In this issue
I often refer to myself as the “illegitimate” third generation of Ostbye & Anderson, the Minneapolis jewelry manufacturer founded by my wife’s family in 1920. My father-in-law never liked being a part of the company and discouraged me from joining. Yet after 12 years in other jobs and industries, I brought my experience and skills into the family business in 1978.
The family tree today looks much different than it did 50 years ago. Divorce and remarriage have caused new branches to take root and extend in different directions. Stepchildren are everywhere!
In family-owned businesses, what constitutes a risk management plan? Astute executive teams plan a response to disasters that might impede business continuity. Yet interestingly, most risk management plans fail to incorporate one issue that can have dire consequences for any family-owned business: the estate plans of the family owners themselves.
“The first generation builds the business, the second expands it and the third destroys it.” It is a universally acknowledged phenomenon that few family-owned businesses survive beyond the third generation. While most business owners are highly successful in building and managing their companies, they are often less successful when it comes to transitioning their enterprises from one generation to the next.
Estate tax “freeze” techniques offer great flexibility for the senior generation to protect and oversee business operations as the younger generation eases into operational control. The owner of a successful family business can use these techniques to transfer appreciating assets to the next generation or to key employees.
As families and their businesses grow over multiple generations, the number of individuals involved in a family business naturally increases, family members’ expectations regarding the business may diverge and related conflicts may arise. An important way to manage and deal with these types of contingencies is by creating a document commonly called a Family Business Constitution.
You know it and, even worse, your staff knew it first. One of your family members is just not making the grade in your company. Other relatives had touted your brother-in-law’s daughter as the ideal candidate for an opening in the firm. And she had always seemed like a bright and capable young woman.
Relatives can work out well in key positions when they’re placed in roles that suit their skills. But when a family member is not cutting it, senior management may have to make a sensitive decision.
Where did this go wrong?
At an intersection near Everglades National Park in Florida City, Fla., a large sign atop a farm stand proclaims, “Robert Is Here.”
Fifty-two years ago, Robert Moehling, age six, was instructed by his father to sell the family farm’s cucumbers at a roadside stand. No one stopped.
His father figured drivers couldn’t see the young boy, so he painted a sign with “Robert Is Here” in large red letters. The next day, the youngster sold all of the cucumbers.