About 25 years ago our son, Randy, bought an assisted living residence. Over the years he has built this business into a successful chain of residences worth millions. It was always assumed his two sons (our grandsons) would join the family business. Eric, now 30, joined the company five years ago after graduating from college with a major in business and a minor in health services administration; he also has a graduate degree in assisted living administration and management. His younger brother, Michael, who will be graduating college next year, will also join the company; he will have degrees similar to Eric’s.
Eric recently came to us and asked us to talk with his dad. It seems Eric and Randy are at loggerheads about how the business should be run. Eric claims his father doesn’t listen to his ideas, e.g., how to decrease turnover, improve the food, or add services to what they currently offer.
Eric is getting to the point where he’s thinking about leaving the company. He is asking us to convince his dad that he should listen to Eric’s ideas and be more willing to make changes.
We are aware of the tension between them at family gatherings. We are heartsick about this and not sure what to do.
The Realities of Family-Owned Businesses
You are not alone with your concerns about intergenerational family business issues. As the Family Business Institute points out, family business is big business:
- In North America, 80% to 90% of Gross Domestic Product (GDP) comes from family businesses.
- Only 33% of family businesses survive the founder’s generation and just 10% make it to the third generation.
The second point is an indication that as prevalent as family-owned businesses are, their longer-term success is far from assured.
In addition to the standard issues non-family owned or managed companies face, family businesses have to address unique problems and challenges. First and foremost, there are the loving and not-so-loving relationships laced with histories and intricacies that often result in unexpressed expectations and heightened emotions. Then, because of prolonged life expectancies, family members leading the business are working longer and not handing over the company’s reins to the younger family members as readily as they did in the past.
The tug of war you describe between Randy and Eric is a common problem in family businesses. Simply stated, the younger, well-educated family members feel their ideas, based on research and best practices, are being ignored by their elders, while those currently at the helm feel that the younger family members nipping at their heels lack their tried-and-true experience and hands-on acquired wisdom. And to complicate matters further, both points of view have some validity.
In these situations, leaving it to family members to have the right conversations and dialogue between the intergenerational family members to work out accommodations that result in a stronger and better business are difficult, if not impossible. It is often erroneously assumed that “we’re family – we can work out whatever issues arise.” This is typically not so, and all too often, matters can deteriorate to the extent that family members leave the business in anger and/or family members end up talking through their respective lawyers.
I urge you not to try to facilitate on Eric’s behalf and/or mediate in any way the issues between Randy and Eric.
Successful Family Businesses Often Use Outside Consultants
Rather, I want to suggest a course of action that takes advantage of the fact your son and grandson are still speaking, as well as the fact that your younger grandson will soon be joining the company. Timing is in your favor. Let me explain.
Because family businesses comprise such an important part of both the national and international marketplace, an industry of specialized consultants has grown to help address the issues unique to family businesses. To assess whether a family business could benefit from some outside professional help, family members in the business should take a look at the Yes or No statements I summarize below: the areas are around governance, processes, succession planning, and capital structure. These are the areas that a consultant would focus on.
- We have regular and structured meetings around governance so that each person’s opinions can be honestly expressed and met with respect. Yes or No
- We have processes in place to address conflicts affecting all aspects of our business — business, operational, emotional and financial systems. Yes or No
- We have addressed succession planning, e.g., transference of ownership and management, adequate training for the next generation. Yes or No
- We have the right capital structure to address issues such as: if a shareholder wants to sell; a potential buyer approaches the company; we need money to fund a new initiative or purchases; we want to go public. Yes or No
If family members answer Yes to the four statements, that is all well and good. However, if the answer to one or more of the questions is No, then family members might be open to your suggestion to talk with an outside consultant who specializes in family businesses. (Google “family business consultants [in your city and state].”)
Potential Value of Working in Another Company
If the idea of an outside consultant doesn’t work, and if interactions between your son and grandson continue to deteriorate to the point where Eric decides to leave the family business, there is an upside to his doing so. As pointed out in articles in Harvard Business Review and in a New York Times article, the leaders in some family businesses require that younger family members joining the company must first have several years experience in another company.
It is conceivable that Eric’s getting some experience outside his dad’s business could be a good move for him both personally and professionally, in both the short and long term. It could, in fact, be a relationship saver between your son and grandson.
These, then, are my two main suggestions: (1) You do not get involved in the business issues between Randy and Eric; (2) You promote to Randy the benefits of consulting with an outside professional who specializes in family businesses. In this way, you are neutrally supportive of everyone involved in your son’s family business, and perhaps you can use your neutrality to help family members resolve some of the inevitable issues that arise in family-owned businesses.
Ask Dr. Gramma Karen is published every other Tuesday.
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