Seeking Counsel for Your Family Business
When sisters Moo Thorpe and Sonja Bohannon's father died suddenly in 1992, it was more than a family tragedy. It jeopardized the future of their third-generation family ranch and hotel business in New Mexico. "Our dad was like John Wayne," said Thorpe. "Everything revolved around him."
Her father might have felt like John Wayne, but he was not immortal. His sudden death and the lack of a written succession plan threw the family into a tailspin. "Mom took over, but she was resentful," said Bohannon. "Everyone expected her to be dad. A few years went by, and we noticed she started pulling away. She didn't call as often and didn't talk to us about what was happening on the ranch like she used to."
Then, the sisters learned that she'd been talking about selling the ranch to a local hotel chain. "We were facing a crisis," said Thorpe. "It was lose the family, lose the lodge-lose everything, or make the best of it and maintain a relationship."
The family retained a family business consultant, who arranged a retreat for the entire family-four children from his two marriages and their father's widow, Lore Thorpe. At the retreat, they created a chart to rank the concerns and needs of all involved, considering both financial and emotional needs. The results of the exercise were a surprise to the sisters. Even though all the children felt a strong emotional attachment to the ranch where they'd grown up, the formal evaluation process revealed that the best choice for everyone involved was to sell it and move on. "When we sold it, I felt as if I'd been set free," said Moo. "I didn't want to be crippled by it anymore, and I didn't want my daughters to be crippled by it."
"It was cathartic," said Bohannon. "It's still raw. It was a lesson in letting go."
The challenges faced by the sisters were extreme, but not unique. Over 90 percent of businesses in North America are family businesses, according to statistics supplied by the Family Firm Institute (FFI), based in Boston. Family-owned businesses in the United States account for 78 percent of new job creation, 60 percent of all employment and over 50 percent of the Gross Domestic Product, according to FFI, a professional organization that promotes an interdisciplinary approach to family business consulting.
FFI President Francois de Visscher, a family business consultant and fourth-generation family businessman, said building a family business offers a terrific opportunity to build tax-deferred wealth within a family. Parents who are able to pass on a prosperous business to their children also receive a great deal of pride and satisfaction. He said right now, with the aging baby boomer generation, the country is facing the largest intergenerational transfer of wealth in its history-more than $4.2 trillion stands to be passed on by family businesses in the next 20 years, and more than $10 trillion in the next 40 years.
However, despite the statistics that indicate their dominance in the economy and the many advantages to family business, only 30 percent of family businesses survive into the second generation, 12 percent into the third, and just 3 percent last into a fourth generation, according to the FFI. Experts say family businesses face additional challenges that non-family businesses do not. Among these are the problems of succession and inheritance as well as the mixing of personal and business matters. In many family businesses, there are additional conflicts between those family members who work in the family business and those who do not.
Jim Hutcheson, a consultant and former family business owner, shared the following example. He worked with a business that was owned equally by the parents, their son and their daughter. They came to him for help because the son had a terrible heroin and cocaine habit and had embezzled almost $250,000 from the business. "They came to me because they wondered what to do," said Hutcheson in an interview.
Clearly, if this embezzling drug addict had been a business partner and not a brother and son, there would have been no question about the course of action. But family members in business with each other have trouble making decisions that put the business ahead of family concerns, even when the solution might seem obvious to an outsider. It's for this reason that outside counsel can be so crucial for the survival of family firms, especially at times of transition, be they from business growth, succession or any other major changes.
"In the seventies, no one wanted to talk about family business," said David Pistrui, who teaches at the Alfred University Center on Family Business. "It was seen as shameful. Now, the entrepreneurial spirit is seen as positive, and there's a close association between entrepreneurship and family business."
Here are some tips on choosing an outside family business advisor:
- Make sure the person is not affiliated with any family business members.
- Make efforts to keep the relationship professional, beginning with the hiring process.
- Do not allow the mediator to be drawn into family relationships; their involvement must be kept to the business level alone.
- Choose a person that all parties can trust.
- Set clear expectations at the beginning of what you want the counselor to accomplish.
- Make sure everyone involved is open to change.
- Let the consultant act as a confidant to business. They must understand the family relationship dynamics, but not get involved in them.
- A consultant should serve as a window on the outside world, a mirror to the activities of the business and a catalyst for change.
Jane Applegate is a syndicated columnist and the author of 201 Great Ideas for Your Small Business. For a free copy of her "Business Owner's Check Up," send your name and address to Check Up, P.O. Box 768, Pelham NY 10803 or e-mail it to firstname.lastname@example.org.