How Advisors Can Tell If a Family Business is in Trouble
September 20, 2013 6:05 PM
The patriarch is trying to protect the business for the children, but is over-protective, and enabling the children to become passive,says Lachenauer.
Advisors need to tell their client to let the next generation become adults, even if it means making mistakes.
We suggest they ask their client this question: If your father or mother had done this to you, could you have been as successful as you are?
The problem is when the roles arent carefully delineated,Lachenauer says.
We see this a lot in one conversation, a family member is speaking as a parent, a boss and a leading shareholder. Which is it? If advisors notice this, they should suggest their clients adopt different dialogues for different roles. As we like to say: structure is your friend.
There a lot of family business where sons report to their fathers who are the boss, but thats all they ever do,Lachenauer reports.
They are close but too close. Advisors may want to diplomatically suggest fathers let their sons loose on a broader playing field so they can learn and grow in different situations,he says.
Otherwise, its a classic coddle model, and while the intentions are good, the outcome is almost always bad.
Theres a lot of personal value in the company, and assets that arent exchangeable,he says.
We work with two similar companies that are family businesses. One pays out hundreds of millions of dollars in dividends; the other has no dividends if family members need liquidity they have to sell shares. The first company is bogged down by terrible infighting; the second doesnt have those problems. When its all about the money, thats all its about, and that leads to conflict.
Weve walked into board rooms where there were twelve family members and each had their own lawyer,he recounts.
Its an obvious sign the family members arent communicating directly. If advisors notice this going on, they should suggest that family members get together in a room without lawyers, draw up a term sheet and discuss issues among themselves so no one feels threatened. That should be the starting point. Lawyers can come later.
Issues about the business should be aired out in private first,he says.
An advisor may want to help clients find a safe place for family members to talk openly, and possibly recommend a mediator or a therapists if problems persist.
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