Tommy has personal problems. He denies anything is wrong but is frequently late for board meetings for the family business. His brother Jake is frustrated with his dad, the owner of the family business, because his dad doesn’t seem to mind Tommy’s absence. Besides, Jake is picking up the slack left by Tommy’s late arrivals and early departures, so as long as the work gets done, Dad is content. And Mom has made it clear that both boys will inherit the company equally.
This modern day prodigal son story plays out every day in family businesses. The failure rate of family businesses is staggering. Imagine a transition to Tommy and Jake’s leadership? If Tommy does not get the support he needs, this firm is ill-fated. Further, the parents choosing not to see the problems inherent in this transition, or worse, believing that both boys deserve an equal stake in the firm just due to birthright, is a disaster.
Legacy turns to legality, and brother is pitted against brother.
It is a tough decision, but it is an injustice to treat each son equally. But before that decision is made, the firm needs to decide what to do with a potentially troubled employee – who happens to be the owners’ son. What should the firm do with an employee who comes late to work and leaves early? Remember, the family is not the only thing to be considered in this scenario, as the company has other employees, some of whom may have similar challenges. The family ownership needs to treat Tommy like the employee he is.
Now fast forward to the transition decision. If Tommy does not change his ways and get the help he needs, transitioning to an unequal ownership is just. While the parents will want Tommy to benefit in some way from the family firm’s success, justice here is not equal ownership. The family legacy and the other stakeholders in the firm – employees, management, community – deserve the stability of a different format. This may or may not include Jake managing the firm, but it should include a just examination of the “sweat equity” he has put into the firm relative to his brother. Sometimes silent ownership is a solution, and this could mean Tommy gets dividends but not management in the firm, or possibly both brothers remain owners but not managers. This ownership does not need to be equal to be just.
With the toughest decision the current owners will ever need to make, it is time for Mom and Dad to step up and remember that such a decision can’t simply be made by birthright. The longer the planning horizon, the better, as this gives Tommy the time he needs to get the help he needs, allowing the decision to be changed should improvements at work be seen.
While the family business has “family” in it, it’s not just family that needs to be considered for real justice to reign.
-David Borst, Ed.D., is executive director and chief operating officer of the Family Business Legacy Institute, a regional resource hub for family businesses. He can be reached at davidb@fbli-usa.com.
