Not long ago I had dinner with a family that ran amanufacturing company. We discussed the future of the family business. "Everything is fine," thefather, who is in his late 40s, said about the business, "except for those damned estate taxes."
Now when I get involved as an advisor to a family business, it is never just because of taxes. Taxesmay be one issue, but they are seldom the major issue. This particular company had grown significantlyduring the last decade, and the founder's tax liability had grown along with it. But unlike manybusiness owners, the father was not steadfastly resisting the tax strategies available to him: He hadconsulted with some talented tax advisors, and was considering an ESOP. So I waited to see what wasreally on his mind.
The next morning, in our private conversation, he dropped the bombshell: His oldest son and onlysuccessor was not, in his opinion, capable of running the company.
This son has worked in the business for 18 years. He had every expectation of taking it over in thenear future, but he had no idea that his father thought he was not competent. Dad, of course, didn'twant to tell him.
People who invest in real estate say the key is "location, location, location." The key to success inmaintaining a family business is "communication, communication, communication." Yet many familiesnever get to first base in addressing communications issues, even those that realize how important itis to the outcome of the game.
I once gave a talk on communication to a group of family business owners. Later, at lunch, I asked onefather if his son would enter the business. He replied, "His mother tells me he wants to." So much forcommunication.
What are the obstacles to communication in families? One big one is hidden agendas. In the scenario Ibegan with, the fathers hidden agenda may be that he has no intention of ever letting go. But theson's failure to confront his father on the succession issue may result from a hidden agenda, too. Itmay be that he really doesn't care for the responsibilities of leadership, but he doesn't have thecourage to say so.
A second block to communication results from waiting too long to address the issues. With the passageof time, small silences can grow into a mountain of guilt and rationalization. On the one hand, thefather may be thinking, "I should have dealt with this years ago, and I have let it go too long. Now Iam too embarrassed to deal with it." On the other hand, the son may be thinking that, absent any wordto the contrary from Dad, his entitlement to the top job grows with every passing day.
A third and critical block is the feeling that the issues are so highly emotional that they seem topreclude any rational discussion. When a son has invested 18 years of his life in the hope ofeventually running a business, any talk of succession with his father is bound to be powerfullycharged for both.
Real communication has an element of vulnerability to it. So if the son goes to Dad and tells himabout his concerns for the future, he may hear something he doesn't want to hear. Yet it is far morerisky to the relationship and to the son's future to let issues fester.
Questions about the competence of children pose some of the greatest challenges to familycommunication. For a while, parents can rationalize away doubts about competence as "a maturityproblem," "an attitude problem," or "the influence of his friends." By the time children reach 30,however, parents should know whether their offspring have what it takes or not. If the parents don'tknow, the children have to be tested; they should be given more responsibility, and the chance tofail. Parents need to stop rescuing children. The children have to be subject to serious evaluation byoutsiders managers and personnel experts who can give them objective feedback. The next 10 years arecritical in a young adult's life. Without good communication in the family, members of the nextgeneration may hang on to illusions about their future in the business.
The father and son in my example have a lot of work to do. Ten years ago Dad probably could have easedhis son out of the business without causing an uproar in the family. That would have made it possibleto prepare a professional manager to run the company when father was ready to retire. Now it is toolate. The son has few career alternatives. Because Dad has not dealt with the issue for so long, hehas lost a lot of his moral authority. He knows it and feels powerless.
The father has to separate issues of authority in the business from the son's need to save face. Hehas to find a way of giving authority to those who are most able to provide competent leadership,while leaving his son with an adequate measure of self-esteem. Perhaps the son could be put in chargeof a smaller entity such as one plant, for example. Or he could have a seat on the board and continueto draw a good salary, while professional nonfamily managers run the company.
Both father and son have to look for win-win alternatives that can extricate them from the dilemmathat has led to mutual avoidance of the issues.
The situation demands an enormous amount of communication, patient problem solving, and compassion.Sadly, such qualities are frequently beyond the emotional resources of some families. The leader thenfaces the awful choice of saving the business or the relationship.
A few rules that might help improve communication:
The sun should never set on an emotionally significant issue within the familythat remains unresolved. Avoid letting issues fester until they get too hot to handle.
Find the right time and place to talk seriously. Avoid the interruptions atwork.
Before opening your mouth, clarify in your mind what you want and what is fair toother family members. Be sure about the principles you want to adhere to.
Seek objective advice on your own possible hidden agendas, and on the best way toframe the issues. Once the issues are on the table, look for alternative win-win solutions thataddress both business and family needs and promise a way out of the dilemma.
Family members should agree on what will be expected of successors-to-be, and onmeasures to determine whether those expectations are being met. Potential successors should be givenfrequent feedback.
Before assigning blame for something, ask yourself what you contribute to theproblem. Remember that the person you have the most power to change is yourself.
Keep the discussions moving forward. Be willing to negotiate. Remember that otherfamily members may not be ready to hear you. It may take years for them to unfreeze. Stick with it.Build goodwill through your openness.
Peter Davis is Family BusinessŐs chief advisor and the founder of the Division of Family BusinessStudies at the Wharton School.