If It’s All in the Family, a Firm May Face Problems : Business: The conflicts within many family-owned companies rival the worst on nighttime soap operas. At a typical seminar, participants tell of heartbreak, back-stabbing and fury.
An assortment of gorillas, tarantulas and members of the “lucky sperm club” recently congregated around family business guru Leon Danco, eager to solve a myriad of problems plaguing their private companies.
In Danco jargon, “gorillas” are men who marry the daughters of prosperous business owners, frequently causing trouble for the families.
“Tarantulas” marry the sons of the owners and bring their own agendas into the families. Then, there are the lucky sperm club members--the sons and daughters of the owners. These children, whether or not they are involved directly in the business, force their parents to make difficult decisions about the future control of the company and who will benefit from its prosperity.
“This is like watching a passion play,” said Danco, who has been counseling family business owners for 25 years.
“If it doesn’t work, it can be hell on earth for these people.”
While snow whipped the freezing city, 83 people from 22 family-owned companies boasting combined annual revenues of about $600 million gathered for 2 1/2 days of intense discussion in a hotel near the Cleveland airport.
Danco said the gathering was typical of those he has hosted over the years. The largest company at this gathering was a $200-million Florida-based agribusiness company controlled by 64 cousins. The smallest company was a Lynchburg, Va., pool construction firm with sales of $1 million.
For two days, over breakfast, lunch and dinner, the fiercely private families shared stories laced with heartbreak, back-stabbing intrigue and fury. The dramas described during the session rivaled the weekly battles for Ewing Oil on the nighttime soap opera “Dallas.” That’s why none of their names can be mentioned here. In fact, one family almost left the seminar when members learned journalists would be attending.
They all came for different reasons, but the themes and conflicts were similar.
In one case, eight family members who each owned part of a prosperous asphalt company in a tiny Wisconsin town were tired of battling for control of the company. The youngest brother and sister were upset at the way their older brother was managing things. Meanwhile, another sister was getting divorced and demanding her share of the business in cash to start a new life elsewhere.
“We have no policy about cashing out,” lamented the president’s wife. “She wants all the money now, but we don’t have that kind of cash available.”
Across the room, the co-owner of a $100-million-a-year lumber company in Kansas was distraught over having to reorganize the company because his brother was ill with cancer. He wanted his brother to recover but knew he had to plan for the possibility that he would not.
The next day, the son of the co-founder of a thriving Illinois paper box company described how he nearly comes to blows every day with the co-owner’s son. “He’s bigger than me, but I’m tougher,” said the son, referring to his rival.
He said Danco’s seminar made him realize that the fighting between the two families cannot continue much longer. “My father is like an ostrich. He won’t face the problems.”
After two days with Danco, the son said he planned to bring in an outside mediator. If that doesn’t work, he said he would consider hiring an attorney to explore a buyout.
Danco, a Jesuit-trained former economics professor, uses his wit, financial savvy and an evangelical approach to help untangle this web of complex family business problems. Because the problems are tough, his advice is not cheap--participants pay about $1,300 each for the seminar.
A genial white-haired grandfather, Danco says his compassion for the families he counsels equals his disdain for the “overpaid migrants who inhabit corporate offices.”
“I have a love affair with family business in America,” said Danco, who has written several books on the subject. “Family business is the hope of the future.”
To ensure that future, Danco invited Philadelphia management consultant James Barrett, Cleveland accountant Phillip Dawson, and John Ward, a Loyola University professor who specializes in family business, to help him conduct the session. Together, the team of advisers cajoled, begged, persuaded and urged the patriarchs and matriarchs in attendance to draft and implement succession plans.
Ward, who specializes in family business issues, urged participants to create three plans at the same time: a strategic plan for the business, a personal estate plan and a succession plan.
“The keys to the successful perpetuation of a family business are understanding, communication and planning,” said Ward, who is widely recognized as Danco’s disciple.
The worst time for a family to figure out who will run the business is on the way back from the cemetery, Danco warned the somber crowd.
Even with unlimited funds, Danco and the others said a family business without a clear strategy for the future is destined to fail. In fact, fewer than 10% of American family-owned firms make it to the third generation.
“The underlying glue is thinking that this company should be here forever ,” Danco said.
After creating a succession plan, they said the next most important step for a family business is to establish an outside board of directors.
Of the 22 firms represented last week, only one had a functioning outside board. And that board was organized this year with Danco’s help because the 64 cousins who own the company needed objective advisers.
“Most family companies don’t have a board of directors because they are fearful of outsiders,” Danco said. “Most privately held companies have undervalued assets they don’t want people to know about.”
Danco, who frequently kidded the owners for juggling their books to “break even higher and higher,” suggested that every family draft a list of respected community leaders and other potential board members. His insistence on having an outside board brought the most grumbling from the audience during and after the session.
“Our company has been around for 50 years without a board of directors,” grumbled the owner of a major Midwest hardware store chain. “Why do I need one now?”
He and the owner of a Baltimore electronics firm debated the pros and cons of having an outside board during dinner that evening while their wives listened quietly.
“If I had a board of directors to talk to, I might gain one hour of sleep every night,” said the founder of the electronics company with a sigh. He was wrestling with a common family business problem: how to equitably share his wealth when one son worked in the business but his four other children had no involvement at all.
The participants couldn’t agree which was more challenging--dealing with the children inside or outside the business.
“Nepotism properly applied is a strong economic force in this country,” said James Barrett, president of Cresheim Co., a Philadelphia-based management consulting firm.
Barrett said most family businesses often overpay their children, creating resentment among the other employees.
“When you pay someone too much, they become prisoners of the business,” Barrett said. “Their confidence erodes and they lose the tension needed to be good employees.”
Barrett advised business owners who want to provide their grandchildren with money for private schools, dancing lessons or a bigger house to give gifts of cash rather than pad their children’s salaries.
The families also learned how to help their children become leaders. Barrett and Danco urged participants to push their children out into the world to gain experience elsewhere before joining the family company.
“I meet dozens of young men in the 38-to-45-year-old range who wish they had worked somewhere else first to gain confidence,” said Barrett. “If you’ve been promoted elsewhere, it’s due to merit.”
