Case Study

When families commit to keeping a business in the family beyond the infamous third generation (“the first generation creates, the second grows, the third dissipates,” as the saying goes) it is essential to have a common vision, keep communication open among a complex array of stakeholders, and address issues of perceived fairness with transparency.

A multi-billion-dollar construction company reached out for help transitioning from third generation (G3) to fourth (G4), and the fifth generation (G5) members were already in their twenties. Traditionally, only men in the family worked in the firm and some female G5 family members were close to completing master’s degrees related to the business and thus interested in taking a role.

Ownership was held 50/50 by two G3 cousins who survived a tumultuous transition from G2 – the thrust of this conflict involved non-working owners who fought for higher dividends and resented working family owners who also received salaries (fair according to market norms). At that time, non-working family owners wanted more tangible value for their ownership. Working family owners preferred to grow the business for future generations of family and loyal, multigenerational employees (some valued employees had grandparents who worked for the firm). After intense conflict and legal wrangling, the family ownership tree was trimmed by buying out non-working family, a move that permanently damaged relationships. The family, guided by technical advisors without expertise in family business dynamics, made a policy that only working family could obtain ownership, believing this would avoid future problems.

One of the two G3, 50/50 owner-cousins had four sons and the other two daughters. Since women historically did not work in the business the cousin with daughters did not have next generation family members in his “family line” to take over his half. One of his daughters married a man with no experience in their industry and he was forced, with agreement by both 50/50 cousins out of a sense of “fairness,” into the executive management team. This burdened and infuriated the four brothers who had worked hard their whole lives to earn their places. Tensions were high and the brothers, who normally worked well together, took it out on one another. Arguing was public and intense.

Jeff was engaged and began by interviewing working and non-working family members and spouses to get the overview just described. Initially, family members questioned the need to involve spouses of family members; Jeff explained that the decisions made about the business leadership, strategic direction and transfer of ownership would have major impacts on spouses and, eventually, kids.

Jeff also noted that widening the group of stakeholders involved and being clear about how each stakeholder group would be included would help (e.g., type of information they would have access to, when they would have a vote and when they’d be welcome to share a respected voice but with no vote). This would avoid misunderstandings and better manage the conflicts that invariably arise in these complex family situations. Jeff’s explanation triggered the telling of the G2-to-G3 transition saga; not everyone knew all the details and pain. Everyone agreed to find appropriate ways to involve all relevant stakeholders, and to commit to as much transparency as possible within the limits and restrictions a public company faces.

After individual and small group interviews, Jeff developed a customized education and feedback session to help the family put their circumstances in perspective and cope with the complex pressures that led to the current situation. Jeff worked with the family, key non-family employees and the board to prioritize issues and interventions.

Main themes and interventions:
  • The essential takeaway from the prior G2-to-G3 transition was the family’s mistaken belief that a technical policy (allowing only working family to own shares) would solve future transition problems. Instead, a new and inexperienced in-law was brought into senior management and created intense conflict. Fairness had been defined as each owner (family line) being able to appoint members of their families into senior management rather than hiring based on ability to contribute to the company.
  • Jeff facilitated discussions – at times heated – on this issue. The family reached consensus about transforming the enterprise into a meritocracy (in which people are hired and promoted based on ability) rather than artificial quotas.
  • He helped the family members clarify their desire for profits to be reinvested into growing the company and facilitated development of a dividend policy so owners would have clear expectations about when they would have access to liquid capital.
  • When the family was feeling ashamed about the amount of conflict and its effects on the business and non-family team members, Jeff helped them understand the complexity of combining family and business. While there are many important technical elements to consider, they must be integrated with family dynamics interventions and family-specific forms of governance.
  • Much of the work Jeff did with the family was to facilitate family meetings with creative exercises to help them articulate a common vision and fundamental operating principles to guide current and future generations. Jeff suggested and the family agreed that these elements would be revisited over time to ensure that upcoming generations would have ongoing input and flexibility to make changes.
  • Jeff worked with the family to determine if there was a common desire for working/owning together. It is very important for each generation to sit with the senior generation/s to decide if family members want to continue to own and work as a group – and also to have a mechanism for those who want to go their own way in terms of business/career but remain part of the family. If there is no common vision, then compromise around a new vision must be reached.
  • He met with them in various combinations of working family, non-working family, spouses and the next generation over age 16. It became clear that the four brothers wanted to get back to working together and were willing to sell off valuable aspects of the business to buy out the other side of the family with whom they had little connection in terms of personal relationships.
  • Jeff involved the board of directors who were overwhelmed by intense family dynamics issues that were beyond their expertise; they were relieved to have Jeff as a collaborator to help. They were able to expertly bring value to the buyout transaction that was successfully completed. In this case, there was not a common vision and the family found it better to make hard choices and separate than to stay together mired in conflict and resentment.
  • Jeff worked with the four brothers to improve the way they communicated, helping them calmly address points of contention and find solutions. Roles and responsibilities were clarified and development plans created collaboratively to build on their strengths and address weak areas. Conflict subsided markedly with these interventions and along with the buyout.
  • Before the in-law was forced upon them, they worked together well and enjoyed one another. While they would end up running a smaller enterprise because of what was sold off for the buyout, they were excited to be together again and growing their business. These brothers were committed to educating and developing the G5 and with Jeff’s guidance created a family employment policy. It described how family enter the business, rules of family conduct, laid the groundwork with their spouses and children for how ownership would transfer going forward and articulated the rights and responsibilities of ownership.

Previous generations accepted the norm that women did not work, especially in the family construction business; however everyone involved now agreed that women were valued as family members and contributors to the business. Part of Jeff’s development work with G5 focused on the family’s desire to offer opportunities to the women with relevant education and ability. Several female G5 family members earned their way into the business in significant roles based on education, outside experience and ability.

*Identifying details have been changed to protect client privacy.