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Emotional Dynamics in Family Business: Challenges & Opportunities

When a business decision becomes a family problem –

Stephen imagined his 65th birthday party at his son Kevin’s home would fill him with a sense of achievement. He and his wife, Gloria, just five years younger, had built their businesses together. They owned a number of real estate brokerage agencies and development properties. Stephen is dismayed at how the decision he and Gloria need to make about what to do with the businesses seems to be affecting their relationship with their four children: Kevin 35; Lucy, 26; Sarah, 23; and Cynthia, 21.

Only Kevin is in the business. He has made significant contributions to the success of their real estate development businesses, the agencies, and developing investment properties.  He has foregone the salary he would have received at other enterprises believing that his father and mother will compensate him in terms of controlling assets in their wills.

Once Stephen told him that he and Gloria are considering selling the offices and just managing the real estate assets, it has been very stressful for Kevin, who was counting on this position being a lifetime career.

Last week each of the children let him know they need to know how the assets will be divided and what is going to happen. In just a few days the issue of assets, i.e. money and equal shares, has created stress between family members and there are some very harsh language positions being taken.

Now Stephen wishes there were no birthday party planned next month. He’s worried about what will happen when everyone is at Kevin’s. He feels angry and uncertain about the future.

These problems aren’t unusual

“Disparate family goals, values, and needs” are one of the biggest challenges that business families face according to John L. Ward, author of Growing the family business: special challenges and best practices in the Family Business Review (1997, 10/4) Kevin’s family business story also illustrates all four of the challenges that Peter Leach names in the Family Business Rulebook:

  • Lack of communication (conflict)
  • Family members’ employment in the business (Merits VS Entitlement)
  • Business transition to the next generation (Succession)
  • Manage change in both the family and the business (changes)

PricewaterhouseCoopers surveyed family firms operating in 35 countries and found that 62% lacked a family strategic plan and 44% lacked common family interests.

It’s common for a fear of conflict to prevent families from even talking about the decisions that need to be made, let alone making the decisions or actually carrying them out.

Often there is no one within the family that has the soft skills in communication and facilitation needed to create an environment that feels safe enough to deal with the emotional issues within families that have a profound affect on the family business.

Fear of conflict and change, sibling rivalry and other unresolved issues from childhood, as well as “pairings” within the family or other issues that feel too hot to handle, need more professional knowledge and experience with family dynamics and ways of structuring meetings and conversations to allow the necessary expression of emotion while ensuring that exchanges are constructive and focused on meeting family goals.

Typical solutions

Families often seek structural solutions to emotional situations. These types of solutions are concrete, usually well defined and familiar to most business owners and their advisors. These typically include focusing on tax strategies and financial planning and estate planning with an array of interventions such as an estate freeze, selling the business, putting shareholder agreements in place, and pruning operations or branches of the family. Any of these could be useful and still not get at then emotional issues that are creating negative dynamics within the family and the business.

When emotions are ignored problems aren’t solved

When the emotions that are in play are not addressed family fighting and conflict can continue with resulting loss of financial capital and family wealth over time. Family members and essential non-family business employees may decide to leave a toxic or uncertain environment. Eventually the business can fail as the family issues intrude on the success of the business ventures.

Sometimes families think that the emotional dynamics have been addressed when  they have either been corralled (we’ll deal with this after . . .) or buried. Differences are not fully understood or worked out, sibling rivalry is disguised, nepotism and entitlement can flourish, roles and authority are not clear.

Signs that emotions are negatively affecting family business dynamics

  • Family members are afraid of conflict and lack the communication skills to resolve conflicts
  • Family member goals and values are unclear
  • Boundaries between the Family and the Business keep shifting
  • Governance issues come up when decisions need to be made
  • Decisions are often perceived to be based on entitlement rather than merit
  • Relationships and interactions fall into triangles where one person feels oppressed, one is named the villain, and one tries to save the first person from the villain.

The problem with triangles is that the solutions lie outside the triangle dynamic and those party to a triangle relationship will find themselves changing roles within the triangle so the victim becomes the oppressor and the rescuer becomes the new victim, etc.

Attending to emotional family dynamics

A Family Business Advisor with a background in family therapy and business has the skills needed to understand and resolve potential or actual differences and is able to teach the skills family members need in order to better handle the emotional side of family dynamics. These can be incorporated in normal business practice.

It is also important that family members learn more about business through courses and through working in other businesses so that they share a broader business context. Business policies can be developed that set agreed standards for performance and entry requirements for different positions.

Introducing money management skills to family members early on, and ensuring familiarity with the business, its values and operations, can avert some common difficulties.

Good governance promotes effective communication

The longer-term solution is to think about a strategy that will minimize differences becoming “too different”. This can be addressed by governance; developing a structure that clarifies the organization of the family and its relationship to the individuals, family groups, and the business. This process involves creating governance structures and a governance system. It can be done in parallel to working with the emotional issues that have become impediments to family harmony. It is also a way to build the relationship of family members to each other and the family business.

The rewards

Learning to attend to emotional family dynamics provides an insurance policy for both  family harmony and generational well being. Family business members who have both business knowledge and emotional skills are better able to preserve both human and wealth capital. The well being of the family and the increased probability that the business(s) will prosper and grow, and adapt are parallel to the families ability to meet changes in the environment together. The probabilities of loss both in the family and the business are greatly reduced and an increased probability of wealth preservation and family well-being through the generations is greatly enhanced with less stress and better decisions.

Hope for a happier birthday 

If Stephen, Gloria and their family can pay some serious attention to their emotions, learn more about communicating when emotions are involved, and clarify goals and values, Stephen’s birthday party could still turn into a celebration.

An experienced facilitator can help them learn the communication skills they need and help the family address the issues that need to be discussed in a safe environment without short-changing challenging conversations. Working with a facilitator will also increase their ability to move toward their desired state more quickly.

Ian Macnaughton Recognized for Outstanding Achievement

Communication Problems -- and Solutions -- in a Nutshell