Fredos are certified trouble-makers (part 2)

Before inviting a family member to join, make sure the family has already set in place the governance infrastructure.

There are real-life “Fredos” working in family businesses out there. While the Corleones of the Godfather movies are fictitious, I have seen many examples of Fredos who are disruptive, dangerous and have wreak havoc on their family’s business.

Family Case 1

A restaurant chain, majority owned by the eldest brother Rey (not his real name) with contribution from his other siblings, repeatedly suffered at the hands of a Fredo named Rodney (not his real name). The latter was Rodney’s first-born son. Barely straight out of college, Rey insisted that his son work for the family business.

However, Rodney was lazy, performed below expectations and showed poor human relations skills. His abrasive behavior drew complaints from colleagues and customers. He also had a penchant for sitting on major decisions, reported to the office as he pleased and displayed a very bad temper.

To hide Rodney’s incompetence, the father helped him with his work but over time, the son relied more and more on his father to do his work.

Things came to a head when a cousin discovered that Rodney was making a cut (commissions) on his preferred suppliers. Because of the overprice in the purchase of raw materials, the company struggled to compete in the industry they once dominated.

While all the cousins wanted Rodney suspended, his father refused and continued to make excuses. When the animosity escalated into regular skirmishes amongst cousins, several key non-family employees opted to resign instead of being caught in the crossfire. Soon after, the family business suffered a decline. The other founders then decided it was time to step in.

Family Case 2

This is the case of a leather retailer chain that had to deal with multiple Fredos who felt entitled to the products for their personal use.

Two brothers would often shop at the stores, taking merchandise without paying or documenting what they took.

When an in-law was hired as part of the accounting team, things got even worse since she had access to the cash registers. The brothers and the in-law started to take cash out of the registers to pay for their personal expenses. Eventually, the business went bankrupt because the older generation looked the other way and never lifted a finger to put an end to the children and the in-laws’ misbehavior.

Such dilemmas are so common in family firms that I have advised in Asia. Fredos are a different breed. They sincerely feel they are deserving of rewards and privileges even without earning it. They also have the temerity to demand an equal share of the business’s wealth, simply because they are part of the family and their last name is their birthright.

With the two cases presented, the message is clear: when you are contemplating on hiring a family member, watch for a Fredo behavior. Or, before inviting a family member to join, make sure the family has already set in place the governance infrastructure.

Kimberly Eddelston ,in her research, accurately observed the issue of a Fredo feeling entitled. “Research has shown that children with a strong sense of entitlement may be more likely to engage in theft because they see the business’s riches as compensation for their poor and neglected childhood during the firm’s early-year struggles.” No wonder that those who study family businesses have found that 85 percent of them go from “shirtsleeves to shirtsleeves” by the third generation.