Family Business Clients: Challenging And Rewarding

Each family business client situation is unique. The financial service provider must be cautioned about rushing to conclusions and the recommendation of standard planning tools to resolve issues that are identified early in the process.

First, it is important to understand and appreciate some of the sociological and psychological issues that are inherently present in the family and the related business enterprise. Second, it is helpful to identify a few axioms and generalizations that serve as useful guidelines. At the same time, these should not be accepted as being applicable in each and every case.

Consider the following socio-psyche fundamentals:

1. The lack of communication among family members leads to misunderstandings and conflict. Stress and anxiety can be cumulative, especially for family members who experience a general lack of security, depression, or unresolved “hurt” from prior years.

Older generation family members invariably want to wait until younger generation family members have “settled down” in their personal lives–which is never–and they are “ready” to assume leadership of the business–which is probably never.

On the other hand, younger family members lack enough experience outside the family business cocoon to develop enough self-esteem and confidence to ask for leadership. Also, they suffer from a general lack of patience and stability, which is inherent with their relatively young age.

2. You cannot always believe what you hear from family members. Oftentimes, statements are made about a particular matter that are designed to disguise a true issue or concern. It is difficult for some family members to frankly discuss an unpleasant or uncomfortable topic with outside advisors or, for that matter, within the family. It is easier to talk about a less offensive issue (which, itself, is relatively immaterial) and hope that the answer to the issue will likewise resolve the true topic of concern. Beware of “hidden agendas.”

3. It is natural for family members to avoid direct confrontation and discussion with other family members about sensitive or difficult issues. It is much easier to enlist the unknowing assistance of another individual (a family member or an individual outside the family) to “carry the message.” This communication tactic is commonly referred to as “triangulation.”

A healthy communication process avoids these situations that are often subtle and almost subconscious in nature.

4. There is a natural rivalry among siblings that has existed almost from the beginning. The competition and lack of agreement in all matters continues long after episodes in the sandbox and on the playground. The competition for attention and favors from parents never ends.

The secret is identifying this rivalry as a family system issue that is separate from an unhealthy and divisive situation in the workplace that has negative effect on employees and the business enterprise.

5. Ownership control is an extremely important and difficult issue for discussion. Should one child have a majority of the stock in order to provide strong and centralized leadership into the next generation? Should stock be distributed in equal shares among children and family units? What will ownership look like as the company passes into the third and fourth generations? Must family members be employed by the business to own stock? Do children believe they must enter the family business in order to avoid losing their inheritance?

6. Successorship is a process and not an event. A reasonable period of time is necessary in order to accomplish smooth transition of leadership and continuation of the family-owned enterprise from one generation to the next. Implementation of an abrupt plan of successorship is much different from a desirable successorship process.

Successorship occasioned by sudden death or disability is more akin to crisis planning, which has a different set of issues and solutions than those associated with a healthy process of successorship. Do not allow family members to be in denial when there is a genuine crisis at hand.

7. Generally, every family has its share of mental and emotional dysfunction. This is especially true in the case of the large, extended family that encompasses three or more generations and numerous family units. It is not helpful to ignore these problems and avoid discussion about particular family members who suffer from a major dysfunction.

Essential planning for a healthy family, however, cannot be avoided because of a lack of willingness or ability to address special needs for a particular family member.

8. It is understandably difficult for older-generation family members to discuss planning that anticipates their death. Issues associated with estate planning and successorship must be approached with care, sensitivity and appreciation for the attendant difficulties.

It is often easy to separate successorship and retirement from issues of mortality. The joy of seeing the children successfully assume ownership and control of the family business enterprise in later years should be a pleasant goal rather than the final event in life.

9. The information revealed in genograms and family history is genuinely amazing in many cases. The family relationships identified in a graphic representation of the family tree can be used to identify natural and expected patterns, dispositions, and unexpressed feelings between and among family members.

There are facts and circumstances associated with the “afterthought child,” premature and sudden death of a spouse or child, divorces, and other similar matters that are helpful to understand in the communication process. The analysis may unlock hidden agendas or unresolved hurt that continues to be harbored by a suffering family member.

Next, here is a list of 25 general guidelines that go beyond the traditional technical rules and techniques. These axioms and generalizations are not true in every case, of course. On the other hand, attention to the items on this list will help extend the communication process beyond tight parameters that prohibit a full and frank discussion and analysis of the real issues.

1) The wife is the most powerful person in the room (in the usual family business case).

2) All issues boil down to Power, Money and Control.

3) Mom is determined to treat each child exactly equally.

4) Business successorship planning cannot be discussed until parents’ financial security is successfully resolved.

5) Too much focus and attention is placed on “Mr. Big.”

6) Discussion is difficult because many issues overlap and are interdependent.

7) Saving estate taxes is not the most important issue.

8) Rich people live forever-the longevity issue.

9) Negative thoughts lead to shutdown in the planning process.

10) Successorship is a process, not an event.

11) Don’t ever take sides in an intra-family dispute.

12) Be aware of natural strain in the relationship between the older and younger generation members.

13) Ignore the children at your peril.

14) It is a mistake to overlook the anxieties of key employees about successorship.

15) Older family members have a natural aversion to debt.

16) Maybe it is better to sell the business.

17) Business-owning families have strong feelings for legacy and tradition.

18) The differences between family members in the business versus those who are not are extremely important.

19) We still suffer from the practice of primogeniture in this country.

20) Parents are very worried about losing assets to someone who is, or who will be, married to one of the children.

21) Wealthy parents do not want children to receive substantial assets at young ages by gift or inheritance.

22) Parents make a mistake not sharing financial information about family resources with their children at appropriate ages.

23) Increased longevity is a financial disaster for children of well-to-do parents.

24) Advisors miss good opportunities to help wealthy clients learn the joys of charitable giving.

25) Many family businesses will be sold for a lot of money some day; and the recipients are often inexperienced when it comes to financial and investment planning.

Joe M. Goodman, JD, LL.M., has a 25-year practice in advanced estate planning. He can be reached at Holton Goodman & Blackston P.C., in Nashville, Tenn., via e-mail at jmg@hgblaw.net. This article was excerpted from his presentation at the MDRT annual meeting in Toronto.


Reproduced from National Underwriter Edition, June 22, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.


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