Fair is Not Always Equal in the Family Businesse

Please don’t divide business ownership equally among your children. We did that when they were children, divided up the toys and the pie or whatever it was we were sharing equally, to reinforce the message that we don’t favor or love one child over another.

You simply can’t apply this logic to business transition. The prevailing wisdom is that transferring all of a business to the business-active child (BAC) and making an equitable distribution of other family assets to inactive children (and perhaps to the BAC as well) is the fairest plan of all.

It’s also very important that each member of the family understand why this is fair. They must understand that if the BAC is wildly successful in growing the business over time, it was in fact done by her own efforts and that she was not given “more” than the other siblings at the onset. There may eventually be dramatic income or lifestyle differences between siblings as a result of giving the BAC the business asset. What will you do as a family when that occurs, when the BAC is driving a much more expensive car and sending their children to better schools than her siblings? Will the siblings feel slighted?

This is why family conversations about estate planning and wealth transfer are absolutely critical. And that conversation should be recorded and written down, so that ten years later, the siblings who did not get the business asset will remember a) what it was worth when their sibling received it and b) that they agreed that the BAC should get the business asset in the first place.

Fairness is a completely subjective notion, which is why you must present your idea of what is fair to each member of the family to make sure that all agree, from where they sit, that your solution is indeed, fair. Not necessarily equal, but fair.

For more information on this topic, read John Brown’s article: https://www.exitplanningforadvisors.com/ingredientthree

Your First Family Meeting

I’m frequently asked to help family businesses conduct their first several family meetings. What are the reasons to conduct a family meeting? What does a sample agenda look like?

One of my favorite guides to family meetings is the book “Family Meetings:  How to Build a Stronger Family and a Stronger Business” by Craig Aronoff and John Ward.

In this book they clearly list the 10 reasons why a family business should hold family meetings:
1.  Build a stronger family
2.  Build a stronger business
3.  Plan for the future ownership of the business
4.  Plan family participation in the business
5.  Help children manage inherited wealth
6.  Open up the succession process
7.  Preserve family traditions, values and history
8.  Professionalize the business
9.  Manage relations with the board of directors and the family
10. Recognize and resolve conflict

I would recommend that before the actual meeting begins, that you circulate this list and ask family members to simply circle their top three priorities.  Then, at the first meeting, review each reason and discuss the top three choices.  From there the agenda of the first several meetings can be shaped.  Ask participants to explain why they feel that their chosen priority is important at this stage of the family’s development. This is the “why” of the family meeting equation and become the goals and objectives, of the family meeting and eventual family council.

The “what” comes next.

What particular issues should the family meeting address?
If the family is in the founding or (G1) stage, it is not too early to have family meetings.  The nuclear family can get together regularly to focus on family participation, succession, leadership transition, “letting go,” and cultivating family skills.

As the family business approaches the sibling partnership or (G2), they can get together with their spouses begin to focus on team building, establishing common goals, stressing mutual interests, family harmony, and family education.

In the cousin consortium stage or (G3), members of the third and subsequent generations join the meetings, whether they work in the business.  Here the family begins to address more complex shareholders issues such as liquidity, allocation of capital; fostering family commitment to the business, family tradition and history and family projects.

Again, it makes sense to review these with the family at the first meeting and determine which activities resonate most with the participants.  Is there a lot of energy around family education?  family tradition?  team building?

The next entry will address the key polices and documents emerge from the Family Council.

http://www.efamilybusiness.com