When the 'hard side' meets the 'soft side'

By Barbara Spector

In the family business world, issues tend to be divided into those requiring “hard side” expertise (such as investing, tax planning and legal compliance) and those necessitating “soft side” competencies (like family meeting facilitation, leadership coaching and conflict resolution).

In an environment where love and money intersect on a daily basis, this dichotomy is unhelpful. For example, financial issues must be explained in a way that family members will understand, and family values around inclusiveness determine who may own shares in the business.

In this edition, we address two “hard side” areas that require “soft side” sensitivities: debt and valuation. If you don’t look up from your spreadsheet and note the expressions on your family members’ faces, you’re setting yourself up for an argument, or maybe worse.

Here are some questions that straddle the lines between “hard side” and “soft side”:

• Does your family reject debt out of hand because the business founder never borrowed (or because a previous generation borrowed too much)? Is an inherited fear of debt holding you back from an expansion that could boost profitability?

• Has your ownership group developed a policy on how much debt the family is comfortable with?

• Has your ownership group reached consensus on the option of taking on a private equity investor or other partner in lieu of borrowing?

• Are your family members taking too much cash from the business for perks like cars, fancy meals or short business trips that turn into long vacations?

• Does your business have an independent board that can help you sort out questions related to debt, risk and cash management?

• Are dividends or other liquidity options available to family members so they have a means to obtain cash and realize a return on their investment in the family business?

• If a family shareholder wanted to cash out, would the business leaders view this as a slap in the face or an individual making a financial decision in their best interest?

• Does your shareholder agreement spell out how the value of an owner’s shares would be calculated upon exit?

• If there are wealth discrepancies among households, has your family come to terms with the difference between what is “fair” and what is “equal”?

• Have you developed a mission statement for the family’s collective wealth, based on your shared family values?

• How are you teaching your NextGens about ownership, management and stewardship?

Wealth and assets are emotionally charged issues. Having clear policies created through a consensus-driven process — before they are needed — will help your family prevent or manage conflict when money questions are raised. You may need the help of both “hard side” and “soft side” consultants to help you navigate around minefields.

The questions raised here are challenging ones, with implications for the future of the business and the family (individually and collectively). They will take time to sort out. But if family members believe the process of addressing them was fair, they will likely be comfortable with the result.

Copyright 2019 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permission from the publisher. For reprint information, contact bwenger@familybusinessmagazine.com.

Article categories: 
Issue: 
July/August 2019

OTHER RELATED ARTICLES

  • A higher calling

    The year was 1982. After an antitrust lawsuit that had dragged on for eight years, the U.S. Department of Justice mandated that AT&T Corp. end its vertically integrated monopoly on telephone se...

  • The pros and cons of debt

    For many family business owners, debt is a four-letter word that’s synonymous with risk, vulnerability and outside control.

    Take Gregory Pettinaro, managing partner of Pettinaro Enterprises...

  • Valuation: A worthy cause

    Most multigenerational family companies eventually will buy out a family shareholder, or at least redeem some stock held by a family member. Sometimes it’s the culmination of a planned transition...

  • Survey results offer insights on competitiveness

    How important is talent management to family businesses? It’s a major, pressing concern, according to a new survey of U.S. family business leaders by global professional services firm PwC. The pe...