Observations
Desire for personal financial security becomes more urgent and powerful as business owners age, consider their options, alter their priorities, and recognise their reduced capacity to adapt to changes in circumstances – especially when that change relates to an increasing inability to overcome serious financial challenges.
Fear is a primal motivator that stimulates “fight or flight” reflexes – to ensure personal survival. Fears for personal financial security increase exponentially as individuals realise they’re on the downside of their prime income-generating years.
“No worries” becomes “concern” which, left unresolved, begets “fear”. When unaware / insensitive / impatient next generation family business successors fail to recognise, let alone show willing to help solve their elders’ funding problem, it’s not a far cry from being: “bent out of shape”, to being: “in conflict”.
Every business owner ages, and many don’t have adequate or independent financial security outside of what they believe they’ve built in their businesses. As a result, fears for personal financial security are a common cause of inter-generational conflict in family business.
Ages and Stages: as aging business owners consider the next phases of their lives: more leisure time, less income-generating activity, and many years out of the mainstream work force, they feel compelled to start putting more effort into preserving wealth by transferring money out of the business into savings and investments they can directly control. They may appear selfish, as their primary focus shifts from protecting the business to protecting themselves.
Meanwhile, their successors in the family business are considering much longer time horizons, and more immediate, and broader, funding needs: (a) invest in the business to maintain long-term competitiveness and (b) receive sufficient personal income to fund an expensive period in their lives: establishing careers, homes and families, and funding an “appropriate” lifestyle.
Conflicts arise over competing interests and needs: (a) direction of cashflows and, (b) succession timing – being the transfer of ownership, leadership and management responsibilities.
Owners convince themselves, or are convinced by their nearest and dearest, that they can’t safely hand over the keys to the kingdom until they feel financially safe and secure. It now doesn’t matter what promises they’ve made in the past, nor the negative impact they’re now having on the business.
Successors feel confused, betrayed, and trapped in some sort of endless maze. The game has been changed on them … and not for the better.
Solution
Like most conflicts arising from competing interests caused by a clash of “Ages and Stages”, prevention is far less damaging than remediation.
Preventing conflict in business families requires certain attitudes and abilities:
- Empathy – willingness and ability to appreciate and respond positively to whatever others are feeling.
- Understanding – willingness and ability to comprehend the causes and effects of those feelings.
- Curiosity – desire to learn and to be informed.
- Emotional connectedness – desire to have positive relationships with others.
- Personal commitment – willing to make effort to nurture positive relationships.
Preventing conflict in business families also requires a systems-based response:
- Knowledge – family educates its own about family business lifecycles and best practices.
- Communication – regular meetings enable people to talk to each other.
- Plans – insistence on having personal, family, and business plans.
- Collaborative problem-solving – time, place and process for raising and resolving issues of concern.
- Mutual Obligations (Charter) – every family member is obliged to implement a financial plan that ensures their financial independence from the business by whatever age is agreed appropriate by the family.
If adequate arrangements have not been made to fund retirement by whenever succession should be happening, develop a financial plan for outgoing family members to: (a) free them from ongoing business liabilities (eg: personal assets used as security) and, (b) ensure adequate and independent personal funding for life after business, irrespective of the fortunes of the business. It will take some creativity to achieve this, if the family / business isn’t flush with surplus funds.