What is in this article?:
Family business consultants provide advice on how to solve the toughest family business problems.
Three common problems in estate planning discussed below.
The nepotism charge
• Problem: Your oldest son John has proven his management capability at another employer. Now you want him to take an important executive position at your family business. But you’re afraid to alienate your veteran non-family managers who may want that job.
• Solution: “Everyone needs to see that John’s assignment to the top position is the best decision for the business – not just the result of dad being anxious to have his son join him,” says Greg McCann, a family business consultant in Deland, FL (www.mccannfbconsulting.com). “The question becomes: How do you set this up so people won’t be saying, ‘John was handed all this?’ Bear in mind that there’s always a tendency under any circumstances for people to discount the efforts of the second generation.”
How to proceed? One way is to have an independent board of directors decide on the assignment and hold John accountable for reaching specific benchmarks, McCann says. “A board can help give both the appearance and the reality of legitimacy, by requiring John to submit to a round of interviews and fulfill a job description.”
Not all family businesses, however, have a board of directors. Sometimes, the founders don’t want to cede control to outsiders. Other times, the family wants to maintain the privacy of business operations and financials. And, in other cases, owners are uninformed about the legal intricacies of establishing a board or don’t want the hassle of structuring one.
If so, consider establishing an alternative structure – a “board of advisors” consisting of independent non-family members who aren’t given any control.
“A board of advisors avoids director liability while providing your business with ideas from experienced professionals,” McCann says. “Their feedback can be very valuable.” Seek out retired business people as members; they can bring experience to the table and may be willing to serve for very little money.
Yet another alternative is a “family counsel” composed of family members who desire a voice in the proceedings. “The family counsel might help formulate an employment policy,” McCann points out. “For example, a prospective executive-level person such as John might be required to complete specific outside experience before joining the firm. Perhaps he must reach an executive level at another company – not just complete three years at a junior level – prior to joining the family business.” While a family counsel is helpful, the downside is that no independent third-party individuals are included.
Despite your best efforts to establish a professional transition decision, veteran non-family executives may well feel upset by John’s arrival. “Senior management may feel angry, confused, even betrayed,” MCann says. “It’s critical to talk with everyone and get any issues out on the table.”
If you see that senior executives are about to resign, you need to deal with the problem before it happens, McCann says. One solution is to provide additional job security. An executive might be willing to work for your son, for example, if awarded a multiple-year contract.
Bonus tip: Establish a “family employment policy” that mandates specific educational and performance goals prior to sibling employment or advancement.