March/April 2013 Toolbox
Tips for sibling business partners
Siblings and the Family Business
By Stephanie Brun de Pontet, Craig E. Aronoff, Drew S. Mendoza and John L. Ward
Palgrave Macmillan, 2012 • 105 pp. • $23
The transition of a family business from the founder to the second generation is fraught with complications. The potential for sibling rivalry is the most obvious, but there are others. The growth (and thus the increasing complexity) of the business poses challenges; so does the need to shift from an authoritarian to a more collaborative management style when more stakeholders are involved.
Indeed, note the authors of Siblings and the Family Business, “there is nothing natural or automatic about the process [of transition from the first to second generation]. Rather, it requires a great deal of effort and planning on the part of all involved.”
This is a slim volume, but the authors—all from the Family Business Consulting Group—pack a lot of valuable information into their little book. Siblings and the Family Business suggests structures, policies and procedures that can help ensure a smooth first-to-second-generation transition. The book also describes where the process can go wrong, and why.
Included are suggested actions that parents, spouses and the siblings themselves can take to support the sibling partnership, as well as other practical “how-to” advice. Drawing from their research and their consulting experience, Stephanie Brun de Pontet and her coauthors devote chapters to “why this transition is so hard” and “sticky issues and predictable bumps in the road.”
The authors offer advice on discussing touchy situations. “Words and behavior used while addressing a problem will long be remembered,” they warn.
Siblings should celebrate their differences because diversity strengthens a team, Brun de Pontet and colleagues advise. They note, for example, that “while the sibling team that is entirely focused on cautious growth may agree more quickly on strategy, a sibling team with a balance of aggressive and cautious temperaments may strike the right balance of reaching for opportunities without taking excessive risks.”
The book presents tips on how to strengthen bonds between siblings who are active in the business and those who own shares but don’t work for the family firm. Prenuptial agreements are addressed, as are strategies for welcoming spouses into the family (and taking steps to prevent the in-laws from driving a wedge between sibling partners).
The authors also discuss the all-too-common scenarios of the founder who won’t let go and the patriarch or matriarch who resists the next-generation members’ efforts to implement change.
One of the keys to a successful sibling partnership, Brun de Pontet and coauthors note, is articulating a shared purpose and developing mission, vision and values statements. “The success of the sibling generation,” they write, “depends on the team’s ability to focus on something larger than the concerns of each sibling, such as the good of the business or the family or their mission.”
An introduction to family business from an academic perspective
Understanding the Family Business
By Keanon J. Alderson
Business Expert Press, 2011 • 133 pp. • $29.95
Also available as an e-book
The academic community has been investigating family enterprise since the 1980s. The findings of these studies can help family business owners address the challenges they face each day. But few business owners have the time or inclination to wade through research journal jargon in hopes of uncovering a practical tidbit or two.
In Understanding the Family Business, Keanon Alderson, a business school professor at California Baptist University in Riverside, aims to introduce readers to academic work in the field and demonstrate how the research and theories can be applied to real-world family business situations. Among the topics addressed are how family businesses differ from non-family firms, generational differences and governance structures.
Studies discussed in the book include Renato Tagiuri and John Davis’s classic “three-circle” model (representing family membership, business ownership and business management) and Managing for the Long Run, Danny Miller and Isabelle LeBreton-Miller’s examination of large, long-enduring family firms. Alderson also presents his own research on decision making in the family business.
Appendices include a glossary and a list of questions for families to consider (examples: “Are there policies for family members to join or exit the business?” “Is the compensation system based on market value?” “Is the business financially healthy?”).
In his preface, Alderson describes his experience as a 17-year employee of his family’s manufacturing and distribution business. The company experienced rapid growth in the 1970s and 1980s but experienced a decline after the loss of its largest customer in the late ’80s. After building sales back up to their previous level, the family sold the company. The author notes that his family, who were not aware of the existence of family business consultants, could have benefited from professional advice.
The book is especially helpful in describing the issues confronted by family businesses in the second generation. Many of the problems stem from the contrast between a founding entrepreneur’s authoritative decision-making style and the consultative style that’s required in the second generation, when both the business (departmental managers) and the family (sibling partners) have grown. Because decision making has been Alderson’s research focus, he offers valuable insights here.
Understanding the Family Business has a drawback, however: A couple of the studies Alderson cites are outdated. For example, the author frequently references the 2002 American Family Business Survey, conducted by MassMutual and the now-defunct Raymond Institute. He doesn’t mention an update to the survey that was conducted in 2007 and released under the auspices of MassMutual, Kennesaw State University’s Coles College of Business and the Family Firm Institute.
Disturbingly, in citing the 2002 American Family Business Survey, Alderson refers to the “$10,000 gift exclusion.” Under the federal estate and gift tax law, the annual gift tax exclusion—the amount that taxpayers can give as a gift per recipient without federal tax consequences—was raised from $10,000 to $11,000 in 2002, to $12,000 in 2006 and to $13,000 in 2009. This year, the exclusion rises to $14,000.
Alderson’s book, weighing in at less than 150 pages, is an easy read for business owners who are unaware of academic work in the field. Readers should be aware, however, of the existence of newer studies that measure family business owners’ views and actions in this current climate of economic uncertainty.
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