All forms of matrimonial relationship can create conflicts for business families – with increasingly complicated family structures resulting in a bewildering variety of happy, working, blended, extended, dysfunctional and broken family units forming parts of larger family groups.
Higher general and business education levels; social pressures demanding greater equality, inclusiveness, and communication transparency; broadening perceptions of “rights and entitlements”, and the desire to be more actively informed / involved in family and business affairs, all create additional family business challenges.
Chuck Darwin’s Law of Family Business Survival:
“It is not the strongest of family businesses that survive, nor the most intelligent, but the ones most responsive to the changes required by challenging social dynamics.”
Family breakdown evidences a deeply felt, and regrettably widespread, personal and social system failure. Family Law processes fertilise the misery and, amongst other evils, turn what should be an individualised, small family unit problem into a bigger challenge for business families – by encouraging claims against family assets by the estranged partners of family members holding possible ownership interests.
When substantial assets are involved, lawyers are very willing to exert themselves to the very last drop of their clients’ blood – in pursuit of “justice”. Their costs can be a huge impost on the family estate, and must be added to the eventual cost of settlement, and the time, effort, confusion, stress and embarrassment generated by the whole legal process.
A growing awareness that, through no fault of their own, their cherished family business could be vulnerable to legal attack through their children’s estranged spouses or partners (who they never entirely trusted) compels many parents to delay passing equity (business ownership) down the line. This creates positional and financial insecurity amongst anointed heirs and the spouses of other working family members.
Spouses and partners often feel like “external bolt-ons” to the bloodline family group, especially when working together tightens relationship bonds between family members. Whenever the family goes into a “bloodline huddle” that excludes spouses and partners, they risk creating deep and lasting resentments that can play out in unforeseen ways.
Ambitious and overly-protective spouses can goad themselves and their partners into conflict with other family members after receiving partial, or misleading information about their spouse’s rewards vs. their contributions to the business.
Self-interest trumps rational thought when the stakes get high, and the resulting family fallout can get very ugly. Think: “hand grenades thrown from the sidelines”.
And then there’s the issue of “Predators” – unscrupulous individuals who invest years of their lives marrying into wealthy families for the sole purpose of getting their claws into the family’s money – through financial support for their own business ventures (often fake), matrimonial claims on separation and/or blackmail involving business deals, questionable tax affairs, and other dark secrets.
Factor in multiple exes, and step-children from different sources, and you have even more complicated family issues arising from more complicated family structures.
Interestingly, maintaining bloodline “purity” in the family group is often much more important to older generations than it is to the young, who frequently surprise everyone with their ready adaptability and liberal attitudes towards inclusiveness. Younger people often accept that modern families can have two legitimate components: (a) permanent (by blood) and (b) transitory (by the current state of legal / social relationships).
It’s rare to find step-children seriously interested in, or feeling a strong sense of entitlement to, a share in the family business, although their parents, as partners of a family member, may have very different views.
To create certainty and peace, and to enable effective long term business and succession planning, families need to manage the risk of Family Law interference in their family business affairs. The risk cannot be eliminated, but it can be managed.
Solution
When a family has significant business interests, and/or assets, it should take a quasi-corporate approach towards its operations, especially ownership and management structures, documented policies and procedures, and systems of work.
As with so many family issues, the best solutions, or at least the processes required to achieve good solutions, should be worked out well before things go pear-shaped.
You need tools, rather than rules, to cover a wide range of challenges. Specifically:
- Establish a Family Council with the authority, ability and will to help solve problems, and make important decisions, on behalf of the whole family.
- Develop and adopt a Charter to describe the Family Council’s role, meeting obligations, responsibilities, and the authority it derives from the family.
- Adopt a formal problem-solving and decision-making process for all significant issues faced, and decisions made, by the Family Council.
- Develop clear policies and procedures for the family for dealing with predictable challenges including: matrimony, de-facto relationships, matrimonial breakdowns, and other relationship problems. Require all couples to enter into formal pre, or post-nuptial, agreements if they’re involved in, or otherwise hope to benefit from, the family business.
- Document the family’s objectives and expectations, including employment and rewards policies, and associated enforcement processes, in a formal Family Constitution that contains the family’s “Rules of Engagement” – between family members, the family, and the family business.
- Conduct regular meetings of the whole family (usually annually) to maintain connectedness, and to establish a forum for information sharing, learning, open discussion and problem-solving.
- Encourage all family members to seek help if they’re in trouble. Supportive and empathic family cultures hear about problems early and usually resolve them before they grow into something unmanageable.
- Don’t take a “stiff upper lip” approach – it doesn’t help, and it can ensure that nobody in the family develops good problem-solving or conflict-management skills. That leaves everyone exposed when something big does go wrong.