Myths About The Family Owned Business

Family owned businesses have existed as long as businesses have been around. However, it has been only in the last decade and a half or so that their existence has spawned a new enterprise, a field of study with its own consulting specialists, professional organizations, business school courses, and literature. And, grazing in this landscape are myths, prejudices and assumptions often enough repeated as being the result of accumulated wisdom that they appear as a natural part of the environment. Before these myths and assumptions are designated as historic landmarks, not to be removed, changed, or added to, they should be examined in more detail. Perhaps, then, the germ of validity contained in them, if any, might be unfolded and preserved.

My own personal list of myths and prejudices has been collected over a twenty year period of consulting to family businesses, talking to other specialists, and listening to family members as they put their businesses in order.

WORKING SOMEPLACE ELSE FIRST

The myth that tops my personal list is the one I have heard repeated the most. It usually takes the form of the following advice: "The best way of training your son or daughter to enter the family business is to have them work elsewhere first; whether in a related industry or not usually doesn't matter." The reasons offered can be grouped into the opportunity for personal growth ("It will increase his/her self-esteem."); the squelching of future conflict ("They'll see that its just as tough else where, would then appreciate our business all the more, and will be less confrontational/aggressive/'know it all', etc."); and the acquisition of knowledge that could be put to good use in the business ("She'll be able to teach us a few things.").

In my experience training-away-and-before has never impressed me as an inoculation against family conflict, a means of personal growth, nor a source of new business knowledge.

If the training of youthful impulses is intended as a means of reducing family conflict, "it ain't necessarily so", as the song suggests. The army may do just as well or as fruitlessly. An assumption being made is that the sole source of family conflict resides in the young man or woman who is being sent out to see what the real world is really like. Another assumption (that becomes a hope or goal) is that he or she will be more conforming when they return to the business.

All too often, however, this young person's upsetting behavior is symptomatic of a wider family and/or business problem that is being denied. Trying to understand his or her problematic behavior as indicative of broader issues, as opposed to carting it away, might be of more help to the family. Pre-existing problems in families will only await reentrance of the heir apparent.

If increased self-esteem is sought, the end product may as frequently be a son or daughter who refuses to return to the family business precisely because of their newly found self-esteem, as one who returns but with a mind of her own that doesn't fit the business culture, much less the family.

Enhanced business knowledge sometimes does result but usually or only when the heir apparent has worked up to or have started at the top management levels at other firms. And, if they have worked their way up on the outside, their position is often too attractive and rewarding to leave; if they were to leave, it would frequently coincide with the owner/parent's advanced age and readiness to retire (because many years have elapsed since the heir left to find knowledge and experience elsewhere); when they do enter the family business, their business knowledge and style all too often jars current practice, sending shock waves throughout the firm and creating resentment in their wake.

My contention is not that the farm system doesn't work. It can, provided that all players and coaches are clear about their respective goals, timetables, and mutual agreements. All too often, however, goals, motives, and intentions are so thickly glazed over that the outcome is anything but desirable. The most successful use of it that I have seen has been when the son or daughter is deliberately tasked with returning in "x" number of years with new ideas. The mutual planning process is detailed and intensive, with accompanying research. It is interesting to note that those family firms that engage in this type of planning are also operated in this kind of deliberate manner.

Some other conditions exist where education elsewhere is heavensent. For example, offspring who are working elsewhere in a responsible position can often fortuitously step in as president at their parent's death or disability, thereby rescuing the ship from floundering and the family from drowning. But, again, these circumstances are chance events, not designed.

THE FEAR OF ONE'S MORTALITY

My candidate for the second most frequently verbalized myth is that the failure to prepare succession plans is derived from the owner's fear of facing up to his or her mortality, that initiating succession highlights one's impending or looming demise. My reason for elevating this to the pantheon of myth is that its reach doesn't go far enough, thereby perpetuating the very outcome that professionals in the field want to avoid.

If the assumption is that father is afraid of facing his mortality, then the remedy is frequently a referral of the father for therapy, a gingerly applied workaround so that some semblance of a succession plan is started, focusing on business issues with the goal of eventually getting to succession issues, etc.

However, too seldom do people ask, "What is the owner avoiding by his apparent fear of dying? What does he not want to face as he looks into the proverbial jaws of death?"

My position is that the fear of death that we all at some level share is not a basic reason for the lack of succession plans. If anything, I could make a convincing case that our concerns about our mortality would, in fact, fuel our desire to plan for our succession so that we could face death without distraction. Rather, the failure to plan for succession is based on the motive to avoid dealing with existing family and business problems which would make the autumn of life problematic. The intent is to keep these issues buried so that they won't bite during one's lifetime. Not wanting to upset the applecart entails not having to deal with certain aspects of self (e.g., the need to control and have everything done the way one wants); not having to choose between several possible successors, thereby avoiding antagonizing someone; not having to chance that a successor could or might do even better than we have, thereby diminishing what we have accomplished or showing where we have failed. The list and underlying dynamics, of course, can be extended beyond these few examples.

FAMILY OR BUSINESS: WHICH COMES FIRST?

Many readers will be able to guess the third myth: "The primary goal of the business is to keep the family together." Stated differently, "Family comes before business and should do so." Rather bluntly, I can't think of a more pernicious argument for preserving the status quo or choosing an undesirable business option.

The myth has appeared as both slogan and rationale in many different contexts. Typical is the situation where all off-spring, whether employed in the business or not, become potential heirs to the business despite the wishes of those working in the business. Another scene entails the heir who lacks the requisite skills to be the president when another option (e.g., the sale of the business, a non-family member becoming president, etc.) would have been by far the wiser choice. A frequently witnessed situation is one in which the founder sets up a convoluted management structure in place of selecting one offspring over another as president.

For tax, financial and inheritance reasons, businesses can and do have both working and non-working family owners. The problem that arises is that too often the family members working in the family business grow to resent their partners/relatives who are not sweating it out in the same trenches. These non- working partners want to have business practices explained, dividend declarations (or, rather, the lack thereof) justified, business strategies presented. None of these expectations are unreasonable except that the feelings that almost by definition have to emerge when the working member's stance is questioned begin to play havoc with the ownership arrangement. Thus, a business owner, in wanting to will to his heirs in equal portions the fruits of his labors, only begets rotten fruit. He may set up this arrangement to be fair and equitable, to ensure the financial future of less talented offspring, to please his wife. What his heirs inherit, however, is the conflict that was only hinted at while he was alive, e.g., conflict about whether the heirs wanted partners at all, resentments about the freeloader of a brother being protected by the parents, etc.

And, again, having non-working partners and co-owners can work providing that all issues concerning management, rights, privileges, strategy, participation, compensation, etc., are clarified up front. In fact, when families do invite discussion of these topics, very creative and satisfactory outcomes emerge. For example, since one of the understandable concerns of non- working owners is how to extract their inheritance from the business without jeopardizing the business, some families have established a fund from which members can draw. Each family, of course, places different kinds of stipulations as a function of the fund's goals and objectives, and, of its own style and dynamics.

Handing the business over to a less-than-adequate offspring, in order to preserve family harmony, most certainly can be seen as an attempt to avoid dealing with the owner/offspring relation-ship in the wider context of the family. The owner, in one kind of scenario, might have to confront his spouse's protectiveness of this less-than-adequate son or daughter. In employing relatives who are not functioning, the family owned business is being used as a therapeutic community, thereby delaying the inevitable reality check this person has avoided. It does keep the underlying problem under wraps -- it does nothing but harm the business, discourage employees, anger the future care-takers of the business, and delay problem resolution.

Before a reader criticizes my approach as heartless, consider whether the protected relative knows that he is being protected, how he feels about it especially in light of everyone at the office or plant also knowing, and what this does to him psychologically.

To "preserve" the family, I have seen owners with competitive ambitious offspring unnecessarily buy additional businesses to keep everyone happy, leave the top decision-making position open by design, split up the business so everyone can have their own piece -- everything but face the consequences of asking, "What's best for the business?" If what's best for the business means alienating a son or daughter, then that could become the basis of renegotiating a relationship previously built on threat ("If I'm not considered as President, you and Mom will never see your grandchild ever again!") or worse.

THE IMPARTIALITY OF IN-LAWS

Another myth is the impartiality of in-laws employed in the business. If the business culture supports merit and well-founded decisions, then the in-law's status doesn't grant her any more supposed impartiality than that of a blood relative. When conflict or its mirror-opposite soulmate, rigidity, characterizes the family business, I have not seen an in-law be able to maintain an impartial stance. Even the in-law's possession and judicious exercise of certain expertise or skills that the business might require would not guarantee impartiality.

Under benign conditions, in-laws often fill the roles of peace-maker, savior, judge, jury, or a simultaneous concatenation of prosecuting and defense lawyer. Under more negative auspices in-laws have functioned as either scapegoats or objects of pity who need a job to support the owners' daughters. In none of these roles can an in-law act as an impartial observer.

If truly impartial, the in-law would stay out of all and any decision-making that breathes of conflict, thereby either taking everybody's or nobody's side. Since this is an impossibility and his voice would be one more added to those being heard, there will be attempts to seduce or persuade him, just as if he were a "regular" family member.

If they take a position independent of everyone else and their position is typically accepted, they assume the powerful role of leader. Several eventualities can occur.

The conflicted family can feel relief that the deadlock has been broken and tend to look to her for such leadership in the future. This can, however, lead to an in-law's investment in the continued conflictual situation in the family: this guarantees the in-law's leadership position.

If they select a position that happens to favor one party, the others can grow resentful and suspicious of their intentions. Being human, they frequently respond in kind and off to the races they go.

We won't even consider the influence of the blood relative (the spouse of the in-law who may be a son or daughter) on the so-called impartiality of the in-law. This would require an article all unto itself.

In my experience the in-law's impartiality comes about when the business is treated as a business and contributions are evaluated on the basis of merit. But, then, everyone's say is treated as impartial and no special merit is given the in-law's point of view just because of her status as an in-law.

This is not to say that an in-law's contribution to the business cannot be estimable and significant, leading to her successful selection as president. Only that the myth is that the in-law, by definition, is impartial.

THE MYTH OF BETTER TIMES AHEAD

"When I take over, everything will be different" and "The business failed because the son just didn't have what the father had" underscore a common theme: that the future of the business after succession can ignore the precedents set during the tenure of the previous owner/founder. In both instances the successor has to deal with hangovers -- the inherited partner (e.g., father's brother) who just draws a salary; the fact that capital investment in new equipment had not been made; strategic directions along which the firm had been committed; employees' memories of the "Old Man" who has become mythologized. The list of hangovers is endless. Dealing with this transition period is made even more difficult when the founder is still in the picture albeit in the background.

The business failures that have occurred under the new regime during and after this transition period is frequently attributed to the heir's lack of skills. In some cases this may be so, but, then, in these very cases the founder's failure to correctly evaluated and assess his successor is another hangover; it may well be indicative of issues the founder thought best to leave unaddressed.

In other situations the burden of the past and the psychological debt the successor feels towards the past prove too heavy for the business, notwithstanding the heir's abilities and skills. The business may have been financially too entrenched in one path to have had the resources to find in time another strategic direction.

When a business fails during the reign of a successor, I have usually found that the "cause" was a failure of the generations to discuss, much less agree, on direction, strategy, goals and vision of the future. Succession was often abrupt; training for succession was lacking; management was not prepared over time for succession. It was not simply and only the successor's fault for the business failure.