As a family business consultant, it is impossible to describe some of the spats and family feuds we have witnessed. It amazes me how long someone can hold a grudge. Adult children will regularly tell us tales of being passed over for gifts, roles and other imagined or real slights as children by their parents or grandparents. Often siblings blame each other for “manipulating” one or both of their parents/grandparents.
Recognizing that your adult children do not and will not get along is a critical aspect of passing on a family business. Believing that the very act of running the business will unite your children is a fallacy. Planning for your treasured family business to be owned and managed by siblings who do not get along is a recipe for disaster. We find that all-too-often parents want to put their head in the sand regarding the fact that their progeny do not see eye-to-eye and hope they will work it out.
Often, the past hurts, real or imagined, are embedded in the minds of the various siblings. If they are active members of the organization, these grudges can get in the way of doing business. Secrets can be buried, alliances within family members as well as employees can be formed. Employees may not know who to trust as their livelihood rests on the family members and may not be honest. This adds complexity to any decision and can hamper growth.
The spouse of a family business CEO has likely has been involved in the business, by listening to his or her spouse over the years with the trials and tribulations of growing the business. She or he may be the trusted confidant who guides their spouse in making decisions. However, if they are left in control of the business, without guidance and a a plan for succession, major missteps are possible.
One wife, who was not an active member of this very successful, third-generation business of which her husband was CEO, declared to me that she did not want her children to be mad at her so she was going to sell the entire business should her husband pre-decease her. All three of her adult children had active roles in the family business and each one depended on that income to support their respective families. To think that her children would not be mad if she sold out their livelihood was rather naive.
Another mistake we see parents make is assuming their children even wish to have an active role in the family business. The patriarch or matriarch may truly feel they are giving their children a gift and the children do not want to address the fact that they have little or no interest in taking over that family jewel. This conversation can be difficult and is often best orchestrated with the assistance of a trusted adviser.
If your children do not get along and you own real estate, life insurance and other liquid holdings, a better course of action might be to separate out what your various children will inherit. The business may be valuable and provide ongoing income, but it takes talent, time, anxiety and personal guarantees on loans to run a business. If your child or children are not suited for this type of active risk management and dedication, they are likely not great choices for active management of a business and providing for them via other assets is probably the best course.
Addressing these concerns while the older generation is fully in control is the best course of action. Choosing a family business counselor who is trained in what we often call “toxic family relationships” can help resolve matters before any legal titling takes place or disposition of assets and figure out an equitable solution. Equal is not always equitable when planning with family businesses and the next generation(s).
When employees become family…
We often see family businesses who retain key employees for decades. These employees become very much like another member of the family. Family businesses often tend to operate like a nuclear family with the patriarch/matriarch ruling the roost. While the warmth and lack of corporate protocols can be refreshing, it can also set up an environment where toxic relationships within non-family members exist.
The gal who has worked closely with the 70 year old CEO for 30+ years may resent anyone else telling her what he would have wanted done or resist changes in technology, processes, new hiring procedures, etc. Very often, these trusted employees, are the keeper of the protocols, know all the relationships for various vendors as well as key employees and exceptions made along the way. They can hamper the growth of the business as change can be scary and they may feel threatened.
Bringing in a professional human resources consultant can help assess the culture, the ability of each employee to both execute their current role, their attitude and willingness to grow with the new management team. This should be done while the current patriarch or matriarch is in place so change can be implemented gradually. Of course, it is also possible that the long-term employee is not capable of moving forward with the times and therefore an exit package should be created. This is where the HR consultant can be worth their weight in gold as they head off any potential litigation after an employee’s exit.
Running a business is not easy. A family business can add complexity as relationships are critical. According to research by PWC (Price Waterhouse Coopers), the number one reason for failure between generations of family businesses is lack of communication between family members. This is where a trained consultant can also be extremely valuable in assessing whether toxic behaviors will continue and interfere with the health of the business.
Before you decide on transitions, it is wise to rise above the fray and think about the future of the business in a clinical manner. Working with various advisors can help you assess the best course of action.
About Chapin Hill Advisors, Inc.
Kathy Boyle founded Chapin Hill Advisors in 2000 after spending her early career working in large and small investment firms on Wall Street. Chapin Hill Advisors works with privately-held businesses, often family-owned, to help them execute financial, estate and succession planning. We work with the business owner to be sure their business will provide their family with the financial security needed , identify areas of risk and help create strategies to mitigate risk.
Businesses often need assistance creating strategies to allow the business to succeed the owner as well as address structure, systems and procedures. As a business grows, the owner needs to have a plan in place to allow succession, whether an outright sale or a transition to family, partners or employees.
We work with businesses of all sizes to assist them in creating strategies to increase revenue and profitability and tie the future growth to the owner’s or families’ personal financial goals. With larger businesses, we offer a resource directory of trusted professionals. Small businesses or solo-entrepreneurs can benefit from Chapin Hill’s combination business and personal planning strategies.
As a fellow entrepreneur, Kathy speaks from experience. She has tested many strategies in the trenches and seen her clients make mistakes as well as successes. Kathy helps entrepreneurs implement strategies for future success and helps to coach them to execute action steps.
She has advised business clients of all types and sizes on structuring sales of their businesses as well. Without a long term plan and a team who can replace the founder’s talents, a business is less likely to be purchased. Kathy’s background on Wall Street and in financial planning allows Chapin Hill to implement strong financial controls and combine both estate planning as well as business planning for future success.
For more information or a complimentary meeting, feel free to contact Kathy Boyle at: firstname.lastname@example.org or 212-583-1992.