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Deep-seated issues can complicate running a family business

By Susan Yellin | March 24 2017 07:00AM

Photo: Freepik

The unique realm of family business is often represented by a Venn diagram consisting of three overlapping circles: business, family and ownership. Problems and potentially extreme conflict can take place when those circles intersect: siblings may no longer speak to each other, employees are confused as to who is the “real” boss and the founders may decide to sell rather than cause the company irreparable harm with the constant bickering and turmoil.

It’s family conflict situations like these that make up the bulk of Phil Kriszenfeld’s cases. Recently, for example, the family enterprise advisor and mediator received a call from the founding parents of a company concerned about their three sons who are in the business. Son #1 is firmly committed to the company, loves learning about the business and works tirelessly. Sons #2 and #3 aren’t as attached, but they stick around because they have no ambition to do anything else and the money is good. One of them, says Kriszenfeld, is unrealistic in that he thinks he is running the company even though he has a position that at most can be considered middle management.

“The parents have never put them in their place,” says Kriszenfeld, who is president of Transitions Mediation and Consulting Group. “Their roles have never been defined and the conflict between the boys is immense and they have no idea how to deal with it. The father’s way of dealing with it is avoidance.”

Kriszenfeld stepped in and discovered that one of the sons actually wanted to leave the business and has started a new career elsewhere. But Son #3 has dug in his heels and refuses to leave, increasing the resentment between him and his remaining brother.

Gaining trust

When he first started with the family, Kriszenfeld’s first task was to gain trust among the family members by sitting down with them separately and then together, getting to the heart of the problem.

Oftentimes in many families, there are deep-seated issues that have never been addressed: they work together but never discuss what’s bothering them. “It’s like releasing the pressure on a radiator – it’s going to build and build until it blows. These clients are the ones I have as a result of the radiator blowing up.”

While numbers vary slightly, most agree that only about 30% of all family-owned businesses survive into the second generation and only 12% move on into the third generation. Issues dealing with family dynamics – from communication to succession planning – are the cited as some of the reasons behind these statistics.

A survey released by PwC last year, of 268 next generation family members likely to take over the family business, shows how large a role family dynamics play in the family business.

The survey, conducted in 31 countries, indicates that 88 per cent felt being a family member means the adult child has to work harder to prove himself and 31 per cent agreed they have not been given a clear path to running all or part of the business. On the positive side, about half said they were not given any preferential treatment because they were family members and 65 per cent said they had been properly appraised even though they were a family member.

The survey also showed that almost 70% of those questioned agreed it can be difficult to separate home and office when working for a family business.

That’s something that Paul Coleman worked hard at dealing with when he joined his father’s sole proprietorship prior to taking over the company.

“When I was at the office I really didn’t want to talk about what happened at Sunday supper. It should not have entered into the conversation at the office,” says Coleman, whose firm later merged into what has become Grant Thornton LLP.

“Similarly, at Sunday supper I didn’t really want to be talking about business issues at the table with my siblings and my mother. Yet the orientation of a lot of family businesses is that they co-mingle a lot of those sorts of complications and when it comes to making decisions they have the paradox of family businesses.”

Reinvesting wealth

Coleman, who currently works on both the financial and family dynamic sides of family businesses, says complications can arise when the owners must decide whether to reinvest wealth back into the business or give it to the next generation. Buying new equipment may be important to the business, but it might mean no dividends or pay raises, which can affect the family. The situation becomes even more complicated when there are successive generations to take into account.

Not all family businesses have major conflicts – there are others that are more on the pro-active side, says Kriszenfeld. These are generally founding parents who need help mapping out where each of their children best fits in the company. First, adult children should be asked whether they want a spot in their parents’ firm and if so, where their skills are best suited. Key is whether they really want to be in the business, or are just coming in to make their parents happy.

Entrepreneurial drive

“The next generation rarely shares the passion of the entrepreneurial founders,” he says. Kriszenfeld explores whether any of the children have some of the entrepreneurial drive as their parents, what skills are missing if they want to work in the company, and then begins to develop the best way to communicate within the family.

“And that’s the key because the whole shared experience – sharing your thoughts – allows you to adjust and do the things necessary to work towards a successful succession plan.”

Kriszenfeld says it’s easier to dive into the issues among those who are in heavy conflict, discovering what’s at the heart of their pain, and using his conflict resolution skills to “get things unstuck.”

Neutral third-party

The greater the level of conflict, the more time he spends with the family as a whole , helping them understand the conflict and gaining trust, but also allowing the family members to vent. Often, he says, issues get resolved simply by having a neutral third-party there.

Family vs business issues get even more complicated if a family business lasts longer than the second generation. Coleman says he has some clients whose businesses are now owned by cousins who have vastly different beliefs in how much they should be involved in the company and even in the future of direction of the company itself.

“There are lots of examples of very large companies that have failed because when they moved into those third and fourth generations they can’t have consensus,” says Coleman. “Some of the children recognize they have wealth because of their interest in the family business but they really have no interest in doing anything to earn that wealth. They only want to get their cash out.”

Letting go

One of the biggest reasons why family businesses fail is because the older generation can’t let go, says Kriszenfeld. He mentors both generations on this and encourages the current owner to make a decision: either pass on the business or sell it if possible.

If the answer is to hold on to the business, Kriszenfeld says he will continue to meet with the family on a monthly basis and with the aid of some best practices that the family looks to for guidance, the next generation can often succeed.

“As time goes on, the issues get smaller and smaller and that means when the big ones come up they’re comfortable and equipped to have the discussions themselves.”

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