Making Peace between the Generations in Family Businesses

By Thomas D. Davidow, Ed.D., and Richard L. Narva, Esq.

This article was originally published by Genus Resources LLC. Tom Davidow was a co-founder of Genus and its President for twenty years before launching Thomas D. Davidow & Associates.

Copyright -All rights reserved.

The Medical Model and Family Dynamics
The Inherent Family Issues in Family Businesses
The Cost of Doing Nothing
The Psychology of the Parents -- the Senior Generation
The Psychology of the Younger Generation
Resolutions and Solutions
An Illustration
Choosing the Optimal Outside Advisor


In a recent Wall Street Journal article, Peter Drucker, the distinguished business scholar, set forth four golden rules for family businesses to follow if they wish to prosper. First, family members must work as hard as non-family members. Second, family businesses need to add non-family managers. Third, at least one top job in each family business should be filled by a non-family manager. No problems with any of that. However, Drucker's final rule is more troublesome. He argues that, "before the situation becomes acute, the issue of succession should be entrusted to someone neither part of the family nor part of the business."

Drucker's fourth golden rule, that family businesses can best manage the succession process, a process often fraught with intergenerational conflict, by hiring an outside professional is like suggesting that Babe Ruth could have prolonged his baseball career by moderating his diet. It misses the point. One cannot, nor should one seek to, remove the emotional power of family relationships from family businesses. Rather, to manage an intergenerational transition successfully owner, managers and advisors to the business must recognize the power of those relationships. Regardless of size, a family business will at one time or another become a stage on which the emotional and interpersonal dramas of the controlling family are enacted. This reality must be understood for intergenerational conflicts to be managed in a manner that allows the family business to prosper before, during and after the transfer process from senior to junior family members.

There are more than 200,000 American companies with annual revenues of at least $5 million or more. The vast majority are family controlled or family owned. Almost all of these families persevere without benefit of counsel on inter-generational family business issues.

Instead of assuming with Peter Drucker that only an outside professional can manage a succession properly, thereby ensuring intergenerational continuity, family businesses and their advisors could learn much more from studying the family dynamics of those family businesses that have already completed successful intergenerational transitions. In the following sections, we discuss how intergenerational conflicts can lead to problems in the business as well as the family. We also review some of the ways family members and their advisors can best cope with these conflicts.

The Medical Model and Family Dynamics

First, in recommending to advisors and others who assist family business that they look first at the family's dynamics, before recommending a succession strategy, we emphasize that we are not advocating a "medical model" of analysis, one that almost inevitably assumes pathology. Family businesses are not sickly counterparts of professionally managed firms to be guided back to health by quasi-doctors from the academy or a consulting firm. Their often raucous, tumultuous style, their patriarchal or matriarchal cultures, and their unique and varying organizational structures are usually deeply rooted in family cultures that go back to the founder, often over generations. Because a family business' ownership, governance and management systems are interwoven with the family, these systems are themselves as distinctive as the families that founded and control them. Rather than viewing the family system as an "obstacle" to a good intergenerational transition, or as the "problem" behind other family business issues, it makes much more sense to look to the dynamics of the family for the solution. Unlike the medical model, which would view the family as something that is "broke" and needs to be "fixed," we recommend viewing the family as a generally well-functioning system, for whom a successful intergenerational succession requires understanding how that family's uniquely individual system of relationships works. As Leo Tolstoy wrote in Anna Karenina: "All happy families resemble one another; every unhappy family is unhappy in its own way."

After working closely with more than 180 family controlled businesses over the past fourteen years, we have concluded that a family business can change in a positive way only when the family system issues are properly articulated with the family business system. Intergenerational conflict, among other family dynamics, is much like the molten magma flowing beneath the surface of the Earth. It erupts like a volcano when left unarticulated and unaddressed. However, unlike volcanic eruptions, such issues can in many cases be predicted and managed.

The Inherent Family Issues in Family Businesses

When two family generations begin to talk to each other, they are speaking from different frames of reference. We are all molded by our individual experiences, which color the lenses through which we see the world. True, in a family business, the senior generation has usually survived more different experiences of all kinds than their progeny, simply by virtue of age. However, the variety of experience is less important that the sharp intergenerational difference in those experiences. The son, for example, thinks differently not just because he is less experienced with business or life than his father or mother, but because his generation looks at the world through a different prism.

One family business we worked with illustrates this difference in frames of reference. The senior generation had built a successful business from ground zero, quite literally. For example, the founder told us how he actually kept count of the paper clips in the early years because he had to be very cost conscious. He cared deeply about his adult children, but he was also an extremely tough man. Described by others we talked to as being difficult to deal with, he never listened to others because he assumed he already had the right answer. Indeed, he was not very flexible.

The younger of two sons worked with him in the business. (The older son had gone on to medical school). The youngest son was bright and capable for his age, but he was also hot tempered and impatient. When this son and his father would disagree about significant issues, the son would become angry and quit his job. The father would become upset by his son's departure, give in to his son on whatever issue had triggered the outburst, and beg the son to return to the business.

When we started to work with this family, we talked about the communication gap between father and son and how the dramatic differences in their experiences growing up might be seen to relate to this gap. The father was the son of a poor man. His two sons, including the one in the business, had grown up as the offspring of a rich man. One day the father turned to us and said, "I get it. My son never grew up understanding the advantage of disadvantage." Their worlds could not have been more different. The next time the son walked out of the business, the father wished him well, but did not go after him. Three weeks later the son asked the father to take him back! The illustration is designed to point out that the communication between the father and the son always broke down because there were no common points of reference for discussing the business issues. They would look at each situation from such different perspectives that they could not communicate.

There were obviously many other issues. The father had attempted to give his son the life he never had when he was growing up. Consequently, the father had indulged his son in a variety of ways and never held him accountable for his actions. Consequently, the son had been taught by the father that the best way to get what you wanted was to throw a "tantrum" (leave the business). Given the father's history of not understanding that the word "no" was just as important in establishing a love relationship as "yes", he would always let his son out of the predicament in which he had placed himself.

The father grew up with the word "no" and that is where he developed his determination and his success. When the father let the son go and put his son in the position of having to call to re-enter the business he shifted the relationship to one in which the father and boss could ask the son to take responsibility for his behavior.

The son's continuing to leave so abruptly when he did not get his way was a continuation of their different backgrounds and experiences. The father knew how tough the world can be. By allowing his son to leave and not calling him back, he gave his son the opportunity to discover what life can be like without a job or with a job but without the same future and compensation that his present employment afforded him. That experience, however minor, created common ground for the father and the son on the realities of life and a level of appreciation for the fortunes of their current life. The son was able to put himself in his father's shoes for a change.

The gap in years, and the corresponding differences in life experiences between the two generations, become like a chasm dividing fathers and sons, parents and children, as each generation tries to communicate from its own reality. When we give speeches to family business groups we often do a communications exercise in which we ask for two volunteers from the audience. We separate the volunteers and tell one of them to pretend that he/she is at a bus stop and not to waver from that instruction. We tell the other volunteer to pretend that he/she is at home in an apartment. Each is also told to attempt a conversation with the other. Both are then momentarily escorted outside the room. Before the two volunteers return to the room to enact the drama, we tell the audience to listen carefully to the conversation about to occur between the two volunteers. Out of earshot of the two volunteers, we explain to the audience that one of the volunteers is playing the role of a crazy person. The audience's assignment is to discern which of the two it is.

The volunteers reenter the room and begin a conversation in the following manner. Either one may begin the conversation. For example, one may say: "Hi ! My name is Sam. Who are you? What are you doing here?"

As soon as one volunteer says, "I am waiting for a bus," or "I am relaxing in my apartment," the two participants generally get a little nervous and confused.

"Excuse me? " is generally the next line.

The conversation can continue in the following manner. "I am sorry but this is my apartment and buses do not come through my apartment. There is a bus stop outside and you can wait out there if you want."

"I am not leaving. This is a public place and I have every right to be here."

The two volunteers begin to struggle with their realities and continue to insist on their positions. This exchange can sometimes get a little heated. We interrupt the exercise before it becomes too antagonistic and then turn to the audience.

When we ask the audience which volunteer is the crazy one, some audience members select one volunteer and some select the other. Usually the audience then proceeds to argue about who is crazy and who is not.

The exercise is designed to demonstrate how each volunteer in the dialogue is behaving normally from his or her own experience. The problem is that the realities cannot exist simultaneously. One cannot both be at a bus stop and in one's apartment at the same time. This is very similar to the problem between the generations in a family business. One cannot live the life of the founder and also of the successor generation. They are different realities. Each of these realities has merit and credibility. The challenge is to create build common ground between them.

Sophisticated learning, up-to-date skills, and an eagerness to improve on the old ways obviously differ from seasoned experience and wisdom. The younger generation frequently possesses the former and the senior generation frequently has the latter. When the two sets of traits come together in the family firm, a formidable team can be created. In the remainder of this chapter, we review a number of specific problem areas relating to intergenerational conflict, and how members of two, or more, generations can profitably address and work through these areas of conflict in a way that will improve both family relations and business performance.

A Dialogue about Authority

Intergenerational conflicts arise in every family business in which more than one generation is active in management. Conflict can occur on many fronts. In the family business context, conflict means that seniors have views about money, authority, intimacy and other aspects of relations that differ from their children's views. The two generations may have similar values regarding these issues but they frequently argue over them because those two topics are areas when there are major conflicts over control. The issue of authority and money are generally very clear in a non-family business situation.

Money and control are two historical family issues that the father and son have probably been struggling with since the child was born. It becomes impossible to separate out this very powerful family issue in a family business setting. There may be many or few differences, each varying from mild to intense. The challenge in every family business situation is to articulate the differences, and to be honest about them, in order to manage them effectively rather than trying to sweep them under the rug. Left unarticulated, these differences between parents and their now grown children in the business play out in struggles for control that mirror the earlier control struggle between parent and child, when the offspring was still "a child."

The result of replaying the earlier parent-child conflict in the family business setting is that both parents become involved in the issue and they in turn revisit their own set of experiences raising their children, now grown and working in the business. Parents remain parents regardless of the age of their children. Both parents continue to remain involved in the welfare of their children. If there is a struggle in the business between a child and one of the parents, both parents quickly become involved in the situation. If the mother has always believed that the father acts in an unreasonable manner when it comes to the management of his children, she will take that attitude into the discussion of the business problems that her spouse is having with her child. Her presence and her lobbying will undermine the control/authority that the father has in the business setting. This difference of opinion may be explicit or it may be very subtle. But in either case it can have the same effect. One might think that the locus of the problem would help define who's in charge of the solution, but it usually does not. The issues and dynamics of who is in control also take on a variety of forms. These struggles may be complicated and extremely confusing.

Let us, for the purpose of discussion, take a walk down the path of authority. Authority is usually defined as: "Who is in charge? Who outranks whom?" But authority may also be defined as: "who knows best?" Relationships between parents and children in family owned business occur on many different levels. There is the business relationship and the family relationship. In business, one does not challenge the authority of the boss too many times before one is on the street out of a job. In the family such challenges to parental authority are the stuff of everyday life.

As one goes through the developmental stages of autonomy and independence (adolescence), the primary emotional task is to challenge authority. Working in the family business makes it difficult to experience a total separation from the family. The younger family business member does not work through all the necessary emotional and developmental states and can become stuck in some step of the adolescent stage in their relationship with the parent. When this happens, there is constant undercurrent of struggle between the younger generation and the senior generation over who is in charge and who knows best. This undercurrent is fueled when the younger generation lobbies the other parent for the legitimacy of its position.

This dynamic, which is common in all families, now surfaces within the business context. The ambiguity of this situation is very difficult to work through and creates tremendous stress and frustrations for all parties.

Resolution can be achieved by striving to clarify the roles of each family business member and to improve communication. Each family member is certainly in charge of his/her life outside the business. But at work the boss is the boss. Yet in a family business some middle ground is necessary. This middle ground can take shape as a structured time and place for the discussion of those areas that overlap. If it is assumed that the next generation may assume control of the business some day, there ought to be an opportunity for that generation to ask questions about the rationale for certain decisions or the direction of the company. This time and space for discussion comprises a crucial component of succession training and education and should not be seen as an opportunity for second-guessing or Monday morning quarterbacking. This structure is only one solution. It should not be seen as sufficient to overcome all the issues that may exist between the generations.

So who is in charge? The reality is that the person who owns and controls the voting stock of the family business is in charge. Any message or hint to the contrary is a fantasy for everyone. This reality may be offensive and discomforting to many family members, but it must be acknowledged and discussed. Voting control gives the person in charge the option of listening to the opinions of others, but he or she can still choose to act unilaterally, disregarding others' views. Other family members, and even non-family employees, who are uncomfortable with so little control over their lives are faced with a series of choices. Those choices may be experienced as uncomfortable because they may include not continuing in the family business. Nevertheless, they must be confronted. It starts with one basic choice -- to stay in the business or leave. Most people wait too long before they are ready to confront this choice and frequently it is so far down the road that the alternatives available are very onerous for all family members.

In our practice, we take the position that before divisive issues are discussed, the family must acknowledge the possibility that these differences may not be resolved. This is a very important stance. Two generations of a family often begin a dialogue with the expectation that the other generation should understand and will be sympathetic to its position. The expectation is that the other generation, the parents (if the kids initiate) or the kids (if the parents initiate), should be willing to meet them half way at the very least -- since they've come half way to meeting the other generation's position. But the conversation frequently deteriorates because members of each generation expect the other to come not just half way across the chasm but all of the way, adopting either the juniors' or the seniors' position completely. Neither is able to deliver because they could not compromise. When this happens, each side may feel very disappointed with the other. Disappointment gives rise to anger and communication becomes even more difficult.

Note: compared with managers and employees of non-family owned businesses, members of family owned firms are more apt to expect to have a meaningful dialogue on authority, or on any other issue that arises. This is because participants feel that membership in a family enforces more of an obligation on the part of each member to be sensitive to the needs of the other. Reciprocal obligations are a uniquely defining feature of family relationships. But, and seemingly ironically, it is this sense of obligation that can block meaningful dialogue. Why is this so? Because the generational differences surface in the process of each member's having to sort out his or her obligation to himself or herself, the obligation to the business, and the obligation to other family members. It is extremely difficult to choose between those three different constituencies. The act of choosing can feel like "Sophie's Choice." This sense of helplessness manifests itself in family members avoiding the necessary dialogue. Granted, it's right and proper that family business members feel a sense of obligation to each of these three constituencies. The challenge for each family member active in the business is to negotiate between and among these three often conflicting duties.

A Dialogue about Control and Succession

Most senior managers are loath to retire. They like the stimulation of going to work each day. Their business is often their sustaining "life force," a continuing source of emotional and intellectual stimulation. It is also a place where they can continue to feel important.

As long as the founder or owner controls the business, he or she must be reckoned with and taken seriously. Because a business owner's self-esteem often derives from business achievement, as he or she ages and begins to lose the capacity for handling the workload of earlier years, or achieving the same quality of execution, any remaining areas of proficiency become especially prized. The senior generation has generally labored long and hard to feel a sense of financial worth and control over their lives, and they naturally want to hold on to it.

One of the speakers at the 1990 Million-Dollar Round Table Conference, at which we were presenters, reflected upon how he felt on his 63rd birthday. He made the interesting, and counterintuitive, observation: "If anybody ever told you that he could do at 63 what he used to do at 33, then he was not doing much when he was 33."

It is normal for a business owner to want to continue on for as long as possible with authority over the family business. Indeed, we have listened to owners talking about leaving their businesses who equated leaving the business with dying. These owners fear that if they retire, they will die. Their fears may be rational or irrational, but the fear is real and unless treated seriously may become an intractable obstacle to a successful succession, the key issue posed by intergenerational conflict for the business system itself.

The threshold issue for family owned businesses is whether the senior generation, which owns and controls the stock, really wants the business to continue into the next generation as a family controlled enterprise. If the answer is yes, then there is a basis for constructive dialogue. If the next generation is not interested in continuity of family control, then there is no reason for any further discussion. If our view on the latter point appears somewhat rigid, it is because any dialogue between the generations must be one of give and take. There must be room for negotiation and compromise.

Most business families enter this kind of negotiation because they must, not because they want to do so. Discussions between the generations about the real underlying issues are always difficult, painful and argumentative, so family members usually avoid such discussions. The reality is that the discussions are hard because family members have difficulty facing the real issues. For the seniors it involves getting older, ceding power and control, preparing for death and loss. For the juniors it involves growing up and accepting responsibility. And realities involving money confront both juniors and seniors. One would be surprised at how many families have the communication skills to talk about these subjects. Almost all have the skills to do so! Yet paradoxically, one would not be surprised to find out how few begin the dialogue.

Motivation to participate is critical, and to listen as well as talk. There must be something truly vital at stake for family members to give these matters their undivided attention. There must be a reward for their willingness to become involved, just as the negative consequences of refusing to participate in the dialogue must be pointed out. The reward is continuity of family control. The consequence for refusing to participate in dialogue is that the business "dies" with the present generation. Of course, there are other rewards and there are other consequences. The survival or the death of the business is, however, the most important outcome (and, in the case of death, a truly final outcome). It's the one that all family members can understand.

Mentoring the Next Generation

If the owner really wants family control of the business to continue into the next generation, he or she must confront the issue of authority in order to determine who is to take charge. This transition requires planning but also, and very importantly, the training of the successors. We often run across family businesses where the younger generation, already heavily involved in the business, carries substantial responsibility but with very little authority. (The juniors often argue -- perhaps a little brashly -- that their demonstrated responsibility, not to mention intelligence, has already given them all the training they need in how to run the business -- how to exercise authority.

By analogy, this dialogue on the intergenerational transfer of control resembles that of a first year teacher (akin to the business founder) who begins teaching a class all of whose students (the founder's children) love him. Then the discipline in the classroom begins to fall apart and the teacher finds himself spending the rest of the year just trying to regain control of the class. In the meantime, the students have learned little because all their energy was consumed in a battle for power and control with the teacher. The good teacher never makes this mistake again but the bad teacher never even learns from the experience.

Management of a classroom is not unlike management of a business. One needs to know how to manage people, make the tough decisions, and respond to errors quickly. These skills take years to develop. If it were easy to master these skills, more family businesses would continue into the second and third generation.

Dependence and Independence

Authority is by no means the only issue to surface in intergenerational conflicts. Linked to the issue of authority are the issues of dependence and independence. These issues are rooted in the question of who is in charge and who is controlling one's life: one's self, one's children or one's parent? The answer in family businesses is: all of the above.

Parents take care of their children. Children are dependent on parents for their very survival. Of course, everyone -- parents included -- assume that the children will eventually grow up and learn to take care of themselves in the world. However, this is not exactly what happens in a family business. In the family business, the children never really leave home. They may sleep in a different house, but they still share the same bathroom and the same roof for at least eight hours each working day with their mother, father or both. Lives of all family members are still closely intertwined in very concrete ways on a daily basis.

When the two generations have been unable to work through the authority issue -- of power and control in the business -- the issue of dependency becomes acute. For the junior generation, the absence of autonomy creates low self-esteem. Feelings of dependence, which are inappropriate for adult children, quickly lead to resentment.

In our society, most children grow up valuing independence. They learn to be independent because it is an important American cultural value and it becomes a strong emotional drive. Managing this drive is the most difficult issue parents must address. Ask any parent with a two-year-old. The internal struggle in the two-year-old is one of dependence versus independence. The two-year-old wants to be a big girl or big boy, but is insecure about how to master these tasks. The child takes out this confusion on the parent by being difficult. The parents then must set appropriate limits on the two-year-old and teach him or her appropriate behavior through a system of rewards and punishments.

When one begins the succession/continuity process in a family business one recreates the dynamic between the parent and the two-year-old child. The issue of management succession is at root an issue of the next generation having more autonomy/control. This outcome brings with it an accompanying ambivalence in the form of insecurity, and the need for the parent to help the child grow by teaching the child the appropriate behavior.

The Cost of Doing Nothing

In the previous section we tried to explain why the senior generation understandably experiences difficulty addressing the transfer of the business to the next generation, though vital to maintain continuity of family control. In fact, many additional, and complicated, issues surface when the succession process finally comes up for discussion. Resistance can take many forms, the most common being denial. It has been our experience that it often requires a very powerful emotional event to initiate succession planning. This may be the death of a friend or a story related by a family member about the explosion of an intergenerational conflict in another family owned business.

To the Family

Given that each family member has a very important part of his or her life tied up in the family business, the absence of adequate planning can be catastrophic. The funds needed to pay estate taxes may not be available, which in turn may force a sale of the business on distress terms. Or litigation over ownership and/or management issues may arise to divide the heirs in the next generation. We know from our extensive consulting that once the heat between family members starts to rise and one family member goes to an attorney for advice, the odds of creating a reasonable dialogue among family members for the purpose of resolving family business issues drops dramatically. There are very few attorneys who understand and appreciate family dynamics. Most attorneys viewed their job as representing the client who has come to them! So, they indeed represent the client, but often at the cost of the best interest of the business, not to mention the interests of other members of the family or the family taken as a whole. Given this professional stance, which is certainly appropriate in many legal contexts, a lawyer can start a war that may destroy the family and the business. The result? The only winners are the attorneys themselves!

To the Business

The financial cost of doing nothing is often the least of the family's worries. Money is replaceable. It is only a problem when the family simply doesn't have not enough. Strong family businesses and strong capable people can survive the money issues. The much more important cost is emotional. Family relationships built up over a lifetime or even generations can come tumbling down in the absence of a good transfer plan, one that brings the generations together rather than splitting them apart. We recently spoke to a client who is in the middle of litigation with a family member. His worst fear is that his sons will suffer what he has suffered. The client wanted to include in his succession planning a pledge that he would elicit from his sons. What he wanted was their solemn agreement to meet with each other once a week to discuss their mutual interests on a continuing basis. With whom else, after all, could his sons share their innermost thoughts and feelings on both family and family business matters?

We advise all our clients that they will make more money and gain more satisfaction as a result of the time they spend together within the business than anything else they can possibly do. The more time family members spend together talking about the things that matter to them, including business concerns, the easier it is to talk about these issues.

Obviously, one of the issues is likely to relate to intergenerational conflicts generally and ownership transfer and management succession in particular. But note: family members, both working in the business or having an ownership interest, cannot expect to become engaged in such a highly charged conversation without first having a relationship that can comfortably carry emotionally laden content -- which is why we emphasize the quality of the time family members spend together, so that intimacy and reciprocal respect can flourish. In our view, effective planning for management of intergeneration conflict in a family business must provide for taking the time to develop a relationship with the next generation and training the next generation, and not just provide for the technical aspects of planning that can be solved by professionals. If succession planning is just left to the professionals -- thinking again of Drucker's fourth rule, which we printed at the very beginning -- without close attention to family dynamics, then not will the business be placed at risk, but family relationships may also be permanently damaged.

The Psychology of the Parents -- the Senior Generation

From our experience, there's an age after which the senior generation is not likely to undertake any significant estate planning or consider passing control on to the next generation. Although there may be some exceptions, that age ranges from the early fifties to the mid to late sixties, with the mid-point being approximately 63 or 64 years. If the senior generation has lived to their 70's, without having undertaken that planning, the chances they will do so are very slim, and those chances lessen with the passage of each day.

The Aging Process

The reason has to do with the aging process. The older we become the less we are able to do. This diminution of powers includes both our physical and our mental capabilities. This loss creates an ever increasing degree of anxiety and tension. We have been programmed all our lives to be independent. The aging process creates an increasing and inescapable degree of dependence. Since most successful business people have enjoyed an unusual degree control over their lives, having to face the possibility that they may be losing control can be especially disconcerting. Paradoxically, one must feel secure, confident and independent in order to enter into a process that will shift control out of one's hands into the hands of another, thus creating at least some measure of dependency for the parent-founder or other senior member of the family business.

There is almost a point of no return. As noted, if the founder lives beyond that age limit, but has not yet planned for the continuity of the business, the juniors of the next generation must face the reality that their choice is limited to continuation of the status quo or their departure from the business. When the choice is that stark, and final, the two generations can easily come to the brink where once again the stress on the business and the family relationships risks destroying both the family and the business. Consequently, we advocate that the senior generation begin the planning process as early as possible while there is still a window of opportunity.

The Psychology of the Entrepreneur

When discussing generational issues, one needs to distinguish the entrepreneur-founder of the business from the senior family member in a business that is now in the hands of the second or third generation. Entrepreneurs are different from other people. They have certain characteristics which make them successful. As it happens, these are the very same characteristics which make them difficult to relate to as individuals.

Leon Danco, a noted author and speaker on family business matters, retells the classic story of the birth of an entrepreneur. Danco describes him as the man who comes home and says, "Hi, honey. I am going into business for myself! " What this means is that he has just been fired. The reason he gets fired is not because he is lazy or incompetent. Typically, the future entrepreneur is fired because he has problems with authority. He knows best. He does it his way and he is not interested in being on the receiving end of rules and procedures. He is only interested in getting things done. This psychological profile is the reason why there are countless stories of entrepreneurs whose careers and real success begin only after they get thrown out of an established company.

Entrepreneurs typically build companies to the point where their size demands order and structure. Yet entrepreneurs tend to put off building this structure until their individual habituated behavior -- driven by the temperamental characteristics discussed above -- invokes the law of diminishing returns and they are ejected from their own company and they are ejected by the professionals they recruited or their stockholders
because their style is no longer functional for the business.

A family business' founding entrepreneur is usually a father. (Although less common today than in the past, the entrepreneur-founder is more often than not male.) The founder probably had problems with his own father over authority and control. As a result, he does not have the role model needed for shaping his interaction with his own children in ways that build a healthy relationship towards authority and control issues on their part. It would be a mistake, however, to confuse the entrepreneur's difficulty interacting with his children with a lack of commitment to family or a lack of intellectual understanding of the father's role. On the contrary, an entrepreneur is frequently driven to achieve precisely because of a deeply rooted need to recreate the family situation that he wished he had but was denied. In fact, entrepreneurial founders can often be persuaded of the need for communication between generations, because intellectually they understand the emotional needs they experienced in their relationship to their own fathers. Entrepreneurial seniors can often find the wisdom to change even before being pushed by their children who want more autonomy and responsibility, who seek, in short, a benign exercise of authority by their parents.

In the best case, the entrepreneur sees the solution and is willing to walk away from the emotional hurts that he or she has endured as a result of the frustrating experiences with his or her children. It is the younger generation that frequently needs the encouragement to trust that some things can be different but some things will just have to be lived with and accepted.

Leaving the Family Business

We have discussed the older generation's resistance to retirement and the need to stay active. There are certain situations, however, in which the senior generation needs to leave the business, among them the cases where the founder's presence casts too long a shadow and the younger generation cannot grow in its presence. Likewise, the founder must depart the scene if he or she is too controlling. No matter how often a founder says that the next generation has authority, his or her presence alone confuses this issue because everyone else in the business --family and non-family members alike -- know that at the end of the day, the founder can still call the shots. Our experience suggests that these founders have great difficulty changing their behavior because too much has happened in their lives. It may have been a difficult childhood or it may be a health issue which causes the founder so much anxiety that the need for control becomes even more intense. Unfortunately, for this group, the founders who cannot change their spots, the choice is a stark one: they must choose between leaving the business while it is still healthy and while they have time to mentor their successors or remain in charge and go down with the ship.

When the Founder Decides to Leave: the Importance of the Spouse

As we have discussed, relationships between the founder and the next generation are often filled with conflict. They argue too much such that feelings between seniors and juniors become so entangled that major business issues are not addressed. This dynamic stunts the growth of business. Consequently, the founder may determine that the best course of action is to leave the business. The challenge then becomes trying to find new outlets for the founder that are both stimulating and challenging. At this moment, a founder's relationship with his or her spouse becomes especially important. If their relationship is good, the two of them can begin to spend more time together. More time together is usually an adjustment for the couple because in the past their relationship and time together has often been sacrificed for the sake of the business.

There is much to do out there in the world. When the relationship between the spouses is good, they can do it together. If, on the other hand, the two do not enjoy one another's company, the spouse may undermine the transition planning process because she or he knows that a predictable outcome of the process will be that they spend more time together, an outcome that is not desired.

The Psychology of the Younger Generation

Each person deserves the chance to both achieve success and feel good about him/herself. When one comes into a family business, one receives security and many other benefits. But there can also be significant psychological costs attached to this decision. One cost which no one should have to pay to join a family business is the sacrifice of one's own identity. Self-esteem is critical to a life of independence and fulfillment and it derives from achievement and work, not from play. When individuals reach their mid to late thirties, they typically develop a burning desire to move forward to test their own strength, to risk trusting their own judgment and to act upon their judgment. If a junior in the family business is not allowed these expected developmental opportunities, anger and bitterness can result. This applies not just to the intergenerational dynamic but to same generation relations as well, among siblings who are in the business together. It may be difficult to work for one's father, but it may be impossible to work for one’s brother or sister. The brother or sister who has never been in charge or who has never been autonomous is frequently a very unhappy person. We discuss ways of dealing with this predicament later on in this chapter.

Members of the next generation are entitled to the expectation that they will have access to the opportunity to prove they can run the family company. One situation which stands in the way of that happening is competition between parent and child, most usually a father and son. The competition is a very subtle thread running through their relationship. Freud was right. The father and son compete for the wife/mother/woman. Only in the family business, the wife/mother/woman is the business.

This Freudian tension is the reason that the relationship between fathers and daughters is so different from that of fathers and sons. The daughter is not seen as a threat. She can continue to bring warmth and nurturance to the relationship with her father as they go through the process of planning continuity of the family business. This may be one of the reasons that women do so much better in the family business than they do in the rest of corporate America. The statistics are that women make up 5% of senior management in corporate America where they comprise 25% of senior management in family owned businesses.

At the same time there continues to be "discrimination when it comes time for choosing the successor in the family business. Although the father does not consciously want to discriminate against his own daughter, he may do so unconsciously. We have met countless families in which the daughter/sister was clearly the more competent management successor in the family. But if she was able to assume leadership of the family business, it was only because others had eliminated themselves, not because her own talents were recognized as superior. Many daughters are resentful of this gender discrimination, which brings us full circle.

There are many generational issues that are functions of differences in age and life experiences. There are gaps between the ideal and the real which one must accept in order to continue to have family relationships. When the two generations in a family business agree to undertake a dialogue aimed at planning the transfer of authority, they should be realistic about the difficulties. They should remember the creed adopted by Alcoholics Anonymous. God, grant me the Serenity to accept the things I cannot change, the Courage to change the things I can, and the Wisdom to know the difference.

Resolutions and Solutions

What works best? Clearly, professionals who advise family businesses must understand each business family's idiosyncratic dynamics. What works for one family business will fail explosively in another family firm, even though the two cases may appear almost identical when viewed strictly as business enterprises. They are clearly not similar because each family brings to the business an altogether different history, culture and communication system. However, there are certain structural solutions that can facilitate the resolution of issues in families confronted with intergenerational conflicts, and these solutions have been found to work for most families.

Effective Corporate Governance

The voting stockholders in the family business should almost always consider ways to make corporate governance more effective. Corporate governance at its best can accommodate the views of all and facilitate the orderly development of coherent policies to guide the next generation of company management. This effort begins with a decision on the future role of the board of directors. Should the board become truly supervisory of management or should it be advisory in nature? What should the role of the Chief Executive Officer be relative to the Board? Should or can the CEO be a solo player or should the roles and powers of a team of senior managers be delineated clearly and should such managers by held accountable by the board?

More Formality Can Help, along with Frank and Open Debate

Most family business boards fail to use even the most elementary mechanisms of effective decision-making, relying instead on informal given and take, "consensus building" as it is sometimes called. However, the mechanisms of the vote, of formal agendas in advance of meetings and keeping the minutes can free directors from the tyranny of having to find consensus on issues on which unanimity is neither possible nor necessarily required by the issue at hand. Well functioning boards and committees are governed by the principle of collective responsibility best exemplified by the British cabinet. Within the sanctity of the meeting room, all issues are open for the fiercest of discussion. However, when no further ideas are forthcoming, the discussion is terminated by a call for a vote. After the vote is taken, each member of the group -- whether the most ardent proponent of the decision or the most obdurate opponent -- is required to support the implementation of the decision or resign. Guided by this principle, British political debates are undoubtedly among the most vocal and feisty in the world, but they are also the most civil. In a family owned firm, vocal and frank discussion can coexist with civility as valuable tools for governing the enterprise.

Outsiders Can Bring a Fresh Perspective to the Board

The art of corporate governance is in its effective implementation. Yet the culture of many family businesses has tended to preclude creation of a supervisory board, even when the business would so obviously gain from having one. A family, though intensely private, can find ways to adapt over time to sharing closely held information with a board of directors or council of advisors. By contrast, the family that chooses to remain hermetically sealed off from the outside world cannot. Even in family firms whose boards are restricted to family insiders, involvement of an outside third party to teach group meeting skills and to facilitate discussion can be useful for board development. Over time, as the board of directors meets on its own, other consultants such as the company's accountant and/or attorney and non-family senior managers should be regularly invited guests at these meetings. They can act as a source of expertise, information and also provide an opinion on matters that may be controversial within the family itself but about which they are able to take a more objective view.

A Council of Advisors Also Has Advantages

Many family businesses should also consider creating a council of advisors. Once the Board of Directors has established itself as truly effective, a council of advisors consisting of experts from different fields (meeting occasionally in joint session with the Board, or with senior management) can bring sustained inquiry and advice. Because they are entirely independent of the owners/managers of the firm, they can be relied upon for an objective opinion.

An Illustration

By way of example, consider the case of a national retail company with revenues of nearly $250 million. The company operates four distinct chains of retail stores, each one operated by a qualified general manager. Three of the four general managers are members of the third generation of the family that owns the company. The sixty-five year old chief executive officer is the son-in-law of the founder. When he entered the company, it was less than five per cent of its current size, with only a handful of employees. Guided by his father-in-law's business acumen and supported by his father-in-law's abiding affection and respect for him, the present CEO, whom we will call Tom, grew the business dramatically during his tenure as head of the company. Today the company enjoys a nationwide reputation as an outstanding performer in its industry.

Tom has always had the knack for seeking and heeding good advice. Over the years he created two classes of stock, one voting and the other non-voting. He transferred more than 90% of the economic value to his six children in the form of gifts of non-voting stock, retaining voting control through 100% ownership of the voting stock and managerial control as well. Later, when four of his six children entered the retailing business (three as general managers and one as CFO) and as a cadre of competent non-family managers developed as well (headed by the Executive Vice-President-General Merchandise Manager) issues of control emerged. Tom encouraged everyone to do his or her best and paid everyone better than market. He put all of his children, including those not active in the company's management, on the board of directors. But in the end he made every major business decision and he controlled the career paths of each of his children in the business.

Ultimately, the control issue devolved to a single decision: Who would become trustees of the irrevocable trust to which the voting stock would be transferred upon Tom's death? Would it be family members, trusted advisors, independent fiduciaries or senior, non-family managers? Initially Tom went the trusted advisor route, but these nominees withdrew after a bout of inter-family litigation triggered by Tom's purchases of stock from his father's estate. Being sued once was one time too many for Tom's lawyer and accountant. Next, Tom installed two of his adult children plus an independent fiduciary as trustees. This experiment was abandoned when Tom became disenchanted with his second oldest child's managerial performance. Once again, Tom cajoled his advisors to serve as trustees. Tom reasoned that his longtime personal and corporate advisors both knew and would respect his wishes for the future of the firm more than his increasingly cantankerous kids.

What Tom failed to understand, and what his attorney who drafted the bulletproof trust instruments also failed to see, was that Tom's ironclad control over both the business' affairs and his children's lives created chronic dependence on the part of his children. Tom wanted to order his kids to be both independent persons and managers with initiative. But as much as he wished this, his own behavior -- his own needs for control -- prevented his offspring from becoming strong, independent individuals and competent managers. Both he and his attorney and accountant were puzzled as to why his kids, whom he had showered with stock and other forms of wealth, remained so angry. What they could not see was that their control, their mastery of the younger generation, was a choice that maximized the likelihood of retaining the short to mid- term health of the business at a cost of long-term family discord. As much as Tom sought a happy family, he was unable to take the one step that could nurture this outcome -- ceding some control of the business to his children.

What could Tom have done to escape the horns of this dilemma? How could he perpetuate effective supervision of his company's managers after his death? How could the voting trustees, burdened as they are by inherent conflicts with the younger generation/beneficiaries, carry out Tom's wishes without antagonizing the beneficiaries? The answer is to create a truly supervisory board of directors during Tom's lifetime, a board that contains both members of the younger generation and unrelated individuals independent of management and ownership. A bona fide supervisory board has many advantages. Directors can become mentors for managers, both family and non-family. They can provide independent expertise and judgment of corporate policies, freeing both generations from the deadlock of emotion-laden positions. They can hold family management accountable, help to fix compensation, and add the leavening of experience and judgment to the management succession process. Of course, these benefits will not materialize all at once. A period of years may be necessary for the outside directors and family members of the board to combine in a group that is both genuinely supervisory and also cohesive. But the outcome is worth the effort.

Choosing the Optimal Outside Advisor


Fortunately for North American family businesses an increasing number of attorneys recognize that they need to add literacy in family systems theory and enhanced relationship skills to the technical skills they already possess in order to represent family controlled enterprises effectively. A growing body of professional education literature has become available, for example, the Family Business Practice Series for attorneys. A nascent, but vigorous new organization, Attorneys for Family Held Enterprises (email: has sprung up to meet the needs of experienced legal advisors to family firms who want to enhance their skills and knowledge.

With respect to knowledge about intergenerational conflicts, attorneys still face a paucity of educational opportunities both in law schools and post-graduate legal education programs to study the impact of the family system on the family business. The professional calling and credentialing of family business attorneys ought to be driven by the tasks they are called upon to undertake. Because effective representation of family controlled enterprises begins with understanding both clients, the business and the family, a family business lawyer must be bi-lingual even though, obviously, the attorney will know more about the law than about family systems theory. Another way of putting it is that he or she must be able to write poetry in the language of the law, but need only "read the news" about family systems.

Whether an attorney, or other specialist, the family business advisor who is not clinically trained cannot, obviously be expected to provide counseling and therapy. Nor should the advisor even consider attempting to. But the skills may still be useful in assessing the dynamics of the family system. The attorney can apply traditional legal skills such as issue identification, clear writing, and probing questioning to the family side of the inter-generational conflict. But again, on his or her best day, the most empathetic attorney is not competent to open up and resolve even the most basic family systems issues. People pay surgeons not to open them up -- any street punk can do that with a knife. They pay top dollar to have the bleeding stopped and to be sewn up without residual discomfort. Similarly, family business attorneys are most effective as the quarterback of a team that includes both family therapy specialists who are competent to articulate and resolve intergenerational conflict and financial advisors competent to deal with certain succession and other continuity planning issues.

During a recent interview, we were asked whether family businesses chose institutional law firms or small firms to represent them. Our response to the question was that the size of the attorney's firm was not relevant in most cases. Although there is no published research on the subject, one can intuit the reason. Simple common sense suggests that a professional's ability to maintain trust and a long term relationship is the key to acquiring and retaining family business clients experiencing intergenerational conflict. As William C. Ely, Esq., a Boston attorney who counts many family businesses among his clients, once quipped, "A family business practice is built one relationship at a time."

Family Business Consultants

Family business advisors who lack psychological training and family systems literacy are apt to supply cures that have only a temporary, palliative effect for their clients -- much like the pre-modern medical practice of using leeches to bleed a patient, to draw out the "humors" thought to be at the root of his illness.

What the family firm really needs is the interdisciplinary consulting team in which at least one advisor has advanced clinical training and experience in family therapy while one or more of the other advisors have training in the business disciplines vital to family owned enterprises. Both the clinically trained advisor and the business consultant must become bi-lingual in the language of business and psychology. They must also learn to communicate their insights in plain English to the family and non-family business managers who work in the company. The clinically trained advisor should prove especially useful in helping to overcome powerful sources of resistance to change in the family system. Once that bridgehead is established, the other business advisors' can begin to speak to the family with a good likelihood that they will be listened to.

Often the advisors to business owners, and their offspring, encounter highly intuitive, even if often inarticulate, individuals. This can lead to countertransference issues that might, in a non-family business enterprise, be altogether absent. Working with family firms triggers the advisors' own personal issues, based on their childhood history and experience with their own families. When the advisory has mainly painful memories of his or her family, that can sometimes color their view of what is going on in the family they are consulting for -- creating obstacles to objective analysis and sound recommendations for change. But that is the advisors' problem to manage.

There are many more resources available today for finding an experienced family business consultant. Area universities are good places to check first, especially universities that have family business programs. (If they do, there is a chance that the program is affiliated with the International Family Business Program Association (IFBPA)). Since cultural, ethnic and regional issues can be involved in the problems the consultant will be asked to help with, looking for help in the immediate vicinity is advisable, because local experts are more apt to have the necessary local cultural knowledge. IFBPA, which can provide references, can be accessed on the Internet at Another route is to ask an advisor you already trust to undertake a search because the trusted advisor is more apt to have your best interest at heart. You can probably trust his or her judgment regarding other exports not known to you -- and the chances are that a trusted advisor will work harder to come up with the right person. Yet a third avenue is to check with the national trade association of family business consultants, the Family Firm Institute. This organization can be found at


In our view, the psychologist's role is, as logicians would have it, necessary, but not sufficient. The task confronting therapists who would be family business consultants is how to integrate their insights and training with the skills and training of the traditional business advisor. From our experience, such integration requires sustained effort over many years and also a good deal of luck in finding the right partner. First, the clinician must learn the language of business. Secondly, he or she must learn how to be a consultant, an activity far removed from the solitude and quiet of a private therapy practice. In addition, consultation often requires collaboration not only with one's own business partner, but with teams of other advisors, each with different skills and independent agendas. (It should be noted that working cooperatively in a team of hardened veterans of "business wars," professionals with advanced skills and egos to match, is not always easy).

When does a psychologist think feelings and relationships are unimportant? The answer is, "Never!" Perhaps this is the most appropriate stance for psychotherapy. But it is definitely not always the correct stance for family business consultation. There are clearly times and circumstances when a consideration of feelings and relationships ought to be subordinated to business considerations. These circumstances include (a) emergency situations, (b) events which trigger the therapist's own issues about money (countertransference issues) to the extent that clear and dispassionate judgments are not likely, (c) occasions when therapists treating the family trespass into issues which are purely business matters, and (d) moments when the only good advice is purely directive advice.


The powerful and committed individuals who dominate family businesses, and they are often curmudgeonly and irascible as well, come in all ages, spring from all ethnic groups and races, and include both genders. But their ethnic, cultural and gender differences are less important than their common desire to have both healthy families and profitable family businesses. Their commitments are to legacies, progeny, heritage and community. They do not fit nicely into the American myth of the entrepreneur as lone wolf and successor to the pioneering frontiersman. But they dominate many markets and industries, hold our communities together and, with tenacity, manage to pass on both their legacy of values and heritage, along with their assets, to the next generation. Most are committed to continuity of their family businesses into the next generation. Successfully managing the intergenerational conflict, conflict that could wreck this hope for continuity if left unaddressed and unresolved, is the ultimate test of leadership for them and for their progeny.