Is the Desire to Leave Your Business to Your Family Dividing Or Unifying the Family?

Private business owners frequently have a strong desire to see their business legacy carried on by their families. Often this desire to pass the business to another generation brings out conflicts, stress and dissension among family members.

How Deep Are The Causes Of  Family Conflict

Frequently, conflict results from confusion among family members as to the rights, responsibilities and limitations of their particular roles within the family business structure. Without a clear understanding of one’s proper role within a business misunderstanding can easily occur. One solution is to formalize corporate governance.

A Case Study

One client of The Podolny Group wished to pass on his business to his three children. Each of these children had a different involvement with the business. One was the chief operating officer and the heir apparent to the father as CEO. One was involved as a bookkeeper in the accounting department. The third was not active in the business. There was considerable stress and conflict between the first two to the extent that the father was considering selling the business to a third party rather than pass it on to them. The child in the accounting department felt she was being excluded from the company’s decision making process. The crux of the conflict revolved around a feeling by the second child that the first child was treating her as an inferior.

Using Education To Defuse The Conflict

The Podolny Group was able to defuse this situation by educating the family about the different roles that they were filling. The roles of shareholders, directors, officers, managers and employees were discussed. A clear explanation of how each role interacted was given with clear descriptions of accountability and limits. Particular attention was paid to the aspects of holding multiple roles.

With this education, the children were able to take the personality issues out of the equation. This was followed up with a formalization of the positions including using a Shareholder’s Agreement, an Employment Agreement for the managing child and Job Descriptions for all employees including the second child. The result was a successful transfer to second generation ownership.

Conclusion
Family businesses can decrease the stress of conflict and increase the likelihood of fruitful succession by making use of a more formal approach to corporate governance.

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Posted in Blog, Exit/Succession