Inside The Family Business

Eventually, sands in the business founder's hourglass run out, because the Good Lord's prescriptions apply to him as to other mortals. There comes a time when he is no longer around to run the show. Time passes, sands run on, and he meets his demise. Sooner or later, the business he built will find itself without him.

What's done is done. No matter how much thought he has or has not given to it, no matter how well or disastrously it has worked out, whatever he leaves behind is his legacy. The world he leaves -through death, disability or retirement - belongs to those who come after him, his successors. For better or worse, they have picked up the baton and are carrying on his dream.

All that has gone before, the events I discussed earlier, all good and bad decisions, come to roost on shoulders of the successors. They inherit restrictions, frustrations, and deficiencies at the same time they inherit opportunities. It's a package deal, a deal they have to live with. As much as they may want to at times, they can't bring back the departed founder and set him up in a boardroom chair and beat him up because of what he did or failed to do.

Now is the time when clever tax-saving distribution schemes flower - with a blossom that doesn't always have a pleasing aroma. The first major fait accompli to be faced by heirs will be distribution of postprobate ownership. Where have the shares gone? Who owns the business and who runs the show -- the two are not always the same. Often, these setups are unfortunate, and so ironclad the heir can't get out.

What, for example, if Momma has irrevocable power of attorney and suddenly starts to become senile? She has the power to say yes or no to management requests and she may continually say no. What do heirs do? Shoot her? What if equal ownership is left to two working brothers and a non-working sister, and no president has been selected? One thing will happen if heirs understand and respect each other. An entirely different result will come about if they have failed to get along since childhood.

If a clear and accepted hierarchy has not been set up prior to Dad's departure, one has to be worked out by heirs. Family businesses can't operate like communes any more than they can as dictatorships. Management by committee may work in voluntary clubs, where members have few vital interests and not much to lose, but in a family-owned business, where committees are made up of powerful, emotionally-charged relatives and sidepicking managers, any protem majority is going to find it difficult to make their majority actually rule. Power in these situations (common stock) may be distributed so widely no one group has enough, and ad hoc teams keep changing sides.

A dictatorship won't work either, because a person who may happen to have power may wind up spending more time waving it threateningly over people's heads than using it for the company and its needs. Without accommodation - the agreement to agree - effective control is impossible.

Often, conflicts smolder beneath the surface while Dad is around keeping things under control (and underground). But once that inevitable moment occurs when the patriarch and founder is no longer around, the struggle explodes into full-scale battle. Because requirements and agreements were not worked out while his authority was there to encourage it along, alternatives to agreement happen - arguments, court battles, paralysis of decision-making process, and eventual collapse of the enterprise.

A competent management hierarchy is necessary in any viable businesses, but family-owned business face the additional requirement that hierarchy be an accepted one. Each family member must understand needs of the business and needs, desires, and rights of others in the family.

The Blame is Shared

When the transition doesn't work out, blame is usually placed on inheritors, but it's usually more accurate to say seeds of dissent were sown and fostered by the founder, consciously or unconsciously, in an attempt to be fair. What he often does, in his attempts to treat all heirs as equally as he loves them, is create prisoners to wishes, entrapment for those who want out, and harassment for those who want in. Once he's gone, the prison walls remain, but cell doors are all swung open and chaos reigns.

In one example, a founder had left equal shares of his distributorship to his working son and two non-working daughters in his will. His son was clearly to be the next president, having worked for his father in increasingly responsible capacities for over 20 years. This founder, at the time he set his estate plan, wanted to be "fair."

While he was healthy and working he gave little thought to what he had decided and, of course, never bothered to tell heirs of his plans. Then cancer struck. As perspectives do in that kind of situation, his began to change. Lying in his hospital bed, he called his son to him and told him he wanted him to be the next president and they arranged for the successor to buy the stock. He told his son to take care of his sisters.

When the founder died and his unchanged will was made known to the sisters, all hell broke loose. Convinced their brother had forced their father to sell, they contested the stock transfer in court. Even though the suit failed, the family has been destroyed. The successor, even with his sense of bitterness, feels deeply his responsibility to fulfill his Dad's last request to take care of the two sisters. Although he has full control of the business, his heart is not in it the way it had always been. How the next few years go will determine the future of many people.

There are very few aspects of family relationships the founder can safely ignore. Successors have to understand the top job is not all beer and skittles. It's not the only prize worth having, while others are all piled somewhere in the back of the bus. The younger (or older) brother who may be filled with ambition but doesn't have the talent to learn to accept the older (or younger) brother who does. That goes for their wives, too.

The new president, the successor, should understand the price he's going to have to pay for being the one to make all the decisions. Somewhere along the line, his health is likely to suffer, or his family life will suffer. The leader has a price to pay, and that's something all siblings must understand.

I've seen business after business face power struggles among heirs after the founder leaves the scene. The only referee left is usually Momma, whose interest probably lies more in keeping peace in the family than in doing what's right for the business. In one company, the founder's wife was left in control with three ambitious sons in management. Her solution was simply to turn the presidency into a rotating chair. She gives each of her boys, in turn, a one-year shot at the job of president.

Most widows of business owners aren't prepared, emotionally or intellectually, to settle succession problems their husbands tend to leave in their wake. The same can usually be said about spouses of heirs, particularly daughters-in-law.

There are few more negative influences on new successors and business in transition, for example, than existence of embittered spouses. Even if the brothers agree to agree, sisters-in-law may not. A's wife may not like B's wife. Maybe she never did and never will. Try to imagine in those circumstances to what extent she will be able to accept B being president of the family business. Her husband is as much a Shultz as his brother, even though he's younger. And he may be happy as vice-president with his older, more capable brother as president, but A''s wife says over and over again, "no way." Her main occupation becomes professional agitator.

These are almost unwinnable situations and they happen every day. Some people, of course, don't want to be officers. For them, being sergeants is preferable. And if that's the way the hierarchy happens to work out, it's definitely convenient. But it's unusual. Mostly people tend to want more than they have, and if they are not taught very early on there is a limit to what everybody can have, management of the company will wind up as a platoon of neurotic lieutenants, none of whom trusts the other.

As if the struggle for power isn't enough, the founder often uses business as a cornucopia for distributing his largess to children who seldom earned what they got. The heirs never learned to connect the idea of a dollar's pay with the concept of a dollar's work. Believe me, sudden accession to the top management slots in business does nothing to change this fundamental flaw in their education. What arises is Dad's compensation for-unequal contribution. Why can't I be paid what you're being paid? That's the way it always was.