More real-world case studies (second in a series)
Key Takeaways:
In Part One of this article, we saw that the Horwath family suffered through many disruptive years because they avoided sharing their loss together. They tried to protect themselves by conducting business as usual, when it was anything but usual.
In this installment we will look at the two other business families - the Carlsens and Petersons - who also had to cope with devastating loss.
Carlsen family: Open, honest discussion
The Carlsen father/entrepreneur knew he was going to die of cancer. He prepared. He worked with an attorney to create a trust that would own the family real estate business for the benefit of his wife and their three sons. But the trust was also created to influence events after his death. In part, it kept his wife out of the business and it addressed the fact that the four inexperienced children (three sons and a daughter) were not ready to take over the company. In his mind, he was planning for a stable succession of leadership.
As the father drew closer to his death, he met with his advisors and appointed his wife and attorney as trustees. They formed a board of directors that included his wife, attorney, financial advisor, the company's accountant, his oldest son, and the non-family president of the company. On the surface, one would think the plan was well-considered and carefully planned. Then reality entered in.
After the elder Carlsen died, his wife chafed under the restrictions of the trust. She thought she should control the business. She resented what she believed were her late husband's attempts to control her. This situation might have been avoided if family meetings had been held so that the entire family, including the father/entrepreneur, could share his vision of what new roles and changes would help accommodate a new configuration of the family business.
The goals of these meetings are to be open, honest and direct about how things should be when the entrepreneur is no longer available to run the business. Above all, these meetings must be conducted with kindness and respect.
Another great resource for aiding the transition of control is to form a board of directors and outside advisory members. The board can offer key assistance during the critical transfer period and help create interim leadership. The board can also help hire and select a replacement president for the company. If there are sons or daughters who have been groomed and prepared to lead, they can rise to their new roles. However, if family members need additional mentoring, the board can help select a non-family president to run the company, as well as mentor the next generation of leaders.
A family participation plan
A family participation plan would have helped the Carlsen family determine new roles, affirm changed relationships, recognize the next generation and address standards, expectations, and compensations for family members working in the company.
As it stands, the Carlsen widow continues to lobby for control of the company even though she owns no stock and is just one of several trust beneficiaries. She comes to the company daily, which causes conflict with the non-family president. My own assurances to professionalize the board and create some distance between the president and the widow has offered some relief. We began regular monthly meetings to inform the Carlsen widow about the success of the company and review monthly financials to assure her the company was well run. In addition, the widow has arranged to have one son mentored to be the future company president. The board is now reorganized and more professional, and it created a search committee that selected four independent outside members.
Peterson family: Overcome differences, plan for succession
The Peterson family father/entrepreneur recruited his son, who was already working successfully in another city in a parallel business. Mr. Peterson urged him to join the family construction business. He and his son were at odds from the beginning. The son was ambitious and wanted to grow the business. The father, in his day, was an aggressive entrepreneur, but as he grew older became more risk averse. Risk turned from a business issue into a father-son conflict. Their once-close relationship was strained and deteriorating rapidly.
I was asked to address the deterioration of their relationship and help them resolve their differences. I suggested a joint approach that respected both father's and son's visions for the company’s future growth. In those frank, respectful, coached discussions they developed an entirely new market for their business that both equally endorsed.
Over the next three years, father and son implemented many of my business recommendations. One was that they create a board of directors with outside advisors. This was no easy task. After numerous discussions for more than a year, the board was finalized. Despite the entrepreneur's initial reluctance, he became a full participant in selecting four outstanding advisory members who brought industry experience and added value to the board. Two years after the board was finalized, the father died unexpectedly.
All the work, discussion and preparation father and son had done together, kept the family and the business on solid ground. During the preceding three years, the family developed the business plan, created an active board of directors with advisory members, and completed leadership training for the son. In addition, the widow who had her husband's power of attorney was able to complete the gifting of company stock to the adult children and grandchildren, thus taking advantage of the current tax exemptions.
The son who became company president before his dad's death successfully leads the business. He uses the board as a guide to streamline the company for efficiencies, financial savings and profitability.
On the business side, it is important not only to solidify company leadership but also to reach out to all employees. A family business is like a family in many ways. As a result, acknowledge the emotional loss of employees and assure them of the family's continued commitment to them and the company. The family may decide to hold company-wide or department meetings to share the impact of the loss with employees.
It is also important to reach out to the customers in a timely manner and reassure them about the company's stability and the family's commitment to the future. Financial partners, bankers and other professional advisors should also be quickly included in plans for the future.
On the emotional side, the Peterson family continues to grieve the loss of the entrepreneur. But it is shared grief. The family has come together because of this major, sad event and is now even closer.
The Peterson family joined with the community to honor the father's life and legacy in a memorial ceremony. It was not only a tribute to the entrepreneur, but also it contributed to the healing process for the community as well as the family. The son (and president) is currently working with a family historian to capture family histories that honor his father and perpetuate his legacy for future generations.
The lesson teaches how important it is to continue emotional support and share experiences for the "long haul." Healing does not happen overnight. And it usually takes longer if feelings are suppressed and business preparations are delayed.
My advice for any family, especially those working together in business, is an ageless oath with a twist: Be prepared, emotionally as well as practically. At every opportunity, contribute to the common good of your family out of your generosity, love, sense of abundance and trust. Make it your lifestyle and a conscious attitude. It will support everyone during any unforeseen event, especially if a leader and loved one is taken from you.
Key Takeaways:
- Even the most meticulous of succession plans can fail when key family members are not consulted prior to the entrepreneur's death.
- A board of directors and outside advisory members can be very helpful during the transition process.
- A family participation plan can be very helpful for determining new roles and relationships and for addressing standards, expectations and compensation for family members working in the business.
In Part One of this article, we saw that the Horwath family suffered through many disruptive years because they avoided sharing their loss together. They tried to protect themselves by conducting business as usual, when it was anything but usual.
In this installment we will look at the two other business families - the Carlsens and Petersons - who also had to cope with devastating loss.
Carlsen family: Open, honest discussion
The Carlsen father/entrepreneur knew he was going to die of cancer. He prepared. He worked with an attorney to create a trust that would own the family real estate business for the benefit of his wife and their three sons. But the trust was also created to influence events after his death. In part, it kept his wife out of the business and it addressed the fact that the four inexperienced children (three sons and a daughter) were not ready to take over the company. In his mind, he was planning for a stable succession of leadership.
As the father drew closer to his death, he met with his advisors and appointed his wife and attorney as trustees. They formed a board of directors that included his wife, attorney, financial advisor, the company's accountant, his oldest son, and the non-family president of the company. On the surface, one would think the plan was well-considered and carefully planned. Then reality entered in.
After the elder Carlsen died, his wife chafed under the restrictions of the trust. She thought she should control the business. She resented what she believed were her late husband's attempts to control her. This situation might have been avoided if family meetings had been held so that the entire family, including the father/entrepreneur, could share his vision of what new roles and changes would help accommodate a new configuration of the family business.
The goals of these meetings are to be open, honest and direct about how things should be when the entrepreneur is no longer available to run the business. Above all, these meetings must be conducted with kindness and respect.
Another great resource for aiding the transition of control is to form a board of directors and outside advisory members. The board can offer key assistance during the critical transfer period and help create interim leadership. The board can also help hire and select a replacement president for the company. If there are sons or daughters who have been groomed and prepared to lead, they can rise to their new roles. However, if family members need additional mentoring, the board can help select a non-family president to run the company, as well as mentor the next generation of leaders.
A family participation plan
A family participation plan would have helped the Carlsen family determine new roles, affirm changed relationships, recognize the next generation and address standards, expectations, and compensations for family members working in the company.
As it stands, the Carlsen widow continues to lobby for control of the company even though she owns no stock and is just one of several trust beneficiaries. She comes to the company daily, which causes conflict with the non-family president. My own assurances to professionalize the board and create some distance between the president and the widow has offered some relief. We began regular monthly meetings to inform the Carlsen widow about the success of the company and review monthly financials to assure her the company was well run. In addition, the widow has arranged to have one son mentored to be the future company president. The board is now reorganized and more professional, and it created a search committee that selected four independent outside members.
Peterson family: Overcome differences, plan for succession
The Peterson family father/entrepreneur recruited his son, who was already working successfully in another city in a parallel business. Mr. Peterson urged him to join the family construction business. He and his son were at odds from the beginning. The son was ambitious and wanted to grow the business. The father, in his day, was an aggressive entrepreneur, but as he grew older became more risk averse. Risk turned from a business issue into a father-son conflict. Their once-close relationship was strained and deteriorating rapidly.
I was asked to address the deterioration of their relationship and help them resolve their differences. I suggested a joint approach that respected both father's and son's visions for the company’s future growth. In those frank, respectful, coached discussions they developed an entirely new market for their business that both equally endorsed.
Over the next three years, father and son implemented many of my business recommendations. One was that they create a board of directors with outside advisors. This was no easy task. After numerous discussions for more than a year, the board was finalized. Despite the entrepreneur's initial reluctance, he became a full participant in selecting four outstanding advisory members who brought industry experience and added value to the board. Two years after the board was finalized, the father died unexpectedly.
All the work, discussion and preparation father and son had done together, kept the family and the business on solid ground. During the preceding three years, the family developed the business plan, created an active board of directors with advisory members, and completed leadership training for the son. In addition, the widow who had her husband's power of attorney was able to complete the gifting of company stock to the adult children and grandchildren, thus taking advantage of the current tax exemptions.
The son who became company president before his dad's death successfully leads the business. He uses the board as a guide to streamline the company for efficiencies, financial savings and profitability.
On the business side, it is important not only to solidify company leadership but also to reach out to all employees. A family business is like a family in many ways. As a result, acknowledge the emotional loss of employees and assure them of the family's continued commitment to them and the company. The family may decide to hold company-wide or department meetings to share the impact of the loss with employees.
It is also important to reach out to the customers in a timely manner and reassure them about the company's stability and the family's commitment to the future. Financial partners, bankers and other professional advisors should also be quickly included in plans for the future.
On the emotional side, the Peterson family continues to grieve the loss of the entrepreneur. But it is shared grief. The family has come together because of this major, sad event and is now even closer.
The Peterson family joined with the community to honor the father's life and legacy in a memorial ceremony. It was not only a tribute to the entrepreneur, but also it contributed to the healing process for the community as well as the family. The son (and president) is currently working with a family historian to capture family histories that honor his father and perpetuate his legacy for future generations.
The lesson teaches how important it is to continue emotional support and share experiences for the "long haul." Healing does not happen overnight. And it usually takes longer if feelings are suppressed and business preparations are delayed.
My advice for any family, especially those working together in business, is an ageless oath with a twist: Be prepared, emotionally as well as practically. At every opportunity, contribute to the common good of your family out of your generosity, love, sense of abundance and trust. Make it your lifestyle and a conscious attitude. It will support everyone during any unforeseen event, especially if a leader and loved one is taken from you.
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