Illustration by Dave Cutler
A n old friend called me one day to tell me he had decided to become a priest. It didn’t make sense to me. He had faith, but he had no interest in evangelizing (especially on the weekends, as I recall). He’d been working for his father’s flooring company, and truth was, he wasn’t much of a proselytizer for linoleum either. It only took a couple of beers for me to learn that his father had encouraged him to leave the family business and allow his younger brother, whose passion for parquet was real, to take over.
I’ve always wondered how that conversation went. How does a CEO explain to his top vice president – who also happens to be his firstborn son – that he’s being passed over for the ultimate promotion? We’ve made progress since the Middle Ages, but assumptions of primogeniture remain.
Estimates suggest that 80 percent of North American businesses are family-owned and that they account for about 60 percent of U.S. employment. At some point, for many of those businesses, the family’s personal dramas will generate ethical dilemmas.
The essential question for the founder is which of the children should take over. But the real dilemma comes in how to tell them. When family business owners choose the default mode – doing nothing and letting nature, usually in the form of death, take its course – they force the question in its harshest terms and at the worst moment.
If literature is any guide, it seems that such horrors cannot be avoided. The story of Jacob favoring his younger son, Joseph, over older brothers may qualify as the first family-business tempest in print. Similar stories keep showing up, from Hamlet to The Godfather (“I’m your older brother, Mike, and I was stepped over!”).
Some of them make news. Most people have now heard of David and Charles Koch. The brothers run Koch Industries, the second-largest company in private hands in the United States. However, most people don’t know that there are two other brothers, Frederick Jr. and William.
The father of these four, Frederick Sr., who founded and built the business, died at age 67 without bothering to create a succession plan. The result was nearly two decades of vicious lawsuits pitting Frederick and William against David and Charles. Even at their mother’s funeral, the feuding brothers maintained a steely, silent distance. (And their fight set off a brush fire in another family business. As major stockholders in Koch Industries, oil magnate J. Howard Marshall II and his son took opposite sides in the Koch fight – a breach that drove the elder Marshall to cling to control of his assets and later marry, at age 89, Anna Nicole Smith.)
Is there any good way to prod a founder to make a timely decision? Every situation evolves from the swampy complexities of an individual family’s dynamics. But almost any action is better than indecision, and there are some productive methods of arriving at a good solution. In fact, there’s an entire discipline devoted to it: the family business ethical adviser.
Paul Sessions is director of the Center for Family Business at the University of New Haven, in Connecticut. He says the failure to set up a clear plan of succession is the most common problem among family-run businesses. “If Dad has ownership, you can’t fire him,” says Sessions. Yet his indecision may spawn a hurricane of lawsuits, leaving the final verdict in the hands of a judge who’s a complete stranger.
A good adviser, Sessions says, won’t make the decision for your family, but will set in motion a process that allows it to emerge organically.
“This is where it gets interesting – facilitating a conversation that helps people talk about things that are so scary and dangerous that they normally won’t talk about them,” he says. “There could be trust issues. All kinds of things can come up in a family. It could be alcohol or drug abuse or other things you don’t know about.”
Sessions usually interviews the core family members as a group. “I sit them down and ask them why I am there. One might say, ‘You are here to break up a fight with my brother.’ One might say, ‘You are here to let everyone know I am the next in charge.’ And one might say, ‘You are here to get our father off our backs.’ Those are the bad answers.”
In some cases, the founder’s preferred successor is not the oldest child. Then the mission is about carrying out a delicate conversation that might allow an older son to discover for himself that his younger sister is the best choice for the next generation of leadership. If you can get the contenders to say it themselves, says Sessions, “you get Dad off the hook.”
Often, by the time younger generations are itching to take over, it’s because they believe they can see new opportunities more clearly. Maybe Ken Olsen, a founder of Digital Equipment Corp., should have considered a different generation’s opinion when, in 1977, he said, “There is no reason for any individual to have a computer in his home.” The PC came out three years later.
Once over the second-generation hump, a family business often enjoys a smoother ride when it comes to succession. In the first generation, sibling rivalry can be intense, but later, it’s easier for many cousins to step back and allow a natural leader to take over. The Tabasco fortune of Avery Island, La., is held today by the fifth generation of the founding McIlhenny family, with more than 100 cousins holding stock. They routinely appoint one among their number to keep the company growing and profitable.
Succession issues may loom largest in family-run businesses, but other dilemmas can also be devastating, if perhaps less Shakespearean. In a publicly run business, decisions are made in democratic arenas – at annual shareholder meetings or by a board of directors – and policies regarding issues like romantic involvement between employees and managers, conflicts of interest, and nepotism are all highly regulated. In a family business, such entanglements are where the discussion begins. Resolving them is part ethics and part psychotherapy.
Another choice involves not only how much family to bring into the business, but how much business to bring into the family. “One of the hardest things is creating a balance between the business and the rest of their lives,” Sessions notes. “Someone who has founded a company, often a man, has kids who say: ‘We never knew him – he built this wonderful business and we are really grateful for that, but we’d like to get to know our children. We aren’t going to run the business with the same singled-minded ferocity that he did.’”
The conflict between generations pits a founder who lives for the excitement of the moment, for empire-building, against a younger generation that is more inclined to integrate the company’s growth into the long view of family life.
The thing is, neither of them is wrong.
Studies show that in the moment, work is often experienced as fun and challenging, while dealing with family is described as awful and tedious. Here’s where the paradox comes in: Over time, the research suggests, family memories are more intensely satisfying. That snot-nosed little boy may look cuter when he’s long out of diapers, but memories of him make people happy. Memories of work? Not so much.
Perhaps balancing work and private life is the ultimate family value. As the late U.S. Senator Paul Tsongas, among others, put it, “No one on his deathbed ever said, ‘I wish I had spent more time on my business.’”
Do you have an ethical question or dilemma? Suggest a topic, real or theoretical, for Jack Hitt to tackle in a future column. Sent you ideas to email@example.com.