each individually. Not surprisingly he has many employees with more than 40 years’ service. The loyalty and knowledge of the business that such long-term employees have generally brings efficiencies in operations and strong customer retention.

However, a business owner who creates a strong personal bond with employees, making them both financially and emotionally dependent, is using a double-edged sword. If you act as the employees’ mentor, develop them and personally look after them, there is a danger they will identify you in a parental role. If you do something that is in your own interests or in the interests of the business in general, but not to the employee’s benefit, the reaction can be explosive. I saw this recently when an owner failed to promote a favourite employee in favour of a new one with better management experience. The old favourite’s sense of rejection manifested into near hysteria. "I thought of you as a father! How could you do this to me?" His sense of betrayal was so bitter that he left the business.

A conflict often arises when the patriarch is leaving the business to retire or otherwise and has to negotiate with his employees to buy him out. All of a sudden he is not on their side – he is negotiating for his own benefit which is now not aligned with theirs. Price is, of course, a usual bone of contention, but so are restrictive covenants ("surely you would never go into business against us") and contractual arrangements ("you must be here to help us when we need you").

The sudden shift from mutual interest to self-interest can create a bitterness that lawyers practising in family law would recognise, with all its attendant emotion and irrationality. One employee with a small existing minority shareholding contested the valuation for the buy-out of the owner’s shares on the basis that it should be consistent with the hugely discounted price she previously had been granted for her very minor holding. She did eventually buy out the owner but the process virtually ended the relationship. She believed her father figure had cheated her – of course he hadn’t, he’d just asked her to pay what the business was worth.

Abuse of such a relationship can go both ways. Trusted employees can take advantage of the paternalistic employer who believes his employees would never cheat him. I have seen one of these father figures refuse to implement a physical inventory control system despite irrefutable evidence that stock was walking out the door. He said "it must be an accounting problem".

I’m not a psychologist (thank goodness!) but I’ve seen how the complexities of human relationships can intrude on what should be merely rational business issues. We are all aware and alert to these in family businesses but any patriarchal organisation, grown through the energy and personal charisma of the leader runs the risk that these highly emotional forces can have a negative side. Indeed, take the leader out of these businesses and you are often left with a void that takes a long time to fill.

This is more than just personal goodwill – it goes much deeper. Paternalism should be balanced with corporatisation; reward and discipline should be based on documented objective criteria; employees and customers need to see the business as a functioning entity in its own right not just a manifestation of the personality of the owner.

Owner/employee relationships can be particularly destructive when the leader is a sociopath in paternal clothing. Such a person is manipulative, playing employees off against each other, making them emotionally dependent on the praise and approval of the leader and fearful of that person’s displeasure – not knowing exactly what is expected of them other than to be able to play the leader’s mind games. Their personal success is dependent on the whims of the owner – not on objective measures. Organisations with leaders like these often don’t have processes and systems and frequently have a crippling political culture of blame and back stabbing. Beware of buying a business that has been owned by one of these people!

Sue Prestney FCA is spokesperson on SMEs for the Institute of Chartered Accountants in Australia.

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