"I built this company into what it is today,” a new client lamented in our second face-to-face meeting.  This guy was the second oldest sibling (and brother) among four children and a second-generation member of the family business. He was clearly frustrated and disappointed to learn that unexpected proceeds from the sale of a family asset would be enriching family members who’d simply won the genetic lottery.  Frankly, I didn’t blame him. But doesn’t this happen all the time? One (or more) family members who are responsible for creating more value than other(s) don’t get “fairly” rewarded for their blood, sweat and tears?

The answer is yes. This happens all the time.  Ownership of family assets, whether from operating businesses, partnership interest or wholly owned assets are generally allocated based on family relationship dynamics—not necessarily a family member’s contributions to creating value within an asset(s).  Whether it is money from the sale of an asset or the regular earnings from a company, family members go bonkers when one of two things happens: 1) their lifestyle is disrupted or, 2) they perceive unfairness in the distribution of money. 

To help overcome the common “That’s Not Fair” syndrome, I’ve found these philosophies to be particularly effective:

Wealth is a gift; not an entitlement This sentiment is more of a value that I encourage families to embrace and champion through the generations. It creates the opportunity for all family members to learn about the journey of previous generations - the origins of the family's success, and how wealth was created, passed down and why.

Family business love letters Uncle Bill and Aunt Janet's knock-down, drag-out argument over the value of a property Aunt Janet wanted to buy from the Trust resulted in an amended operating agreement. The legal document provides the rules, but what’s important is the intent behind the document—the story. Write that story within a letter to accompany legal documents that explains the history and the circumstances behind the operating agreement.

1)    Align compensation with the market and reward performance and above all, reward performance. Ownership is oftentimes the result of family relationship, so performance compensation should directly reflect the responsibility of the family member and their performance results.

2)    Avoid Regretful Giver Syndrome - by my own definition, a Regretful Giver is someone who gives and gives of themselves only to realize at the most inopportune time (suchh as proceeds from the sale of a business being distributed) that they’d like to make up for what they’ve sacrificed for the family’s sake.  With this common affliction, family members who rise to leadership ranks can become so committed to the family that they leave their own wellbeing to the wayside. Having the proper compensation and incentive plan ensures that no family member becomes a Regretful Giver.

3)    Host family meetings with performance reports - by far, the biggest reason that families end up in dispute is that something unexpected happens—good or bad. Meeting regularly and reporting on the performance of assets ensures everyone’s understanding. This is a good time to have fun with “what-if” scenarios that contemplate a disruptive transaction.

4)    Employ family members with purpose - hire family members who have a purpose and have a purpose for the family members you hire. 

As my dad used to say “life is not fair,” but we can strive for harmony in the family business, and set families up to never experience a lifestyle disruption, nor to believe that an unjust enrichment has occurred. This, of course, requires setting things up the right way in the first place, or proactively implementing some of these recommendations. Bet you thought that guy who said “I built this company into what it is today” was the greedy, regretful giver. Turns out, he was one of the good ones and his family continues to co-invest with each other today in harmony.

J. Kevin Heaton is a principal of i3 in Columbia, SC