Hubler For Business Families
   

Managing Conflict in a Family-Owned Business -  Part One

What advisors frequently overlook can land their clients - and themselves - in hot water.
Part one of two

Key Takeaways
  • Most families avoid talking about death and money, yet that's exactly what is needed for good business succession and personal estate planning.
  • Families avoid discussions because they fear it will create family disharmony, when just the opposite is true.
  • Families should develop together a common vision and prayers for each other that reinforce the needs of individual members reflecting their common good.
  • Optimize your global tax portfolio/position by understanding where the income gets taxed, and then analyze the after-tax income.

Death, money and sex. In our culture these are the three most difficult things for families to talk about. They are forbidden topics no matter who you are, how old you are, what you do or how much you earn. Virtually everyone avoids talking about death, money and sex in their families. Do you?

Unfortunately, when a family-owned business is having a conflict, it is likely that two of these topics must be talked about - death and money. That's because conflict in a successful family business commonly occurs when it's time for succession planning - when the family must decide who will continue the business and how. Many families make the mistake of just assuming who it is that will take over the company and that succession will happen when the time is right. That's where the problems begin.

Estate planners tell us succession is a highly unpleasant subject for families. It requires them to think about death in the family, life without a loved one, taking or transferring assets, and changing responsibilities. For a family business, the discussion seems especially filled with potential landmines.

Family businesses avoid succession planning
Inside-Out Succession Plan
Succession planning is not only an issue for the owner-entrepreneur, it's also an issue for the entire family. Many families unconsciously conspire to avoid talking about ownership and management-succession planning. The topic is taboo.

My clients will say, "It's too early; we have years to think about this." Or "I don't have time right now." Or my favorite, "We don't need all that structure and formality because we love each other."

Actually, it is because you love each other that you need all that structure and formality. It helps you avoid the emotional tripwires and makes the rational path more visible. However, that path must include more than just plans for ownership and the estate.

As I stated in a previous article, it is futile to produce a succession plan by focusing on just the ownership (and estate) plan. A smart succession plan must also consider the owner-entrepreneur's overall intention. It must reflect a core purpose that includes legacy and family intentions as well as the business purpose.

Legacy is more than an entrepreneur's wish for "how I want to be remembered." A sense of legacy drives the entrepreneur to develop a succession plan. Concern for a legacy creates the motivation.

Start by discussing legacy

I use a legacy model that helps set the base and develops the discussion for a successful succession plan. There are two aspects to legacy: your gift to the future and how you want to be remembered. The first aspect, discussed by Laura Nash in the Harvard Business Review article "Just Enough," defines “your gift to the future" as a means by which “you help others find future success."

The second aspect - how you want to be remembered - is my definition. It focuses more personally on how an individual wants to be remembered and is highly emotional because virtually everyone in their 60s and 70s wonders at some point whether their lives have meant something. They may avoid talking or thinking about it, but it's there.

A technical planner can ask:
  • "How do you want to be remembered?"
  • "What is your gift to the future?"
  • "How can I help you achieve those goals?"
Ask legacy questions like these so that owner-entrepreneurs will engage in succession planning. This helps avoid a lot of unnecessary conflict that could surface later.

Some specks of dust that can become family-business issues
  • Family values regarding wealth
  • Money and compensation
  • Disputes about roles, responsibilities and decision-making
  • Governance
  • Business plan
  • Business and financial differences
  • Roles of parents and grandparents
  • Roles of in-laws (daughters-in-law in particular)
  • Training - competency
  • Control
  • Boundaries
  • Prenuptials
  • Commitment to the company and work
  • Win-lose decision-making
  • Hurt feelings, listening and understanding
  • Unmet wants and expectations
  • Indirect communication (gossiping behind someone's back)
  • Lack of expression of appreciation, recognition and love
  • Loss and change
  • Wealth
  • Spending - lifestyle
  • Sibling rivalry
  • Financial distributions to shareholders
  • Lack of structure and formality


Conflict accumulates when differences are not discussed

Conflict in family-owned businesses can also increase because family members simply try to avoid it. When I taught the Family Business Management class at the University of St. Thomas, I regularly brought up the famous Hubler Speck of Dust Theory to explain what I often saw happening in family-owned businesses.

In my Speck of Dust Theory, an issue or irritation triggers differences in the family-owned business. Family members say to themselves, "If I bring that issue up, it will upset the entire family and ruin our 4th of July picnic at the lake." That speck of dust - that issue - is not discussed.

Sometime later, another issue surfaces. The conflict isn't mentioned because it could spoil Thanksgiving or Christmas, or an upcoming wedding, birthday or graduation. Irritation accumulates into ever-greater annoyance because no one is willing to bring up an issue. The family creates the very disharmony they are trying to avoid by failing to talk about their differences.

Speck-of-dust issues can grow into a ton of discord. Yet these issues are normal and should be aired. (See my partial list of potential issues.) Every family and family-owned business has issues. They become problems only when they are avoided and not discussed.

How to prevent and manage problems in family-owned businesses

The best way to avoid conflict is to keep issues from becoming problems in the first place. To do this the family should create a common vision that unites everyone at a superordinate level. How might that be done?

Typically, one would urge compromise as the way to create unity in a family. Yet when individuals are asked to compromise, they generally feel like they are conceding or giving in. Instead, the family should be encouraged to understand that this is a negotiation that involves cooperation. Everyone is working together for the common good of the family and the business - high stakes indeed.

Individuals recognize that it is unrealistic for each person to get 100 percent of what he or she wants. Instead, each family member is contributing to reflect what's best for the family vision. Each individual gives out of love, generosity, a sense of abundance and trust. Each understands that "just as I contribute, other members of the family will do the same when their turn comes." And the others' turns always come.

Develop a family vision

To begin, the family creates a list of values that everyone can embrace. These high-level principles are discussed and developed into a brief paragraph that truly reflects what the family believes about themselves and their values. Some families think of them as "mission statements."

Here are two actual family vision statements taken from my practice:

The Danz family common vision

In our family and business, we promote respect, honesty and fairness, and we encourage an environment that is loyal and unified. At the heart of our vision is our commitment to generosity, quality and an appreciation of each other's gifts. As a hard-working and dedicated family, we communicate and celebrate our spirituality.

The Miller family common vision

We are a loving and proud family who upholds the highest values of integrity, respect, acceptance and open communication. We encourage each other while maintaining a spiritual and balanced life, sharing our wealth and personal gifts to the benefit of our family and community. Remaining loyal to each other and our traditions, we celebrate our family unity.

I also encourage families to adopt or develop their own family prayers. Here is a typical example:

Family prayer for loving kindness

May our family be filled with loving kindness.
May we be well.
May our family be peaceful and at ease.
May our family be happy.

As family members cooperate to develop their family vision statements and prayers, I encourage individuals to prepare their own personal value statements. Here is an actual example written by the entrepreneurial father of the Miller family:

A father's individual vision

I am a leader who is developing our family business into an organization that will continue to be an independent and growing company long after my involvement, with employees who are proud of their association with the company. I also provide leadership and guidance to my family by improving and uplifting the lives of my children and grandchildren.

The prayer and vision statements should be clear and brief enough to be recited daily. Because they are developed through family cooperation, these statements resonate across the family and truly reflect the interests of everyone.

Finally, I encourage family members to think about each other daily through brief kything prayers. Kythes are the vision statements of family members. They are put in the third person and reflect what that person wants, needs or values.

Here are a few actual examples of kything prayers from different families:
  • May Violet be inspired by God's generous love.

  • May Saul inspire those he works with to achieve their highest potential.

  • May Joan experience the quilts of her life and the joy of nurturing God's love in her family.

  • May John continue the feeling of contentment and appreciation for the blessings in his life regarding family and business.

  • May Alex experience himself as a link between today and tomorrow, both in the company as well as in the family.

  • May Mary provide support to her husband and his dreams with balance that allows them to raise their children with core family values.

  • May Carol experience the blessings and limitations of herself and others and give and accept support freely so that she may grow in love and increase her impact on the world. May she dare to live and work among the best.

  • May Mark experience harmonious balance in his family and work, and may his relationships continue to be close, enjoyable and fulfilling as he experiences a sense of pride in his two sons.
Conclusion
By encouraging your family business clients to talk openly and strategically about death and succession, you can help them preserve substantial wealth and family harmony - and solidify your role as a trusted advisor and confidant.

Read Part 2 of Managing Conflict in a Family-Owned Business.

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