Family and Business: Match Made in Heaven or Lethal Cocktail?

Greg had been working as a sales rep in his father’s Vancouver Island sawmill for the past five years. His dad had founded the company forty years ago and turned it into a successful enterprise. He had invited Greg, his only son, on board with a view to grooming him for senior management and perhaps one day taking over from him.

Greg was highly conflicted about working in the family firm. On one hand, he realized how fortunate he was to have an instant “in” at a successful company, especially in a tough economy. What’s more, his job came with great perks – a comfortable salary, a late model car and even his own home. Not bad for a 27-year-old.

On the other hand, Greg knew his last name had gotten him in the door. Besides, he wasn’t sure if he wanted a career in forest products. He had another side to him: he loved children and teaching. He imagined himself an elementary school teacher, helping kids learn. But he kept these aspirations to himself. First, his father, a hard-working, rough-hewn lumberman who viewed teaching as “girl’s work”, would laugh him off the island. Second, Greg himself knew the sawmill provided him with a seductively comfortable life and financial future at a young age. If he followed his interest in teaching, he’d have to get a teaching degree (no income for a few years) then get a job that would surely pay less than his current one.

All families have problems. But family businesses face more intense conflicts and difficulties than non-family businesses because along with typical family dynamics, factors such as power, wealth, sibling rivalry and ego are thrown into the mix. There is little wonder, then, that most family-owned businesses don’t make it past the third generation. Take the case of the Bronfman family’s Seagram liquor empire. Sam Bronfman built it up, his sons, Charles and Edgar, continued it into the second generation. Then Edgar Bronfman Jr. became CEO and decided he’d rather get into entertainment than flog booze. In the mid 90s, he sold the family’s longstanding investment in E.I. du Pont de Nemours & Co. to buy 80% of MCA Corp., the parent of Universal Studios. He received harsh criticism for the move. Since then, Seagram merged with Vivendi, the French media conglomerate and Seagram’s liquor assets were sold off. As with Greg, offspring of entrepreneurs face mixed feelings about working for their family firm. For starters, they face huge expectations to live up to the founder. Or, they may feel they’ve been pulled into the business against their will. Some may simply not be as skilled as the founder.

Entrepreneurs are gifted, hardworking visionaries. But there is no guarantee those traits will be passed down to the second or third generation. Heirs may also resent their parents/founders for the time put into the company and away from the family and as a result, not share the same passion for keeping the firm going. Or, as in Edgar Jr.’s case, they may want to use the company assets to pursue their own passions.

Founders have many quandaries too: should they even bring their children into the business? How do they structure the business so each offspring is treated fairly when they retire or die? Entrepreneurs may either ascribe more talent to their offspring than is realistic, or by contrast, doubt that their children are as talented as they are. They may wonder if the offspring will end up as coddled employees of the company they toiled so hard to build.

Succession is a major family business issue, but sadly, many entrepreneurs ignore it until it is too late. It’s natural to ignore the question. Who wants to think about their death? But addressing who will replace the founder when he/she either dies or retires is critical to the success of the business. There have been numerous cases in Canada about squabbling over the family assets if the founder didn’t get around to succession planning. If the entrepreneur’s desire is to ensure that his or her business lasts for many future generations, adequate planning is the key. This could take the form of grooming seasoned management, rather than offspring, for the top job, or educating talented offspring in the business.

The Canadian corporate landscape is full of failed family businesses and those that have been rocked by conflict. There is the Montreal Steinberg grocery chain, whose founder Sam Steinberg built into one of Quebec’s great business empires. His daughter Mitzi entered the business, with dubious results, but as long as the visionary Sam was there, problems could be fixed.

However, Sam died suddenly in 1978 at age 72. According to Ann Gibbon and Peter Hadekel, the authors of the book “Steinberg: The Breakup of a Family Business,” the company was left rudderless. Mitzi quickly installed her husband Mel Dobrin as chairman while a series of troubled presidents ran the company for a spell. By the early 1990s, a lawsuit launched by Mitzi against her sisters triggered the end to the Steinberg chain. It was bought by a rival grocery company. Other disputes have involved the Canadian Tire Billes offspring and the Vancouver-based Bentall brothers, whose relationship suffered due to succession issues related to their real estate and construction empire.

In the case of Vancouver-based conglomerate Pattison Group, its charismatic founder Jimmy Pattison has by and large kept his offspring out of the firm. He has also stated publicly (without spelling out details) that there has been a solid succession plan in place for years.

In our business, we see plenty of family dynamics that threaten to harm the business. Here are some tips for seeing your family business beyond the third generation:

1. Where possible urge your children or relatives to get some experience outside the company. They could be encouraged to obtain relevant training or education or perhaps work at a job of their own. They will not only build up skills that could be useful in your family business, they will have derived personal worth and a sense of independence.

2. As the founder, watch that you don’t think you’re immortal. While you built the company, sacrificed for it and were its visionary, you will have to leave the company one day. You will either pass it on and retire – or you will die on the job. And if you don’t have a proper succession plan in place, your business will likely die with you. Make sure early on you have not only chosen a successor, but that you are grooming that person – family member or otherwise – to understand and operate all aspects of your business. Before you leave prepare yourself for feelings that may include sadness, relief, ambivalence and nervousness as you hand the business off and as you undertake other retirement pursuits. Life doesn’t end at retirement.

3. Steinberg authors Gibbon and Hadekel advise in their book that instead of dividing the business equally among all the heirs, hand it to the offspring who shows the greatest desire and has pursued relevant leadership development, education or other job experience, the most ability and the biggest interest in it. Give something to the other siblings, but give the majority of worth to the child with the passion, interest and ability.

4. Children inheriting the reins of the family business benefit from gleaning as much information from the founder about the business and the founder’s ideas for its future direction. Dealing with the weight of family business history and the responsibility that comes with it can seem a bit daunting. As the member of the next generation, remember to identify how your contribution will move the business forward, face all “I don’t know if I can do this” fears and come to terms with the ways in which the business limits your sense of personal independence and freedom of choice.

In the end, Greg decided to stay with the business. But he worked out an agreement with his father to take a leave of absence to do volunteer teaching at an inner city school for the better part of a year. He felt satisfied after the experience and was fully ready to return to the challenge of the sawmill.

Dr. Jennifer Newman and Dr. Darryl Grigg are registered psychologists and directors of Newman & Grigg Psychological and Consulting Services Ltd., a Vancouver-based corporate training and development partnership. They can be contacted at sunmail@newmangrigg.com

Identifying information in cases cited has been changed to protect confidentiality.

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