Practicing as a Family Business Consultant

Practicing as a Family Business Consultant
by Dennis T. Jaffe, Ph.D.
Saybrook Graduate School, and the Aspen Family Business Group

Mario S., CEO of Altman Properties, calls and says we need to talk. He is entering his fourth year as leader of the family’s real estate empire that dominates not just our own skyline, but those of several cities around the world. Wearing a denim shirt and Jerry Garcia tie, Mario picks me up for lunch the next day in his Bronco. He takes me to the trendiest new restaurant in town. At 45, Mario is tall, wiry, intense, and self-assured. It seems perfectly appropriate that nearly every person we pass on the way to our table greets him by name.

I know from the newspaper that he is in the midst of negotiating to sell partnership in several hotels to a foreign investor, and that unlike many of his contemporaries in real estate, he is doing quite well. But that isn’t what the urgency is about. He launches right into it. His brother-in-law Bob, 35, married to Mario’s younger sister (who also works in the business although she is currently on maternity leave), and he have had a blow-up. Bob, who manages some of the larger properties, came into his office a few days before, and in a loud voice, proceeded to tell Mario that he had a real problems in the company: he was burning his people out, not paying them enough, and his management style was terrible. Mario asked him to go into more detail. Bob said he couldn’t, because he couldn’t violate the confidentiality of the people he talked to.

Mario then erupted. He saw Bob as disloyal, inciting a revolution in the business. Look buddy, he said, if that’s how you feel, maybe our working relationship should be at an end. Fine, said Bob, and stalked out. He called from his cell phone to say that he was clearing out his office, and that Mario should take care of a few problems during the upcoming July 4th weekend. Mario was further incensed.

For better or worse, stuff like this happens all the time in a business. CEOs develop thick skins for good reason. But this is a family business, and it didn’t end there. Bob told his wife, who called Mario and screamed how could he fire a family member. Mario protested that he hadn’t fired Bob, butshe didn’t listen. She then called their mother. At the same time, Mario, upset and not able to sleep, called to his father and asked what he should have done. Dad said you did what you had to do. Then dad and Mom talked, and Dad called Mario back and said he wasn’t so sure Mario had done right.The whole family was up in arms.

I knew the family well, because two years earlier I had worked with Mario, his brother and sister, and their three cousins. The six cousins were inheriting the business from the two patriarchs, who as immigrants had built the empire, while fighting continually for 50 years. There was now a rift between the two families. Mario’s cousins were angry at Mario’s father, who they felt mistreated their father. They felt Mario was arrogant, didn’t share decisions with them, and wanted to expand the business too fast.Mario was hurt and angry that the family didn’t trust him, and wondered why he should put up with all this grief. Mario and his father proposed that they split the empire into two, and that each family manage half the properties. At the point of signing the papers, Mario’s oldest cousin decided to call a truce. He got his brothers together, and they agreed to give Mario the authority he wanted. Mario agreed to hold quarterly meetings of the Board of Directors, consisting of the six cousins, where he would review the financials and his decisions. I was justly proud of helping these families, with a multi-generational history of conflict, to work together and maintain the company intact.Now I would continue to work with them through their next transition.

I began my career as a family therapist, and then became a management consultant. Over 15 years my work has evolved into a multi-disciplinary practice at the interface of family dynamics and business development. Increasingly, families like Mario’s are finding that the stakes of family dissension are incredibly high. They need help to manage the complex boundaries between their family relationships and the loud and forceful demands of the business. Mario’s family fight affects a billion dollar business, threatening to derail a major partnership venture. If their prospective partner felt that Mario’s family was out of control, or out of line, he would undoubtedly reconsider working with them. Seeing Mario and Bob at odds could also cause non-family managers to leave the company for the competition. The media would also love to hear about the fight, as they had a field day reporting, quite inaccurately, on the previous family split.

On our paper placemat I drew three interlocking circles, noting that I saw three dimensions of his dilemma. A small inner circle was the conflict between he and Bob. They were unclear about their relationship, and their respective roles and responsibility to the business. Bob was acting like the leader of the opposition, rather than as a management team member, and part owner of the business. From previous talks, I knew that Bob’s feelings about being in the business were complicated. Bob had entered the family business when he married Mario’s sister, after he had not been able to make a living as an artist. While I felt he could not hope to earn as much outside the business, he had told Mario that he expected another raise. Bob told Mario that he was frustrated knowing that he could never be more than Number 3 in the business. Mario was frustrated, he said, because Bob could not acceptthat reality. The first order of business was for me to talk to Bob, and then meet with them together.

A wider circle represented Mario’s family, who were all drawn into the conflict, whether they worked in the business or not. It would do no good to ask or tell Mario and Bob not to talk to the other family members. Enmeshment is the glue that ties family businesses together. We had to bring the family together to talk about what was expected of family members who worked in the business. Our last whole family retreat two years ago had focused on the succession process, where Mario’s father and uncle, finally turned operating authority, and much of the stock, to Mario’s generation. Instead of working for his father and uncle, Mario was answerable to his siblings and cousins, who owned equal shares of the stock. The six cousins, and spouses, needed to get together and talk once again about what they wanted from the business, and what they expected of family members who worked there. They also needed to look ahead to where each person wanted to be in five or ten years, what role they wanted in the business, and in their lives. Mario, for example, imagined that he might move out of direct management within ten years. He wasn’t sure how they would happen, or whether a family member or non-family executive would succeed him.

The third interlocking circle, the business, had been growing at an incredible rate, and they had recently acquired several large properties. Mario’s management style was to keep the staff lean, and therefore highly profitable. But Mario was aware that this also tended to burn people out, and put added pressures on his cousins as they managed parts of the business.Like a lot of CEOs, Mario was a hard driver, and kept his own counsel. Everything in the business had to run through him. His management style might have been relevant to the company, but it caused frustration in other family members, who wanted more information and collaboration, and a more forthcoming relationship with Mario.

Mario wanted to get out of day-to-day management and focus on deals and expansion. His cousin Cliff, the chief of operations, was not interested in growth, but just wanted to keep things the way they were. Bob was ambitious for himself and the business, but Mario assumed Cliff wouldn’t accept Bob as a peer, or over him, and Mario was concerned that Bob’s erratic behavior was a real liability. There were more questions about the future, and Mario was aware that he tended to worry on his own, rather than do anything, because talking about the issues tended to upset other family members. My future task would be to get the family managers together to chart the future course for the business. This is just a glimpse of the complexity facing this family business system.

I schedule a talk with Bob. He was a little defensive at first, sounding out the degree that I was an agent for Mario, rather than a fair mediator. I reminded him that all individual talks would be kept confidential, but that I wanted to set up a joint meeting between he and Mario, and that this conversation would help us to explore what he wanted to get out of the discussions. He opened up, talking about his frustration with his career, and the pressure to support his family, which led him into the business. He wanted to pursue his own career, but the family business was like a drug–he couldn’t kick the habit. Also, he was a driver, and a perfectionist, and he really wanted to excel. He certainly had his own thoughts about Mario’s leadership, but he didn’t feel that Mario was open to listening to him. All of this poured out in his yearly rages at Mario. He knew he needed to make a choice about remaining in the business, and he saw that he was creating a situation where he would be kicked out, and therefore have an excuse not to work there. He agreed that it would be better to make the decision consciously, and involve Mario, as well as his wife, in the process.

Mario and Bob started their conversation warily. For a few minutes they both pontificated, Mario pompously being the President upholding behavior standards to his wayward relative, and Bob was the angry dissident. Then I asked each of them to talk about what they wanted from the other. Bob wanted Mario to be more like a brother to him, able to listen, and even available to think about his career options. Mario felt he could never trust Bob fully, always felt he had one foot outside the company, never sure what he was up to. It was awkward for Mario to try to supervise Bob, especially in the fishbowl of the business. They were wary adversaries, rather than colleagues of even on the same team.

We could have continued to address their relationship, what they wanted from each other, and how it could improve. But the conversation shifted, as Mario, agreeing with Bob, began to talk about how frustrated he was that everything went through him, and how he wanted Bob’s help to get over it. They began to talk about how to change the business. I noted that for the first time, Bob and Mario were agreeing with each other, and the energy of the conversation was rising. We talked about how Bob and another key manager felt they could not deal with rising problems on their own, and that there was no business meeting where they could deal with general problems. Mario had created a structure, appropriate for a smaller business, of asking everyone to come to him individually to resolve a problem. As a result he was overwhelmed, and people had to find him and get his attention. No one else felt they had the authority to solve big problems. The upshot of a long discussion, where we drew on a big paper on the wall everyone’s responsibilities, and how decisions were made, was to decide to restructure the company’s management. There would be an operations council, consisting of Bob, the other general manger, and Cliff. Mario would participate at first, and then move out and receive regular briefings on what they did. This opportunity excited Bob, and Mario agreed to talk to Cliff about it.I would help the council form, working with them to define how they operated, and helping them set the agenda.

As a consultant to the family business, I am concerned with the health, well-being and balance of two human systems–that of the family, and the business that it owns and often manages as well. These two systems are deeply intertwined, some would say enmeshed, because many of the same people have roles in both systems. They are parents, children and siblings, as owners, managers, subordinates and employees of each other. I often meet an owner who feels that he is the business, or a son or daughter who feels powerless, or entitled to a lifetime income by virtue of being born in the family. Their relationships are often confused and ambiguous, until, as with Mario and Bob, the two roles lead to emotional pressure, and a clash of interests. Family scores are not kept at home, but are acted out in public on the playing field of the business.

Entering the world of business does not mean just mediating family conflict inside the business.I not only try to remove purely family conflicts from the business, but also need to deal with the effects of the family’s control over the business on the business itself. The business puts conditions and constraints on relationships which family members don’t understand or accept. They feel them as personal affronts. For eons, it was enough to be the oldest son to be entitled to inherit the land and take over the family. Today, the complexity of business, and changes in cultural values, has made this outcome more equivocal.

For example, when a father with three sons working in his manufacturing business asks for help in deciding who will take over the business, that is not simply a psychological question. It does not call for family democracy. Running a business is not just a family entitlement. The three sons were all dedicated and hard working. The oldest son Tom was a good salesman, but didn’t know much about other parts of the business. The middle son Paul was an accountant, running all operations. The younger son, known as Prince Charles for his lordly ways, did some important projects, but acted as if he were working on his own. He, however, expected that the business would be run cooperatively by the three brothers, just as his father and uncle had run the business before him.

But succession is a business issue–who was capable of running the business? While clearly it was Paul, Charles feelings of wanting to be a partner, as well as Tom’s feelings about working for his little brother, made the business decision combustible. Like most family business consultations, working with them had both a business and family dimension. The more difficult issue was to get the three sons to begin to act like managers, not sibling rivals. Each time we got together, it was like a living room conversation, with Charles complaining, Tom quiet, and Paul angry but trying to placate Charles. They needed to address the future of the business, because their industry was getting more competitive, and one of the large companies in their industry wanted to buy them out. Their family feelings led them to focus all their attention internally.

Later, Paul would talk to me privately about his frustration with the family. The family dynamics were suffocating business development. I got Paul to turn to his Operations VP, who had been with the company for many years, to look to the future when the family team stalled. While Charles could continue to draw substantial income from the business, as a 33% owner, we helped him decide to move out of management, into a special projects role with the company.

The meaning of the family business is deep inside the family. It is a reality for children all their lives. When dad comes home and says I want everyone to work in the business when they grow up, they remember. One family was deeply torn by a highly impaired son, whose sister’s first act when she was named President of the business was to fire him, saying that the family should have done it years ago. Of course; but Kevin had been raised hearing that everyone had a place in the business. His parents were deeply upset by Ellen’s action, which upset family harmony. They saw only the effects on the family, not the business need for the firing. The family rift and the pain will reverberate through the family forever. The consequences are even graver when the hurt begins to weaken the business. A meeting of the whole extended family is a way to convene this network effect–overcoming past hurts in light of current needs and realities, sharing personal experiences and aspirations, and looking ahead to everyone’s future.

Every consultation begins with a problem. But the problem always lies within the whole fabric of the deep meaning of the business for the family. The business is the most powerful, public, important and consequential thing the family has done. So, to unravel a family conflict, to create effective boundaries between family feelings and business imperatives, to heal hurts from dashed expectations due to new realities, and to plan to revolve future conflicts before they erupt, the family must come together as a whole, and learn about itself.

The most exciting and meaningful part of my work comes when I bring all of the family members together to resolve difficulties, and to create the future of the family and its business. Running this family retreat is part theater, part teaching, part therapy, part business development and part hosting a Big Chill-like family reunion. There is nothing like it. But the retreat cannot just run its course; it needs careful and sensitive design and oversight. That is the art of family business consulting. After getting to know each family member individually, and planning with some of the family leaders, I come to a usually lavish resort for the event. I always feel deeply privileged when I check into one of the great resorts of the world, and I don’t even have to know how much it costs. Each family member arrives, sometimes from all over the country, to see people who are very familiar, but sometimes also very estranged. I have watched a father and his girl friend be greeted coolly by his ex-wife, a rebellious sister reconnect with her strait-laced brother, and two estranged family branches circle each other warily, after not talking for years. As family members get together, I feel the cross-currents, the feelings, the forced jolliness and the deep and genuine affection struggling to find expression.

I have a strange role. I am not part of this group, but I share every moment with them. I know their secrets and major tensions. There are great expectations and fears around the event. Some of the key players are usually reluctant to come. They had to be convinced, and now they look at me suspiciously as if saying, well, you got us here, now perform. I have taken on a lot of responsibility for steering the events. I am a member of the family for a few days. I live with them, eat with them, and share their joys, family stories, pain and possibility. It is a heady experience. But I am also prepared to go–not to be their friend, but to move along. I sometimes joke that I have to remember that I am part of the help, not part of the family.

Structure, planning and clear setting of expectations are the key to success in family retreats. I clearly communicate, in writing, with all family members about the issues I feel the retreat should explore. While nothing is ruled off limits, I tell families that if they feel a topic is too sensitive they should let me know. I may suggest that the areas of greatest conflict not be tackled at the first retreat. The retreat is billed as the first event of what will become a regular process, maybe meeting two or three times the first year, and then once a year. We plan sessions with a clear theme and I manage the process. As a facilitator, especially when there gets to be twenty or more family members sitting in a large circle in a meeting room, I have to make sure there is an even exchange that does not polarize around one or two people.

Experiential activities get everybody involved and surface a lot of information. They are also fun. We do things like have each family member draw their personal lifeline and share their life history, write on large post-its things about the family that people want to see changed, or meet in small groups representing each generation, sex, or role, to talk about common issues. There is a lot of story telling. I am always surprised how much parents assume, or forget to share, and how much it means for both the teller and the listener to really hear the family story. In one gathering, the family shifted from telling great success stories about the financial triumphs of their grandfather, to sharing family secrets–that both grandparents had been alcoholic, and abusive. One family member said, let’s all just say things that we have heard about grandpa that we never talked about. Remembering in public the family’s three generation struggle with alcohol, affecting every person in the third generation, was a great healing event.

Family retreats are more than occasions for sharing and communication. One of the primary tasks that make them different from therapy is that the retreat convenes a formal body called a Family Council, which meets regularly, to regulate issues facing the family. The Council generates written agreements that remember, define or clarify for the current, and future generations, the core values of the family, the purpose of the business and how the family will participate in it. Structure is critical when managing complex boundaries. When a family creates explicit rules for how a family member can enter the business, whether in-laws can work in the business, how stock in the family business can be bought and sold, who will run the business, and how the family will support the education and lives of its members. The best medicine in preventive, and this is never more so than in business families. The first family retreat is an opportunity to talk about what people already assume, expect and desire in the future.

Family gatherings invent creative ways to deal with business issues. As families move through generations, people proliferate. No matter how big the business has become, it is not big enough to contain all the family members. Family Councils have to define rules for entry and working in the business, and separate that from financial support due to family members. A large business can support more family members than it can employ.

One family with several large businesses was facing conflict about which of the talented offspring, and their spouses, could enter them. Some felt that the sons of the father who was CEO were favored over others who might be more competent. Other young people didn’t know if they wanted to join one of the businesses, but wanted to know more about it. We solved the issue by asking the CEO/father to set up a Business Seminar, which would be held twice a year. Any family member could joint the seminar, which would last for two days and include briefings about the finances, what was happening in the different businesses, and opportunities to meet and learn from key managers. Family members could become acquainted with the business, and could use the seminar to talk informally about their interest in finding a job. The seminar defused some simmering conflicts.

Retreats usually last several days. We meet most of the day, but take time off for fun and informal time together. The reconnecting and bonding of the retreat are as important as the formal sessions. There are family skits, awards and sports. My ultimate goal is to develop leadership among family members, and pass responsibility for future events to them. Usually, I facilitate the first few retreats, especially if there is a precipitating crisis, and then see the family continue by itself.

Family business consulting differs both from psychotherapy and from traditional business advising. Traditional expert advisors–accountants or lawyers–tell the family what they should do–how to save taxes, or what represents sound management. They do not often think about how the family can follow the advice, or manage the effects of the advice on some family members. Therapy, on the other hand, fosters deep communication of personal information, but rarely designs structure, deals with formal business issues like stock and compensation, or includes other family advisors such as bankers or trust officers, at meetings.

The emerging field of family business consulting offers owners and their advisors help in how to have a working business and still contain and manage the family feelings, rivalries and dysfunctional patterns that arise in them. Family business consultants are frequently hyphenates– comfortable working on the boundary of two or more disciplines. Some family business practitioners have not been trained in family therapy. They are accountants, lawyers, or organizational consultants who have applied themselves to learning about families to support their clients. Family therapists who move into family business work tend to learn about organizational development, and attend continuing education courses in topics like estate planning. A family business consultant can’t be afraid of numbers, and has to understand the dynamics of money–both what it can do, and how people feel about it. Family business consultants all have a discipline of origin, but they have to become conversant and comfortable working across disciplines, and they have to work as partners with professionals in each discipline. In my case, my masters degree was in organizational development and my doctorate in sociology; yet I was licensed as a psychologist and practiced as a clinician for many years before moving into organizational work.

A typical call comes from a family member wanting help with a crisis with emotional overtones, usually a family conflict that spills over and affects the business. Recently, a daughter calls, and we begin a careful but very consequential discussion. I talk about how I help the families who own and manage businesses work together to manage the boundaries between the family and the business. The daughter wants to get the family together, but her father is highly skeptical, and her mother doesn’t want to be involved. What do I do? she asks. I explain, and she tells me that they are exploring working with several consultants. The family agrees that they want someone to help them form a family council, which can then decide which of her brothers should take over the business.

My first step is to arrange a meeting of the family to meet me, and for me to meet talk about what I do and what they want. Then they can decide if they want to hire me. I usually try to talk to the most skeptical person before the meeting. In this case, it is dad, who at 78 still comes in to the business every day, and rules with an iron hand. He has his own advisor–the family lawyer who he plays golf with every Wednesday. He says he is getting ready to decide about the future of the business. My call is not especially interesting to him. What do I do? Why do they need me? The sub-text is clear to me: will you interfere with my personal control and agenda? His hunch is that I will. Why should the family get together? he asks. It’s my business and I have the right to decide what to do with it. Yes, I say, but if you don’t share your thinking with your sons and daughter, and hear what they want, you run the risk of their not understanding what you want, and your creating a strategy that they can’t accept. Since the others in the family are concerned, they should consider having a family meeting just to listen to each other. That he can understand, and he tells me that he has a lot of trouble talking to his kids, especially his son. I am getting his attention. We talk a little more, and agree, that, if after the meeting, they want to work with me, we will have a long talk before I recommend anything to the family.

Family business issues cut across professional disciplines. They involve lawyers, accountants, financial managers, insurance agents, and management consultants. The therapist has to learn that emotional work in families with substantial wealth, or who own a business (and reputedly more than 90% of the nation’s business is owned and managed by families), must fit with the tax advice, financial planning, estate plans, trusts, and management consulting that impacts the family and its business. Each profession talks a different language, and approaches problems from a different perspective. My role has evolved from being the family’s therapist, to coordinating, managing and integrating these disparate advisors, to help the family to define its own agreements, boundaries, rules and working relationships with each other, and with their business.

The dilemmas of a family business all stem from the intersystemic nature of the family business system. The family business contains at least two discrete, interconnected social systems, encompassing many of the same people, but with widely varying contexts, goals and natures. The family comes first, and relationships develop at home.

While the family is based, ideally, on unconditional acceptance, shared economics, and on promoting human development, the world of business is different. In a business people inhabit a role, they can be fired, they are accountable for results, and they have formal clearly defined relationships with each other. Now, imagine a son or daughter entering the family’s business. He or she is raised around the business, and gets to know key employees as the boss’ kid. As a teenager, they may help out or have a summer job. They expect to get a job, and they don’t think about what skills or qualities the business needs. Dad in turn, feels he has to hire his kids, or if he hires one he has an obligation to the others. The family begins to make business choices to accomplish family goals, and this sets the seeds for later conflict.

As the members grow, some family members may decide to enter the business as a career, whether the business needs them or not. One daughter told me that she worked in the business because that was the only way she could see her dad.In addition, sons and daughters expect to inherit ownership of the business, or have an income from it. Successful families struggle with the sense of entitlement that grows up among family business heirs. After a few years, the family members working in the business often have a different perspective: they feel they are working unfairly to support inactive family members. Parents in turn want to be fair to each of their offspring, and they strive to give equal, or equivalent legacies to each one. This, as family business consultants find daily, is easier said than done.

Entry to the business for family members represents a deep challenge to both the family and the business. The parent/child relationship shifts to become a boss/employee relationship. Yet each person perceives the other primarily through the lens of their long family history. They carry expectations, hurts, desires, and aspirations from home to the business. However, the business is a different world. But other people are also involved: employees who see the scion as a competitor or obstacle, people who want favor with the boss, and customers who want service or goods from the business. Relationships are even more delicate because within the family those who enter the business and siblings who do not may be competitive; the family may not want to favor one or the other, but the person working in the business may have particular expectations.

Skipping ahead, one can easily see how family dynamics create pressure on the business. In addition to the issues that businesses face, the overlay of family dynamics creates another level of complexity. The family’s style of communication, or lack of it, their myths and ways of seeking validation from each other, all are passed on to the business. The emotional reality of relationships–parent and child, brother and sister–comes from a different context, and a different era, than the business relationships. The family reality is transferred into business. Instead of growing up and leaving home, sons have to face their father’s expectations every day, and siblings continue a rivalry that began years before.

Family business crises usually arise from the transfer of family dynamics into the business. Added to this are the various developmental processes that take place in the business, the family and individuals. Every business, large or small, faces tremendous, continual pressures to innovate, respond to new competitors, go global, use information technology, and respond to customer demands. If the family has provided the business with family members who work in the business because they are family members, not because they have the commitment, or the skills, to manage the business, then the stage is set for disaster. Other situations arise when a family member wants to use the business to support one individual, or when family members try to use a job to support an impaired family member. These remedies create a business that enmeshes people, and keeps individuals from growing independent and creating separateness. Family businesses make the normal individuation and separation process difficult.

The business becomes a prize, a trophy, and a source of identity. It is hard for a business to contain all of this. The burden has sunk even very large businesses. The business is the legacy of the business founder, and he may find himself so identified with it that it is hard to see one of his children take it in a different direction. A son or daughter may feel that they have to work in the business to be noticed by dad. Another may feel that the business owes them an income, since their parents were never there when they were growing up, and therefore despite their wealth, they are deprived. The amazing thing is that these dynamics are common even in the largest public companies. Where there is family control, family symbolism can be more important than business realities.

I deal with the family up close and personal. Emotional dynamics cloud out reflective thinking. I often have to face a family patriarch–canny, used to being in control,facing a consultant hired by his wife or children. Recently the 68 year old owner of a sports team asked me in to hear what I had to say. Then he talked for two hours. I couldn’t find a way to break in, even knowing the way his sons had briefed my on how he never listens to anyone. When I tried to break in, he would either ignore me, or listen and then go off on another tangent. I knew what to expect in the upcoming family retreat, and indeed, at points where other people were talking he either got mad at them, reactively misunderstanding what they were saying, and then launched into a long mea culpa. At the end of the gathering, I helped one of his sons see that he needed to leave the business and go off on his own,and another to take over a part of the business in another city. Practical solutions to intractable relationships.

The family business consultant works on the boundary between the family and the business.How can a business problem keep from erupting into an oldfamily argument, split along sex or generational lines?How can the founder learn to let go, and feel comfortable leaving it to his children?Who shall be the heir apparent, and what can be done about the hurt feelings of the others?Can you fire a family member?How dosiblings share inherited power and ownership? When should a wife or husband allow their spouse/partner to make pivotal decisions? How does a son supervise an employee who changed his diapers 22 years ago? When does an heir close down a family business, and how should he do this? Such dilemmas, added to the traditional business issues ofmarketing, planning, organization and human resources, are added challenges for family businesses.

The Sandersons: Dynasty 1990s Style
When I work with families who inherit wealth, the drain on young people’s motivation and ability to develop skills and a career is palpable. Since there is no free lunch (as much as it seems otherwise), the strings attached to inheritance are often subtle and hard to decipher. Helping heirs to develop their identity, and find a guiding purpose–work in the broadest sense–is a key theme in family business work.

There is another side to work with families. As the business moves through generations, the family is less involved in running one business, and more with the care and feeding of its various investments. These dynasties are still family businesses, in that the family has a shared business of wealth management, but the themes are different. More family members find themselves asking why they have such inheritance, and how they can use it in socially beneficial ways. One of the most rewarding parts of my work is when I see families looking at their core values, and asking how they can use their money to benefit society.

Gerry, an investment banker who finances one family member’s buying out others who share ownership in privately-held businesses, which is often necessary to “prune” the family tree as a business moves through generations, was considering becoming the financial advisor to the family investment office of one America’s largest, and oldest, family fortunes. The Sanderson Family accumulated vast stakes in coal, timber and other natural resources in the 19th century, which led to several major corporations. Over seven generations, the family had several branches. The Kentons, one of whom had gone to college with him, asked Gerry to focus and help manage their vast portfolio. Gerry began to talk to family members about what they wanted, and run into conflict. Brad and Daisy Kenton, in their 80s, lived in Pebble Beach, and were active in philanthropy. Their oldest son, Andy, had been the charismatic, vigorous and effective family leader, died last year suddenly and tragically from cancer. Soon after, the younger sons, Eric and Dan, in their late 40s, began to fight. They, along with their sister Patricia, an architect in New York, were trustees of the various funds. Eric, who had always been in Andy’s shadow, was a writer and historian living in Maine. Dan lived on a ranch, and had gone from being the black sheep,using drugs and leading a rock band, to the most earnest and dedicated family supporter.

The family had several trusts, including two gigantic ones that would be distributed on Brad’s death. Brad wanted to deal with the future while he was still active and vigorous, and he especially wanted his heirs to maintain the family’s wealth as an integrated whole. There were smaller trusts for each of Brad’s grandchildren, and each child had to make separate decisions about what to do with his fund at the ages of 21 and 30.This is only the haziest outlines of the complexity of the family’s wealth.

Behind the wealth was a highly dispersed flesh and blood family, tied together by interlocking trusts and a family heritage. Eric was angry at the family, and his participation in the trust meetings was marked by obstruction, endless objections, and increasing demands for control. He wanted his wife, Betty to attend trustees meetings. Family members, including Daisy, had always been welcome at the quarterly meetings. But Betty was not well liked, and she not only wanted to attend, but to participate. To further complicate matters, Eric didn’t want his mother to come to the meetings. Stalemate ensued, and Eric threatened to begin to separate himself, and his trust funds, from the family. His father, furious, but unable to confront him, had initiated steps to take him off the Board of Trustees.

That is where things stood. Gerry had to decide whether to work with the family. It was an incredible opportunity for him, but he was concerned that things would begin to fall apart. The family wanted to heal the split. The annual family meeting was scheduled in two months, and Gerry wanted me to work with him, and the family, to design the event. I agreed to ride down to Pebble Beach to talk with Brad and Daisy. We drove down to a huge Spanish-style mansion, overlooking the sea and the golf course, and were shown in by Brad. Daisy came by, very busy, and said she would meet us later for lunch. Brad was quieter, more reflective. We talked and he was very concerned about his sons, but felt helpless to get Eric to be part of things. He had trouble being direct with them, and felt that he couldn’t understand what Eric was upset about. He blamed his actions on interference by Betty. The family was holding a large meeting to look at their investments and their future in two months, and we agreed that I would help them plan and design the meeting. It was clear that Gerry was also defining his role as advisor to the family.

Daisy was the yang to Brad’s ying. She was a ball of energy, sharp talking, blunt, opinionated, very intelligent, but also a bully. It seemed as if Brad and she avoided each other, living in separate worlds. As I talked to her children later, I found that there were huge resentments and difficulties in their relationship to her. She wanted to take over every detail of the planning for the retreat, as it seemed she took over details of everything.

We need to fast forward now two months into the future. I had long talks with each family member, with financial advisors, and planning meetings with Daisy and Dan, concerned phone calls from Eric, and many drafts of the overall design. It has as heavily orchestrated as a wedding or a corporate board meeting, which suggests the blend that it was. Held in Spanish Bay, the resort above Pebble Beach, Daisy spent time with the staff, having them buy new tablecloths for the meeting, in a pattern she selected. We made large posters of charts of financial reports, trusts, groundrules for the meeting, and all of the key points that were made. We agreed that people wouldn’t get large books of figures at the meeting, but would receive only short reports, and then get full reports after the meeting. Every one of four generations of family members was sent an invitation, and all expenses were paid by the family office.

Forty-two family members flew into town, arriving with babies. They included ranchers, executives, and a radical poet and her professor husband from Boulder. Since they represented four sibling families some of them did not know each other well. We got together and had a dinner the first night, where people talked about themselves and said something important and special about who they were. The two days of the conference were divided into two parts: Day One focused on how the family would create an organization to coordinate and oversee its investments and philanthropy, and what values would guide it. Day Two featured presentations and discussions with each of their key financial advisors, and agreeing on an overall set of goals and values to guide their investment strategy. Their talks would also inform and educate family members about what they were doing, the nature of their various trusts and investments and how they could participate in them, and the responsibility of an investor to make informed decisions.

The room was lovely. The tablecloths on the small round tables fit perfectly with the room, and the walls were filled with posters so that we did not have to use overhead projectors for presentations. Places were assigned to mix people as much as possible. We had several flipcharts to record discussion points. But the starting place was personal–we began to talking about the history of the family. Several younger family members, and Brad, talked about the history of Sandersons, and its role in development of natural resources, while also pointing out some of the long-term negative consequences of some of their ventures. I could sense there would be some conflict around this issue.

Each person then talked about what they wanted from the meeting. Again, points of distress and disagreement began to surface. Then we began to talk about what the family stood for, what it meant to be a member of the family that was special to them, and what liabilities and downsides they felt. First each table talked, and then reported to the whole group.Mixing small table discussions with large group reporting created an environment where everybody could talk, and get to know others, while exerting some control over the flow of the day. I wondered whether Ross Speck would recognize this manifestation of his handiwork? We came up with a series of statements that defined the values of the family, in what they expected of each other, and how they operated as an investment. Some of them were of the motherhood and apple pie variety, but others–the expectation of each person getting a broad education, love of the land and the environment, interest in arts and culture, and expectation of family members keeping informed about the family office, were highly specific. They had an especially intense talk about how the family did not expect that everybody would earn a living through their work, but the value was that every person was expected to do something to contribute to the community, work that that a clear outcome they could point to.

The day flowed through a series of themes. We defined how the family would work together, and what the family office could and could not do. The office managed their financial affairs, taxes, incomes and helped them in major financial decisions. It was not a travel agency or employment agency. The family learned about how trustees were selected from each family, and how the management of trusts passed through each generation. When they were 21, and again at 30, each family member’s trusts would mature. At that time, they could take their money out of the family office and invest it, or spend it all, themselves. The family message was clear–we hope that you don’t do this, but you need to make an informed decision to stay. The third generation people who had made that decision talked about it, their concerns and the effects of it.

There were two very powerful moments in the retreat. First, people were very solicitous of Eric and Betty, and they began to warm up to the group. By the end, they talked about how much they felt accepted by the family, and how important that was for Betty. Eric talked about how his dissatisfaction arose from a feeling that his advice wasn’t listened to or appreciated by the family. He was glad to be back, which especially pleased Brad. The other event was in the discussion of the values of the older and younger generations. The younger people, representing Generation X, were skeptical, although not outrightedly rejecting, of the family’s values and intentions. While the family talked about social responsibility in their investing, the younger members wanted to be more active in doing good. At dinner the second night, and in talks with Brad, the younger members talked about how they wanted the family to become identified with leadership in the environment. They agreed to focus the foundation on the environment, and to set up something like an environmental prize, and support of several visible ventures to restore wilderness. While younger members were not trustees for the investments, they could become trustees of the foundation. A council was formed to work on this issue, which would bring together some of the younger generation, help them get to know each other, and help them fulfill the potential of the family. The gathering ended with a real sense not just of the ponderous past of the family, but of an exciting future that was more than living off the wealth of the founders. As I left, I had a sense that I too was fulfilling my own commitment to family and to the community, as a family business advisor.