Genus Resources conducts each family business intervention pursuant to a methodology, which we have developed carefully over nearly fifteen years. Our methodology is based upon the following critical underlying theoretical construct: Family issues drive business decisions
Although most professional service advisors who are experienced in working with family businesses would agree that family issues influence business decisions, Genus holds the view that the nature of its impact on family business is more profound than "influence. " Our position is rooted in family systems theory, a body of scholarship comprised of the study of human behavior and family systems. This theoretical foundation guides all of our actions and every consulting intervention by a Genus consulting team. Professional advisors who lack this training do not have the expertise to make such a statement nor to understand fully the implications that family issues inevitably will have in the family business settingdominating any business agenda and prevailing over any business or legal strategy.
If, as we believe, any advisor to family business must appreciate the power of family issues, professionals who work with family businesses must be aware of the particular, powerful issues that exist within each family they advise. As Leo Tolstoy wrote at the beginning of Anna Karenina, "All happy families resemble each other. Each unhappy family is unhappy in its own way. " They must know the issues and how they are played out between and among the family members, if the strategies they recommend are to have any likelihood of enduring beyond the first eruption of family emotion.
Professional advisors working on estate planning for family businesses encounter one clear example of this doctrine. Since estate planning consists essentially of architecture for the transfer of ownership (power and control) and family wealth (money) there is particularly fertile ground in these emotionally laden issues for family issues to erupt. That is to say, estate planning is not just about transferring power, control and money in a tax effective manner, but also about the predictable emotional responses to these planning decisions which drive much of the behavior of family members affected by the estate planning process.
The threshold issue is whether the present generation of family business ownership wants control of the business to continue into the next generation. If the present owners are willing to permit a loss of family control, and other family members are presently active in the business, the implications of this decision are obviously very serious for them. If the future generation of family member/managers is not part of the decision making process to end family control of the business, the impact of a unilateral decision by the older, controlling generation will most likely impact family harmony materially and adversely. Having described the family impact of unilateral decision making, we nonetheless recognize that this is not the arena where the traditional estate planning advisorıs responsibility lies when the client owners choose to sell.
Alternatively, when the client does want to continue control of the business into the next generation, family harmony is very much the responsibility of the estate planning advisor. This statement stems from our hypothesis that family issues drive business decisions. When an advisor develops an estate plan that creates conflict within the family, implementation of the plan places at risk the health of the family as well as the value of the family owned business. We strongly believe that it is a matter of professional responsibility to seek the advice of a family business consultant trained in family systems to guide you and the family through the maze of potent psychological issues triggered by plans to retain family control of a family business while passing ownership to a new generation and management control to a new team.
From our experience with nearly 200 cases over more than a decade of working with family firms, we have learned that certain common family situations or events should serve as red flags that the assistance of a multidisciplinary family business consulting team needs to be considered to assist the estate planner who is the senior architect of the case. These family realities include:
Unfortunately, training in psychology does not insulate one from being "blown up" by inadvertently stepping on an emotional "mine" that may lie hidden in the minefield of a family member's emotional life. On the contrary, it is the role of the clinical team member to locate these mines and place them, clearly marked, on the "family map. " A Genus consultation includes defusing of some of these issues so that the family can make business decisions free from the paralyzing fear of these exploding emotional landmines. Knowing which of these mines must be defused and which should remain undisturbed (as well as how to go about doing so) are determined by the art, skill and creative mix of our consulting professionals. This article shares our methodology with you and gives you a sense of how we address some of these problems during assessment. It gives you a window into some of the emotional family business issues weıve had to address through cases and examples that are representative of our firmıs work and the behavioral implications of our stance.
The first step in our assessment process is to create the map of the familyıs minefield. We call this map the assessment report.
Genusı assessment report has evolved over time. Currently Genus produces two types of reports, a written report (which is also presented orally at the report meeting) and an oral report, which is presented with written recommendations. Originally, we wrote a full report for every family. This report was considerably longer than its present version, involving a highly detailed analysis of both the family and the business, explanations of how the two systems interact and why, and a precise set of recommendations. This lengthy )and more expensive) report was developed initially for families interested in having a written report for their records. We also recommended this written report for families whose issues were so laden with emotion that it would have been difficult for them to hear or retain the information presented orally.
As our business grew and our fees began to rise, the lengthy analysis of the two systems seemed an unnecessary luxury for many families. We now offer a modified section on the family and the business for our families, all of whom are action-oriented, keenly interested in a written record of how we would address the issues. The written report is delivered to the family forty-eight hours before the family report meeting is scheduled. Experience has taught us that this two-day time frame allows family members sufficient opportunity to read through the material, digest it and develop questions about the report that they can bring up at the family report meeting. We do not send the report earlier because it is too easy for the material to be misunderstood. Since the report can be powerful and provocative, we would hate to have anyone in the family sit with a host of uncomfortable feelings for more than two days.
Our assessment reports are comprised of several sections. The first segment is a presentation of salient facts of the family's history over at least two generations, noting psychically important events such as immigration, loss by death or illness of family members, or sibling rivalry. Thereafter, limited by our role as business consultants and the rules of engagement which preclude our firm from engaging in therapy or legal practice with consulting clients, the clinical partner offers limited interpretations of what these dramatic events may have meant in the families and the behavioral manifestations that such events may trigger, both at home and in the business. Often these modest interpretations are the first psychological interpretations of their behavior that the family has ever heard. )The level of psychological illiteracy of many families which have produced substantial business success is difficult to overstate. )
The second section of the report is a description of the impact of the family system on the family owned business. This Family Impact Report TM segment varies tremendously with each report. It is our view that a primary determinant of a business organizationıs culture or structure is the chain of events in the history of the family (often over three generations) that owns and manages it. Obviously, other factors help to form the culture and the structure of the firm. While including these other sources, the report focuses on the impact of the family. It may include a description of the business roles of each family member active in management or endeavor to illuminate the artifacts of the corporate culture as expressions of family history.
In complex cases, this Family Impact Report section will often also include the results of a substantial due diligence investigation, and include data that is commonly contained in documents prepared for disclosure documents filed by companies registered with the Securities and Exchange Commission. This is especially important in cases in which the family firm is confronting problems out of the ordinary course of its business, such as a dramatic drop in demand for its goods or services. But each report remains a struggle to find a framework to organize the material so that the client can hear it.
The final section of the assessment report consists of detailed recommendations for action by the familyas a familyas well as by the family ownership on issues such as estate planning. Additional recommendations are provided on governance issues, such as changing the nature of the board of directors from rubber stamp to truly supervisory, and on management issues.
As described above, our assessment process concludes with presentation of an assessment report. This document, which often runs as long as fifteen thousand words, has been developed over the years to serve several consulting purposes. First and foremost, it constitutes a permanent record of our interpretations of the family's history, our analytical assessment of the impact of the family's history on the firm and of the firm itself, as well as a benchmark at a specific point in time, since we put in written form our recommendations for the family and the firm to resolve their family business issues. Thus, we are challenged by a date certain to tell the client in writing what we think. We believe that this endeavor expresses the culture of business, which is task oriented. By modeling the best practices of the business' culture, we state behaviorally that the engagement is conducted on behalf of a business client - the corporation - and will be conducted according to the norms of business.
A second reason for producing a written report is that it compels the consulting team to dialogue in a timely manner and to resolve differences in interpretation between them. The report is produced by the team and represents the firm's work. While the voice of the psychologist is evident in the interpretations of family dynamics and that of the business advisor in the results of the firm's due diligence investigation of the company, the report is a unified statement. Again, this report mirrors the culture of business, a vendor supplying a product (the report) to a customer. But at a deeper level, the consulting firm report also represents the intertwining of the family and business systems, for the unity of the family firm as the owners and managers of the client experience it.
A third basis for producing a comprehensive assessment report is that the body of interpretation, analysis and recommendations is often too much to assimilate fully in oral form. While we always hold a "report meeting" of all family members - both those active in management and those who are not - to present our analysis, the written report is available for the entire term of the engagement for use by the clients. In our experience they study it carefully, argue with us about it, and ultimately draw confidence upon rereading it that we have found and understood each of the material points needing articulation.
Finally, these reports comprise a library of our work. Together with the full documentary record of the implementation phase of each case, the assessment reports present wonderful opportunities )with appropriate modifications to protect confidentiality)for training other consultants, research, teaching cases to university students, and general quality control review by peers, supervisors and ourselves.
We have worked with many family firms in which there has been a major family loss, such as the death of a parent and spouse. This loss can create many critical vacancies simultaneously: in the family, in management, among owners, and on the board of directors. Across the entire system authority can be compromised. In one case, surviving members of the family, whether active in management or outside the business, had become frozenunable to communicate with one another because the deceased family member had filled the role of "chief communications officer. " This crucial position had not yet been filled by any other member of the family.
When the deceased person is also a primary authority figure, both the family and the business may suffer from a sudden absence of leadership. When the role of the lost family member has been that of the peacemaker, relationships may subsequently have "heated up" with no one in the system to provide relief. Under any of these circumstances, both the family and the business can lose the capability to make decisions. Frequently, the family has not grieved the loss of the deceased family member adequately and neither the family nor the business will regain that capacity until they begin the grieving process. This process will allow the family to move forward to reconfigure itself by members assuming new roles. The family may also need to learn how to communicate more effectively.
Report meetings are difficult, primarily because of the family/owner/manager's inexperience and consequent discomfort at addressing emotionally powerful issues. The clinical team member determines which family members will attend. On some occasions report meetings have been convened with key non-family managers present, but most often report meetings are limited to family members active in the business. It is at this meeting where initial stages of resistance surface. We have framed the issues in the assessment report, distributed it to the family to read and summoned them to a meeting to discuss the report. At some level, everyone knows that "the jig is up. "
In one case, the founder and head of the family died approximately seven years before Genus was called in. The familyıs lawyer had insisted that we be called. The family presented a host of unresolved estate planning problems and a chaotic management system. Everything seemed to be decided on an ad-hoc basis. Six members of the family were running the company. Yet there was no CEO, nor did the group of partners/owners ever hold meetings. Everyone complained about one another behind closed doors, but never confronted anyone else about any issue, whether it was personal or business. At the center of all this chaos was a very profitable $75,000,000 company.
Reluctantly, this family business hired Genus because they were smart enough to know that they could not continue to be successful unless they addressed their business issues. We believed that the familyıs relationships were beginning to generate so much discomfort that the family was willing to "try anything" to mitigate their personal discomfort and worry about the integrity of the family relationships. They were an extremely close Orthodox Jewish family. All of them had internalized their parents' value for the sanctity of family and family relationships. Their father had been the peacemaker and "brokered" all disagreements among family members. Whenever he could not satisfy an individual family member, he would command, "Shalom Byit! " )Hebrew for "Keep the peace in the family at all costs! " )
All of us )including the family members) laugh about it now, but each family member we interviewed during the assessment process reported that there were no problems. Our interview sessions with this family were shorter than with any other client we could recall. We were considered outsiders by this family, who had so internalized their value for closeness that they would not look at any of the problems so obvious and glaring to their managers and advisors. They were almost afraid to articulate a problem for fear it could not be resolved. They lacked the personal confidence to find solutions because their fatherıs role as peacemaker had precluded the opportunity for them to resolve issues among themselves. Instead, they buried issues. They were also afraid that once they began addressing issues whose resolution they could not envision, they would destroy their family and shatter their fatherıs sacred commandment, "Shalom Byit. " )It is of interest to note that their fatherıs office had not been disturbed in any way since his death seven years before. Not only was it never used, no one even entered it in all that time. )
To initiate the process, we persuaded the family that their commitment to one another was indeed powerful, and that the same commitment which had prevented them from addressing issues could carry them through the somewhat shaky, new process of dealing with the complicated, ambiguous family business issues they feared. We explained that it was a matter of skill skill they could learn and we could teach.
This family took the risk. We taught them the skills they needed to begin grieving the loss of their father, the issue that had paralyzed the company. They risked "burying" their father and overcame their fear that both the family and the business would implode. We discovered these critical insights during the assessment process, presented them in our report, which formed the foundation upon which all of our interventions were based. The family has since redecorated the father's office and uses it for private meetings. Today this company is very profitable with annual revenues of $125,000,000.
One of our cases involved two incredibly intelligent, successful brothers whose father had died when the brothers were in their early twenties. Essentially, the older brother dominated the younger one. Although the younger brother was very angry about being dominated, he had made a conscious choice to allow it to happen because it was easier and, being very bright himself, he appreciated his older brotherıs wisdom and business acumen. However, the younger brother had grown increasingly resentful over the years, and his accumulated resentment, built up over decades, was threatening the business. The older brother could feel it and was upset. He believed that his actions had made his younger brother a very wealthy man and that his brother was being ungrateful. However, the real issues in this case concerned dependence/independence, self-esteem and control over oneıs life.
The older brother was truly a genius, and his intellect and comprehensive knowledge of his industry and his company eliminated most direct, analytical approaches to the issue. We wrestled for some time over how to penetrate his resistance to hearing the reality of his relationship and the emotional consequences of his dominance over his younger brother. Finally we wrote a parable.
Once there was a father who owned a unique and magical flute. Anyone who learned to play it was rewarded with a special feeling of confidence and the ability to exercise enormous control and power. Because of its magical qualities, the flute was extremely valuable.
It was both difficult and easy to learn how to play the flute. There were no instructions as to how to play it. One had to learn by trial and error. However, by merely holding the flute in oneıs hand, the owner felt so much confidence in his abilities that he never tired of trying to learn to play, and he never wanted to stop. This was the magic of the flute.
It was never clear who would inherit the flute after the father died. The father had worked hard to build a closeknit family and he cherished it. He knew the value of family loyalty in all things. To him it was the source of success for the members of his family. And his familyıs sense of commitment and dedication had a mythical quality of its own, equal in power to the mythical quality of the flute.
The father decided that the true test of the success of his life's work, which had been raising his sons with the values of the family, would be how well they could share the flute. He decided that choosing to test one son and not the other would be unfair. So he hid the flute in one of two identical suitcaseseven he could not tell them apart. As he was getting older and had less and less need for travel, he decided to pass the suitcases to his sons. One day he gave one to each of them, not knowing which contained the flute. The sons went home and each opened his suitcase. One son discovered the flute. The other discovered ashes. The father was not a very talkative man and neither were his sons. So they never discussed the discoveries in the suitcases.
The son who discovered the flute became very attached to the self-confidence and feelings of power it gave him. He cherished the discovery, and assumed that the flute was meant for him. He understood the value and the preciousness of his fatherıs gift and believed that it was his responsibility to keep the flute safe. His reward for protecting the flute would be his right to play it. Because he believed his father had intended the flute solely for him, and because he found playing the flute so rewarding, he never shared it and unfortunately, never fully fulfilled his fatherıs wish.
To this day, the other brother has never had the opportunity to play the flute, nor to experience its special qualities.
When the time came for this family's report meeting, the family members invited to attend included members of the third generation from both sides in the business as well as spouses from each generation. The older brother walked into the meeting, the last to arrive. The meeting began with nearly five minutes of complete silence. Then, suddenly and dramatically, the older brother slammed the report down on the table, turned to his younger brother and apologized for his insensitivity. This was a truly amazing breakthrough.
We had another case in which two family members shared equal ownership of their business, but were paralyzed by family issues, which crippled their ability to make decisions and move the business forward. As most companies are today, this company was in a highly competitive market. Its inability to respond rapidly, or even to make decisions slowly, literally threatened its existence.
From our objective position, we surmised that this company would fail and the family would lose its capital unless one of the partners left the business. The clinical team member traced the history of the family and explained in our report the reasons for the familyıs deadlock. It was described in a way that removed the burden of responsibility from both sides by placing the dynamic between the two owners in the context of the history of the family. The report also traced the impact of the business upon these two family members and helped explain why they held such disparate views toward operating the business despite having the same goals. The report described both the bottleneck in management and the fragile condition of the business.
This engagementıs success depended entirely upon the ability of the family members to 'hear' our recommendations. That one of the two owners would have to leave the business was a difficult message to hear and to act upon quickly. One might assume that our suggestion would precipitate a very powerful struggle between the two family members over which of them should leave the business. However, based on our assessment, we knew who would be most likely to leave. We knew that the report, which clearly articulated the realities in both the family and in the business, was too powerful for anyone in the family to refute. It was clear to everyone that the business relationship was going to destroy the family as well as the business. And, based on our theory that family issues drive business decisions, we were confident that one of the owners would choose to leave the business in order to preserve the enormous personal investment each had in his relationship with the other.
The critical information gathered during our assessment interviews was that both owners had lost their parents and that these two men and their children were the only family left. Their internalized value of the importance of family relationships would not allow them to destroy what they had. In addition, the family member who agreed to leave the business had an opportunity to preserve his capital by selling his shares.
In this case, we were not very happy with our own evaluation of the situation. We knew it was risky for professional facilitators to present a situation as unresolvable unless one of the owners left the business. While we have complete confidence in our theories and methodology, we are only human and cannot predict the future. We knew it was possible that when we presented our findings, the family might respond, "Thank you very much and goodbye! " However, it is Genus' policy to present our professional judgment as we see it and to risk losing a client rather than compromise our professional integrity. Also, we were concerned that this family had lost credibility in family business consultants because a few years earlier they had hired other family business consultants who were unsuccessful in helping them.
We wrote the report with extreme care. We crafted the family section with great sensitivity for the feelings of the family members, but the business section described the harsh realities with brutal accuracy. The report meeting for this case was incredibly powerful. Because our written report provided strong, precise support for the conditions we observed and the family agreed to its accuracy, they were also able to act upon our difficult recommendation that one of them leave the business.
Given our theory that family business consulting requires intervention which deals with the family issues that are interfering or may likely interfere with the business before the consultant can deal with business issues, we know that the grieving process for the family begins at the report meeting. Discussion at the report meeting can be very emotional, and much of what we say in our assessment report is often lost because it is too much to ask people both to grieve and to remember the specific conclusions in our assessment report at the same time. Therefore we prepare a written report for the family to use as a reference.
This brief article has presented what Genus consultants do and the reasons we do it. All professionals who work with family businesses are vulnerable to the same family dynamics, and therefore, we have tremendous empathy for all family business professionals who undertake the complex and high-risk endeavor of advising family controlled enterprises. To borrow a thought from my partner Richard, "On your best day, when you are totally aware of every single business challenge a company is facing, and you have the knowledge and experience to address the business issues with creativity and brilliance, you are operating with only half the critical information necessary to resolve fully the family business problem you confront. "
It must be extremely frustrating to have the logic and the wisdom of your ideas ignored. This frustration is mitigated only slightly by the check for your fees. Money is not the only motivator for the competent professional advisor. We must also experience a measure of satisfaction attached to the success of our engagement. Watching a family business soar in the wrong direction, ignoring your advice while paying your fees, is neither enjoyable nor, for most competent advisors, acceptable. Our counsel, therefore, is that you must learn to be extremely sensitive to the limitations of your knowledge, to seek the assistance of professionals who can complete the advisory team needed to do the work at the highest level, and not to be too hard on yourself about reasonable limits you place on your personal or your firm's endeavors to address a family firm's family issues.