Connect with us

Exit Planning

The Importance of Communication in Family Business Transfers

Published

Screen Shot 2015-10-18 at 9.14.43 AM.png

Another part of your job in creating an owner’s written Road Map is to help the owner communicate his or her plan to all of the stakeholders.  This begins with helping owners (and their spouses) articulate their goals for the business without them and for their future without their businesses.  Once they fully understand each other’s goals and have agreed upon their joint goals, you help them communicate those views to all of their children (both active and not active in the business), and perhaps to other stakeholders (sons- and daughters-in-law, for example).

It is critical that both owners/parents first understand what they need and want from the business, for the business and for their families before diving into family deliberations.  Beth Adamson, Co-Founder of Midwest Family Business Alliance and former director of a family business center (more on centers below), agrees:  “Whether in the home or in the business, it is critical for mom and dad to be on the same page.  I’ve had clients whose adult children do everything they can to make parents choose sides, or try to influence one or the other parent, especially when they see that their parents are not communicating as partners.  It’s one thing to behave this way within the family system, but when it spills over into the business system, it can have a devastating impact.”

One Exit-Planning advisor learned about the importance of this initial communication between the parents the hard way.

My phone rang early on January 2.  It was Frank, an owner who had gifted, with my help, some of his business interest to his son.  His first words were not, “Happy New Year!” but “Undo that gift!”

Six weeks earlier Frank, Sr. (Senior) had given his youngest son, Frank, Jr. (Junior), part of the business interest.  Junior not only ran the business with his dad but had become more important to the company’s success than Senior.  For that reason, Senior had decided to gift a significant part of the very successful business to Junior. 

Senior arrived later on the day he’d called–about 20 minutes early–for a hastily arranged appointment.  Suspecting that Senior might be just a little agitated, I asked, “What has you so upset about the gifting?”

Senior’s answer poured out, “Jean and I had all four kids and 11 grandchildren over to the house for a holiday dinner.  My oldest daughter, Linda, noticed that Junior’s kid had on a pair of red Jordan Super Fly basketball shoes.  You know, the $190-a-pair shoes?”

Before I could answer, Frank went on, “Linda then cornered Jean in the kitchen and told her that her kids couldn’t help clear the table because they were too embarrassed to be seen in their $29 sneakers from Target.  Linda then complained that since Frank Jr. was now earning more than he could ever have hoped to outside the business, ‘This is beyond unfair!'”

Senior continued, “At this point, I walked into the kitchen–now a hornets’ nest of moral outrage.  I was prepared to face the ‘you always liked him best’ routine.  I reminded Linda that I’d offered her (and her sisters) the same opportunity to work in the business, but they’d all chosen different paths.  I told her that her brother was responsible for increasing the value and cash flow of the company–something he’d done working 60 hours a week!”

“That wasn’t good enough for either one of them!” explained Frank.  “Somehow I have not only violated some unspoken Family Code, but now Jean isn’t speaking to me!”

As I listened, I realized that Senior blamed me and expected me to extract him from this mess.  He wanted me to right the ship of marital bliss by ensuring that all his children felt that he treated them equally.

And he was right.  It was my fault–for not requiring that Jean be present at the meeting during which we discussed gifting to Junior.

Frank and his advisor had paved the road to family conflict with good intentions.

A Communication Plan

The communication path that the advisor should have created would not only have avoided problems, but facilitated the entire planning process.  His action list should have included:

  1. Include both parents/spouses in all meetings, especially those dealing with goal creation.  If both parents are not communicating fully and openly, they will never get to the first step of jointly agreeing on their Exit Planning goals.
  2. Facilitate the planning meeting by asking the “questions behind the question.”  If the active owner–in our example Frank–expresses that he’d like to “get out of the business in five years,” the advisor’s role is to probe further:  does Frank want to retire completely?  Transfer the entire business by then?  Or begin to transfer the business by then?
  3. Listen carefully to Jean (Frank’s wife).  If this transfer is to be successful, her feelings also need to be heard.
     

In short, the advisor’s role in the preliminary meetings is to facilitate communication between the spouses so that both understand each other’s goals. 

When it relates to setting goals, we suggest that advisors discuss all possible goals with both parents/spouses/owners.  The purpose is to uncover other goals the owners have that they didn’t know they had.  You would be surprised how many owners don’t know what they don’t know simply because they haven’t been exposed to the wide variety of possible goals.

A quote attributed to Henry Ford expresses this situation well, “If I had asked people what they wanted, they would have said faster horses.”  It’s up to you to ask the probing questions.  For example, Frank’s (and Jean’s) Exit Planning advisor should have asked, “Do you have any thoughts about the future conduct of the business when you are no longer running or owning it?  For example, is it important that the business…stay in your community…maintain your legacy of hiring war veterans..etc.?”

Family Business Centers

We further suggest to advisors who work with family businesses that they develop a deeper understanding of communication topics, issues and resolutions through interaction with their local or regional family business centers. Attend a meeting. You’ll quickly meet other advisors whose practice is centered on facilitating communication among family members as well as a host of other specialized family business advisors.

If you would like help in locating such a center (most are affiliated with universities), please email us and we’ll help.

Beth Adamson lists three benefits of these centers to owners, “First, family business owners can receive huge support from other owners who share the same challenges. Second, centers specialize in addressing the ‘soft’ issues that create so much of the conflict in family-owned businesses. Third, these centers maintain extensive networks of local advisors who are well-versed in family issues and solutions.”

Perhaps your most important initial role in engaging and representing family business owners is to encourage and facilitate communication first between spouses, and then the entire family. Your clients will benefit and you will avoid a “Frank disaster.”

Continue Reading

Trending