I’ll bet you meet a lot of family businesses where the adult children were born with a silver spoon in their mouth.
I hear that conclusion expressed a lot in my consulting work, but I don’t see it very much. Recently, however, I did have a situation where it was true.
Thirty years ago, Don and Mary Rogers (not their real names) founded a small manufacturing plant in rural Minnesota. They labored side-by-side and over the years slowly grew their business. When I was asked to get involved as an adviser, the company was generating $8 million in revenue with $600,000 in annual profit. From a business perspective, the company was poised to grow.
By then, Don and Mary’s adult children, their spouses, and even some of their grandchildren worked for the company. Some were more engaged than others. When Don and Mary retired, the cracks began to show.
Their son, Richard, provided the technical expertise that Don had furnished before retiring. But Richard’s work attendance was spotty—he came and went as he pleased.
Their daughter, Therese, also was employed in the company, along with her husband, Sonny. He drew a full salary but was often missing from work.
Poor communication and unclear expectations often exacerbate generational tensions in family businesses.
Therese and Sonny’s three adult children (Don and Mary’s grandchildren) worked at the company as well. Jeff, in particular, continued the family habit of poor work attendance. No one in the family was held accountable.
After their retirement, Don and Mary wintered in Arizona as their adult children and grandchildren continued to work in the family’s business. Sadly, Don died three years ago. Mary hired a non-family president, Ken, to run the company. Then Therese announced that it was “too difficult for Mother to spend winters alone in Arizona.” She would spend the winter with her mother and keep receiving paychecks even when she was away in Arizona.
At this point I was hired to address tensions between Therese and Mary over their differing perceptions about the business and family member accountability. Those tensions were exacerbated by their poor communication styles and inability to articulate their expectations for their roles in both the family and business. Then I began to uncover the many dysfunctions caused by these “silver spoon” expectations.
Ken, the non-family president, was in a tough spot. He didn’t have an employment agreement with the company. He was wary of holding family members accountable, and didn’t want to fall victim to family politics. Mary was fearful of upsetting the family, so she didn’t hold her family members responsible for their actions.
Fortunately, Mary had done some estate planning. She had gifted 22 percent shares of the company stock to Therese and Richard. The plan was that when Mary died, each of her adult children would split the remaining stock and have control of the company. There were many moving parts, many individuals with different needs and concerns. I knew that it was critical to address the adult children’s work-related issues without causing even more friction in the family.
I helped Mary develop a plan that worked for everyone. It unfolded in thoughtful, sequential steps.
Fortify Ken’s position as president. I asked Mary to work with her attorney to create an employment agreement for Ken. Once Ken had the security of the agreement, he could hold the family members accountable for their performance.
Establish a board of directors with outside advisory members. As in many family businesses, Don and Mary’s BOD was not active. I worked with Mary to prepare a prospectus for the board, and we recruited three highly qualified professionals who added value to the company.
Create a compensation plan for Ken. One of the board’s first acts was to create a compensation committee and establish a compensation package. It was designed to benefit both Ken and the company.
Tie Ken’s compensation plan to rewards for contributing to the company’s success. Ken, as president, was eager to create a business plan. I suggested he use the PerfectBiz- Match.com survey as our initial resource. The company worked with the vendor to complete a business strategy that included a sales and marketing plan.
Create a family participation plan. As a part of the process, Ken, the adult children and I worked together to establish ground rules for family members working in the company. (Eventually, grandson Jeff decided to leave and go into business with his wife.)
Put remaining stock in a trust for the adult children and grandchildren. This last recommendation was challenging for Mary. I asked her to work with her attorney to establish this trust. She and Don had always wanted to leave the company to their adult children and the idea of not doing that was, at first, difficult for her to accept. After several discussions with Mary, she accepted the fact that her two adult children were acting too entitled and if they had control, would run the company into the ground. So Mary worked with her attorney to create a trust for the benefit of her family.
Once the plan was implemented, Mary returned to Arizona for the winter relieved and confident. She knew that the legacy she and Don had created was protected to benefit the employees, the community and ultimately, her family.
Tom Hubler (firstname.lastname@example.org) is president of Hubler for Business Families, a family business consulting firm.