In this issue
Barbara Fredericks, CEO of a chain of small department stores in the suburbs of Seattle, has been informed by her accountant that $50,000 will be available from last year’s pre-tax profits to be distributed as bonuses. Barbara, who took charge of the business after her father’s death in 1988, has to decide how to divide the bonus pot among herself and her five siblings, all shareholders who work in the business.
For all the lip service given to the importance of trust, it is still a relatively scarce commodity in family businesses. By trust, I mean the certainty, confidence, or faith that someone we depend upon will act in ways that benefit us and will refrain from acting in ways that bring us harm. Trust is not created by talking about it. It depends on behavior; it’s what we do, not what we say, that makes a difference.
We all recognize the kinds of behavior that sow distrust in a family business:
My mother was a High. That meant something in Tallapoosa County, Alabama. It meant that you owned land. Good, rich, red dirt that yielded lots of cotton. Of the 1,200 acres that comprised the High farm, approximately half—the superior parcel—was accumulated by my grandfather, Poppa High, during the Great Depression. His five dark Irish daughters, including my mother, grew up there, and as adults steadfastly gathered the family clan on the farm every year. His only son, Robert High Jr. (my Uncle Robert), was always present but kept his distance.
The Taxpayer Relief Act of 1997 represents Congress’s first tentative step toward accomplishing true estate tax reform. The Act will provide relief for some family businesses, potentially saving a married couple’s heirs up to $761,000 in estate taxes. But the complex requirements for the exclusion will prevent many businesses from qualifying. While many Congressional Republicans favored estate tax reform and even outright repeal in the debate over the budget bill, most Democrats were opposed to significant reductions.