Widows who become pilots without ever flying

Many founders still leave control of the business to Mom. The result is often tragic.

By Léon Danco

Virtually an entire generation of business founders made the same mistake: Dad wanted to make sure that after he was gone Mom didn’t have to take in laundry in order to support herself. Since his only cash flow came from the business, his estate plan left the family company to Mom.

What usually followed in these cases was unmitigated disaster. Unless she had been a true working partner with Dad, Mom was no more equipped to make good business decisions than she was to pilot a 747. Instead, Mom, who was usually in her 50s, 60s, or 70s, tended to run the company as a living memorial to Dad. Nothing was to change—nothing.

In addition to operating problems, Dad often left the issue of squabbling siblings in her lap. And Mom was even less able than Dad—and less willing—to promote one of her offspring over another to lead the company. The net result was that all decisions were made “by consensus.” With unanimity the order of the day, any intransigent minority had the power of veto, leading to even more compromise and stalling and squabbling.

I have, of course, known some noteworthy exceptions, widows who with scant training have risen to the challenge and run the family company exceptionally well. These women have gained the respect of supportive employees and great advisors; they have created an outside board to ensure the professionalism of their actions.

But, sad to relate, in most other cases, the business went downhill. Self-seeking managers stepped into the leadership vacuum and did end runs around the widow. Without the restraining hand of Dad, the kids’ fights became worse than ever and the family’s energies went into defensive feuding. And if the business had been put in trust, with Mom and the lawyer voting the stock, the widow wouldn’t make a move without asking the lawyer first—regardless of his business competence.

We are talking here about the old-fashioned spouse, the wife who had spent the bulk of her life at home. These women played a critical role in teaching their children right from wrong and freeing Ol’ Dad from familial cares so that he could devote himself to building the business. But they were mostly naive about business affairs.

I have long made it a practice of bringing these non-participating wives into my counseling sessions with their business-owner husbands. Why? Because I didn’t want them shooting holes in what I was trying to tell their husbands without hearing the reasons behind it directly from me.

Traditional wives were often suspicious of my advice at first. While their husbands had to learn to move with the times or else lose their businesses, these women tended to be defenders of the status quo and inflexible when it came to their roles or their children. They would be appalled, for example, when I advocated setting up a board with a majority of outsiders on it, fearing that these strangers would pry into the firm’s dark secrets—who got paid for what, the country club memberships, the relatives on the payroll, and all that “private stuff.”

I tripled my success rate with family businesses by bringing the wives into my discussions, and when the sessions were over my reward was often a hug. The women appreciated my openness and candor, too often lacking all around them in the family.

There were, of course, many kinds of spouses in the old days—competent and incompetent, interested in the business and uninterested. But there were a lot of naive Moms left holding the bag, and there still are. Today, of course, there are many exceedingly competent and well-trained wives and daughters who are as capable of running the business as their spouses.

Good business decisions require a toughness and a different set of skills from those of a loving parent. It’s not a gender issue. The principle is the same whether the founder is a woman or a man. The entrepreneurial woman who runs a successful business would be equally foolish to leave it to a husband who has been a schoolteacher or an artist all his life.

The problem of the naive spouse is compounded in later generations when multiple siblings and in-laws compete for positions and rewards. Many spouses who are outside the business do a good job of preparing their children to collaborate and make a contribution to the business they inherit. But, driven by a sense of entitlement, many others foster rivalries and become a destructive force.

Business founders are still making the mistake of leaving everything to Mom—regardless of circumstances. Even those who are determined to avoid the pitfalls make mistakes, however, and frequently it is simply because they fail to keep their estate plans up to date.

For example, two men I know who are partners had early on set up plans leaving half of the business to each of their wives. Later, to avoid inflicting a naive spouse on the other partner after death, they set up a buy-sell agreement that would enable each to buy out the other’s widow.

But the estate plans had been set up years ago. In the meantime, the son of one partner has moved up to a senior position. Now in his 40s, competent and motivated, he is the likely successor. But if his father were to die before updating his estate plan to take account of these new circumstances, this son would be disenfranchised and cashed out. The widow would have been obligated to sell to the partner under an outdated plan.

There are many ways to provide income for a non-participating spouse after your demise—life insurance, annuities, convertible debentures. If the kids aren’t old enough to take over the business, leaving it to Mom can sometimes work as an interim arrangement. But be sure she has supportive managers and advisors along with a board of experienced outsiders to guide her.

And if Mom is willing to learn more about the business, by all means give her the opportunity. Next time you attend your association meeting together, encourage her to attend the sessions on business issues rather than being sidelined with the course on Polynesian Cooking or taking the tour of the “Old Town.”


LŽon Danco is the founder of the Center for Family Business in Cleveland and the author of four books on family business.