Thomas D. Davidow – Interview

Business Leader Post, March 22, 2013

by Dennis Warren

Thomas D. Davidow is the founder and principal of Thomas D. Davidow & Associates. Dr. Davidow has more than 30 years of experience working with hundreds of national and international family controlled enterprises. He has worked with businesses in diverse fields including retail, distribution, manufacturing, real estate, construction and more.

Among his many accomplishments, Tom Davidow is the author of the FamilyBiz Q&A column which can be read weekly here in the Business Leader Post.

Dennis Warren: How did you get involved in consulting with family owned businesses?

Thomas Davidow: So many things led me in this direction simultaneously that that it felt like it was meant to be. It still does. Consulting with family businesses has been a perfect fit for my professional background and life experience.

First, as a practicing psychologist, I saw a lot of family business casualties; and I could hear and understand that an intervention at some point could have helped the family businesses get through it with a different outcome, particularly for my client.

Secondly, growing up, I had family businesses on both sides of my family. So I understand how conflicts can interfere with the business and with family harmony. On my father’s side, my father and my aunt didn’t talk to each other for eight years over a disagreement having to do with the family business. On my mother’s side, my grandmother didn’t talk to her sister for 20 years over a conflict in the family business; and they lived next door to each other! Relatives came to my grandfather’s funeral whom I had never even seen. So when I walk into a family business situation, I see things that go on between members of a family that might not make sense to someone who hasn’t been familiar with family businesses. For example, salaries can be tied to the number of children in the business rather than individual performance. Even though I don’t agree with that, I can relate to it.

Lastly, insurance companies were making it more difficult for psychotherapists to practice, which was a threat to my business. I discovered that I had a limited number of hours that I could work successfully as a psychotherapist, and that the income from that would not be enough to sustain our family’s lifestyle, including sending our children to colleges, etc. I had a sense that being a consultant to family businesses would be more lucrative.

How did you make the transition from psychotherapy practice to consulting for family businesses? What practical steps did you take?

The first idea was to become an organizational consultant—for example, to teach communication techniques within an organization. I was skilled in that, and I could turn people into a team. However, in my experience, I had been asked to work with middle management to develop teams; and they always told me that the problem lay with the senior management. I was stuck. I couldn’t tell those who hired me that they were the problem when what they wanted was for me to keep the middle management quiet and content. That didn’t feel honest.

What I wanted to do instead was to deal with the decision makers of a family business. When I work with a family business, I work with the family and the decision makers. All family members are brought into the consultation; and I apply family systems theory, which is part of my professional education and expertise. I called a couple of family businesses blindly, told them who I was and asked if I could spend a day with them working for free. After doing that two or three times, they all said that the time I spent with them was helpful.

Then I went to the Harvard Business School library to read about family businesses. I didn’t have much to read. There was hardly anything written: 10 articles and one book. It was a brand new field.

My next step was to join a business group organized for networking. I asked everyone what they thought of my idea of consulting as a psychologist with family owned businesses. They all said YES. One fellow said to talk to Richard Narva, an attorney who was doing something like that. Richard had just sold his family business. He had realized that the primary problems in the business were family issues. In order to work successfully with family businesses in his law firm, he knew he had to understand family issues.

Richard and I understood each other’s roles. Over a year, we met once a week for two hours in my office and talked about how to design an approach. At the end of that year, we launched Genus Resources and negotiated a partner agreement between his law firm and myself. It took off and became extremely successful.

You have created the Davidow Interdisciplinary Method. Can you explain what that is?

It came out of the recognition that you need more than one skill set in a family business consultation. One skill set is that of a psychologist, someone who understands families and their dynamics. The other is someone whose skill set is in the business arena—an attorney or accountant or another financial/business professional. When each professional appreciates the other’s skill set, they can send one message about what is best for the business and what is best for the family. Dealing with both sets of issues has an extremely powerful impact.

What I created is still alive today. Since I was excited about it, I presented my method in various conferences, and other professionals have since adopted it, which I take as the ultimate compliment.

What are some of the common reasons why a family business contacts you for an engagement?

There are numerous reasons, but the overarching goal is to have the business go from one generation to the next. Many unresolved family dynamic/relationship can interfere with that process. If the family is unable to communicate effectively about vital family issues, be it sibling rivalry, illness, or past resentments, they can have a negative impact on the business and its ability to maximize its growth.

What is it about consulting for family owned businesses that you find most compelling?

The adrenaline rush from the risks associated with the consultation. There is so much at stake: both family harmony and the financial success of the business. You are taking on everything. If you don’t succeed, the family and the business can blow up. It’s like walking a tightrope without a net. It’s an exhilarating challenge. You can’t fail. There’s just no room for failure. There’s too much at stake. Because the family has so much at stake, they are committed to the process. The pressure is extraordinary, but it’s mentally very challenging. Watching families do what is necessary, put in the hard work, and ultimately trust themselves is a beautiful thing. When a family works collectively, has harmony, communicates effectively and channels their energy into the business, the business itself flourishes.

It’s very dramatic. In my professional career and personal life, I have always taken enormous risks. I still love risk, but now I get paid for it!—for managing it, for having the family survive the process and land on its feet. That takes balance, courage and agility. When you’re falling, you have to know intuitively how to land on your feet.

Playing basketball in high school and on the playground, I loved being a point guard because the point guard keeps the team working as a team. I recreate this in a family business situation. I keep everyone engaged so that they develop as a team. My Interdisciplinary Method does that: It integrates the family so they work as a team. And that’s what I love.

What is the most challenging aspect of working with family businesses?

To have the families stretch themselves and believe in themselves. Caring about each other is there. Having a commitment is there. Otherwise they wouldn’t hire me. All key family members have to agree to hire me. They wouldn’t hire me unless at a level of the collective unconscious, they believe that the strength of their emotional relationships is strong enough to support the weight that will be put on that foundation. Everybody knows that they’re part of the problem and the solution.

I’m family neutral. My client is the business. In a family business intervention, I guide decisions about what is best for the business, not the family. What I do that I believe is better than what anyone else does is to take into consideration both the family issues and the business issues and come up with recommendations that make sense both for the family dynamics and for the business and integrate them. That is what I do.

During the integration of all of those recommendations, we are falling from the tree. Once I have figured out how the family and business have to move forward, and the family goes along with my recommendations, we can land on our feet. However, since change creates doubt, there is a scary period before everyone is convinced. What is invigorating to me is that based on both theory and experience, I have no doubt. I know that you have to communicate through the problems and that if you talk about the issues, they will get better. That is true theoretically, anecdotally, realistically and statistically.

Are their criteria for what makes a particular family business a good candidate for a consultation engagement?

Yes: commitment. For the intervention to be successful, the family has to commit to doing the work. Getting that commitment is a piece of work all by itself. Families are afraid of change. They’re used to the devil they know and are emotionally attached to their roles. Families struggle with commitment for about three to six months. I manage their ambivalence until they get enough traction that they will do the work. After that, the rest is like riding a bike. That doesn’t mean it’s easy, but at the end of day, you’re together and it gets better.

Are there criteria for what makes families more likely to succeed either in their businesses or in achieving family harmony or both?

The family’s history: Most families’ basic ties are strong enough. They are essentially healthy people who cherish their family ties. Those ties and relationships can be tested and stretched when they’re in business as a family for all the reasons that you can imagine because family systems and business systems are not congruent. The two systems together create enormous ambiguity. Both systems have to be balanced simultaneously.

Most family businesses stay on course for a while until something happens in the family or in the business or enough situations build up over time. What happens is that a small thing will occur, and the family member will think that it’s not worth bringing up because the reaction is not going to be good. But if one small thing happens a day, after ten years of being in business together, you now have 3560 things that bother you. After 20 years, you can double that. People are afraid of saying too much to each other, or they don’t say anything. Eventually, one thing leads to another, and then they finally explode. Nothing gets resolved. An intervention is necessary. And that’s when I come in.

Unfortunately, in the case of some families who have experienced so much trauma, and whose relationships are so damaged, it’s not possible for them to reconcile. They have to acknowledge that there’s too much water under the bridge. They’re better off separating rather than salvaging the situation. The business can survive, but the family members cannot work together. That is not their fault. Something happened years ago. The family dynamic created the situation. For example, I worked with two brothers whose father physically abused their mother and sister. The two brothers became co-dependent in the business and they had to separate because they kept repeating the co-dependency.

But most families don’t have that kind of trauma. They still have powerful family connections that will support all the emotional stuff that gets dropped. Families are powerful. When they commit to values, to what’s right, it’s amazing what they can do to get on track and to address family and business issues and to develop what’s best for both.

How do you develop your clients’ trust?

One of the things is I would never say to a client is “Trust me.” I’ve never uttered that phrase to a client, no matter how dire the situation. Trust is experiential—you have to experience it. Trust comes from my commitment to them, which is to always tell them the truth as I see it, regardless of the consequences to me—meaning that I believe that my responsibility is to always deliver the bad news.

But that’s only the first half of trust. The second half is to deliver the bad news in a way that my clients can hear it. And when they hear it, they know I’m telling the truth—they already know it, but they don’t want to look at it. They haven’t heard it in those words.

You need a specific professional skill set in order to tell them the truth so they can hear it. Then the consultation works. They see the truth, and they change. Then they trust the process more. What they trust is the process you have developed, and the trust comes to you because of that. I teach them to trust the process. They don’t become dependent on me. They can separate from me. They become independent and end up trusting themselves.

How do you balance your expertise with your intuition?

My expertise is a result of my training and my background as a psychologist, which includes my undergraduate, graduate and doctorate degrees; my clinical experience, including a year of clinical experience and ongoing supervision for six years after my I got my doctorate; and 15 years of supervision with a psychiatrist where I presented my family business cases. I am also a trained mediator. You take all that training and all my experience and then you add intuition, which is the information from your training and experience that is stored in the unconscious. Some people call it the “little voice.” When that little voice is speaking to you, it’s the collection of your training and your experience, so you listen to it.

As I said, family business consulting is like walking across a tightrope with no net. The combination of training experience and intuition gives you the balance stick so that you can walk it.

What most differentiates you from other professionals who advise families in family owned businesses?

Whatever one’s background or training may be, any professional who works with families risks getting drawn into the family dynamics. When an advisor is dealing with families around issues of succession or other legal or financial matters, family members will bring up topics and situations that the professionals themselves have lived through. Regardless of the professional’s arena, his or her own historical experiences will be stimulated by the family dynamic and will color his or her attitudes towards the situation. It’s inevitable. No one is protected from it, including people like myself who have been clinically trained to avoid it.

The difference between me and other advisors is that I’ve gone through over 20 years of supervision where I presented my cases and was able to identify an issue within each case that was triggering some historical memory of my own. After examining the case and identifying how the client’s issue matches my own, I can then distance myself enough to understand more deeply the issues that the families are struggling with. Without that awareness and knowledge, professional advice can be tangled up with the advisor’s emotions that s/he may or may not be aware of. As a result, the advice will not be as effective.

I’m not saying every family business situation requires a clinically trained advisor like me. That’s silly. There are a lot of professional advisors who do very well by families and service them well without being trapped by family dynamics. However, I am saying that professional advisors need to know the boundaries around their own competence and stay within them. When they do, that’s fine. But when a professional advisor sees that a family situation is complicated, they would do well to find someone who is qualified to deal with that complexity. Life then becomes easier for both the professional and for the family.

What makes succession planning difficult?

That is the million dollar question. Every tax attorney, accountant, estate planner, banker, life insurance agent, etc. who deals with family businesses wants the answer to that question. 73% of family businesses have a plan; only 27% of them implement it.

It’s very difficult for family businesses to start thinking about the future in this way. There are many psychological barriers. The first and biggest is the idea of death or dying. Who wants to look at the future and see nothing? No life? The goal is to live and embrace life, not to die. And people have very powerful defenses against that uncomfortable feeling. Death does not create positive feelings. So they avoid it. At the same time, what do you do? Do you let them avoid it? How much is your responsibility to tell them to do something to help them? Professional advisors know the consequence of the absence of planning. But how do you talk to people so that they will hear it? That’s why people hire me. I know how to do that. I train people to know how to do that.

Another big problem that the senior generation has is that they have solved enormous amounts of complex problems before. Otherwise, they wouldn’t be where they are today. They’re very successful. Whatever the problem, succession or otherwise, the senior generation thinks they can solve the problem. Not so.

First, they can’t understand why they can’t be successful solving the problem of succession without intervention from an outside consultant. And they think that if they ask for help, there’s something wrong with them. As a result, they do too much by themselves. And when they get frustrated, they just stop. The reality is that they can’t do it themselves. They need to bring in a professional the same way they hire an estate planning attorney or an accountant to fill out a tax form.

When it comes to succession planning, have you observed an evolution in thinking concerning birth order or gender in respect to the selection process?

Yes. Birth order is no longer a guarantee in America. I’m not sure about other parts of the world-it remains a guarantee in other countries, except for highly unusual circumstances. In the U.S., my client is the business. My recommendations come from what’s best for the business. Interestingly enough, if you know what you’re doing, you can see or explain that what’s good for the business is also good for the family. And it’s true every time. For example: if you have someone who is the first born, and that’s his or her primary qualification, and s/he’s not performing, and the business is not living up to its maximum potential, that has to be addressed.

It’s better for the business if it performs better, but what about the impact on the family if you have to tell the son he’s not doing a good job? He knows or he doesn’t know, and continues to remain in a position where he’s not competent. If you don’t address it, you are sending a message that you don’t trust the family member, that you don’t trust that he can hear the truth. And that’s the worst thing that you can do to your child—lie to him or her.

In addition, when you’re not telling one child the truth, all the other family members, including siblings, know that you’re not telling the truth. No one is telling the truth. It’s a family secret. The family then can’t talk about anything honestly because everyone is afraid to be honest. They fear that the family will explode. But if you don’t talk honestly, the family suffers from not being able to address its issue. They remain blocked and unable to function as family, and the dynamics only get worse. On the other hand, dealing with an incompetent or underperforming son or daughter ends up freeing the family in its ability to communicate with one another both in the business and in the family. When you address both problems, you find the same solution.

A consultant needs to be highly trained in family dynamics and knowledgeable about business. And I happen to be both. My strength in family dynamics comes from my training. My strength on the business side comes from having had three successful businesses of my own and from having been a consultant for over 300 family businesses.

The gender issue is still far behind. But compared to the rest of the world, it’s significantly better. 7% of CEO’s in America are women. 25-33% of CEO’s in family businesses are women. Family businesses are better, i.e., they are less gender influenced than the rest of the world. But 25-33% is a low number in terms of the potential. The number should be neutral—at 50%. We have a ways to go.

How do you reassure family business owners that they can achieve both business success and family harmony?

The two are not incompatible. One goes with the other. But most people don’t see that. Most professionals—accountants, attorneys, etc.—don’t see that either. They see choices: either the family or the business. Usually, they give advice on what’s best for the business. But how they say it may not be good advice for the family. They see the consequences of not addressing family issues, but they see no process to deal with those consequences.

What distinguishes me is that I can see and explain what’s best for both and show them how to implement the recommendations in a way that promotes family harmony and business success. That’s why I get hired—when all the other advice hasn’t solved the family problem. And if there are still family problems, there are still business problems.

In the beginning, the only reason a family calls me is that the situation is intolerable. They need an intervention. There’s little reassurance in the beginning. All I can do is describe the process and tell them it will get better. Psychologically, there’s still fear, even if the process makes sense. It’s like telling someone who is terrified of water that they will swim. It’s hard for them to believe. First, they find it hard to believe it’s as bad as it is. Then they can’t believe it’s going to get better. But after they take one step in the process, they start to see that change is possible. I tell them, “This meeting was good. So we’ll do another.” And sometimes, you hit a bumpy road, and they want to get out; they get afraid. But most of my families start with me and finish with me, taking one small step at a time.

You mentioned that you are also a trained mediator. At what point in a consultation do you find that mediation is appropriate or required?

If you take the broadest definition of mediation to be a process in which a third party helps those in conflict reach an agreement, that is what I have been doing for my entire career as a family business consultant. The more technical definition of mediation is that it’s an alternative to litigation. Even then, the mediation process is one where the conflict is extremely powerful, and in most conflicts, whether it is in a family business or a non-family business/partnership, there’s a level of emotion that is present for both parties. I never have to move from a regular engagement to a mediation process because I reduce the tension and the emotions to the point where mediation is not necessary.

I’m only called in to do a mediation process when a situation has reached a crisis, i.e., when the emotions of both opposing parties are so strong, they can no longer communicate towards an agreement and are about to go over the cliff into the never ending valley of litigation. The advantage of mediation is that it is significantly less expensive than litigation, both financially and emotionally.

In a mediation process, I work within the Interdisciplinary Method. I partner up with an attorney who drives the content of the deal side while I drive the communication process which allows us to get there. When emotions are very powerful, satisfying feelings becomes more important to both parties than the business agreement. The application of my skills reduces the strength of emotions and allows the opposing parties to push forward towards the business agreement. It has been my experience, and I think most litigators would agree, that reaching a business agreement is frequently the easiest part of any mediation process. The most difficult part is getting the opposing parties to listen to the validity or reliability of the thought process of the other individual.

You work with family businesses from all over the world. I imagine you must need to accommodate the cultural foundation of a country in how you address the needs of a family business in one country versus another. Can you comment on how dealing with diverse cultures impacts the way you support family businesses?

The skill set and the training are universal. It doesn’t matter what culture the family comes from. Family dynamics are systemic to families everywhere. However, they do get played out differently according to culture, particularly in regards to patriarchal cultures. What you have to do most importantly is to respect the culture in order to help the family. You have to figure out the true values of that culture and then promote that. It’s the values of the family that are going to ultimately determine the outcome—like honesty and integrity. In any close family that I’ve encountered where there’s honesty and integrity, the process will work, no matter the culture.

I have to admit that there are some cultures that have values different from mine, including gender, expectation, communication styles or politics. But I don’t pass judgment on what I experience as different. I concentrate on what is the same and on my process and on always being honest. You can find honesty everywhere.

Staying with the international theme for just a moment, do family businesses outside the US tend to survive more generations than here?

Yes. It’s a sociological difference. America is the land of the frontier and entrepreneurism. You get rewarded for being independent, for being out on your own. That’s the drive of the culture of a democracy. The notion of automatically going into the family business is not the same as in Europe, where there is a history of thousands of years of rituals concerning the first born. The tax laws and estate taxes are also dramatically different elsewhere. For example, Panama has no estate tax. That promotes family dynasties. The idea of families passing on the business is more expected. If it’s a good business, you have to sustain good rules to keep family dynamics out of it. The rules are clear. You don’t break those rules. We don’t have those rules here.

How would you advise a family business to evaluate a family business consultant?

You ask the same questions that you ask of any other professionals. What are their credentials, experience, training, recommendations from others for whom they have worked?

Consultants have to have legitimate degrees from certified institutions, specific training and a skill set—something they have studied and trained for and in which they have experience. Is this profession their only source of income? Do they do anything else, or do they have one basic dominant skill and years of experience utilizing it?

There’s also the question of fees. What services is the professional going to be provide—one or two services? Is s/he selling products or something besides his or her skills as a consultant? Is there a transaction attached to their consultation?

But at the end of the day, the most important thing to do before hiring anyone is to have other family members meet him or her or talk on phone. The final and most powerful criteria are chemistry.

I would like you to look back over your long career working with some of the most recognized family businesses as well as all the heartland family businesses. I am curious if there are aspects of some cases that have left a lasting impression on you. Obviously you cannot speak about a specific company but are there family situations that have left a lasting impression on you?

Yes. Those are the ones that I spent the longest time with, and the ones who were the most isolated. It’s difficult for family business people to talk about their struggles with anyone. That difficulty causes isolation. It’s important for family businesses to sit down with one another and share their experiences.

The two families that made the most lasting impression were isolated for different reasons. One family was isolated because of geography. They were the most powerful family in their town and area. There was no place to go to talk. Also, they were not interested in the outside world. The other family was isolated because they were so famous. No one could know anything. When you get into someone’s world like that, and live with them as things happen over time that are interesting and demanding, you go through a lot of evolutionary structures, from having no commitment whatsoever to now having an exceptional capacity to communicate. Both families business are successful. And both are extremely interesting.

What do you find that families in business have in common, whether from small or huge businesses, or from the US or abroad?

Family dynamics are all the same. All the theories and communication techniques are applicable to all families. The only difference is the number of employees and family members, the size and money. It can be more or less complex to address all the issues, but the core of family dynamics remains the same.

Last question, I imagine that you must get asked all the time to serve on Board of Directors or Advisory Boards for family businesses? If so, what is your reply?

I don’t get asked to sit on boards that frequently. The only time I’ve been asked is when I’ve worked with a family and have evolved to helping them develop a board. They then might ask me to be a member in the beginning. But I leave after about a year or 18 months. I’m no longer necessary for the family dynamics, and I don’t add that much in terms of the business. If I haven’t worked for the family, I say no. I could always manage communication every time the board meets, but nothing would really change. I don’t think you need a board member trained in communication techniques. You want people with business expertise. If you need a facilitator for communication purposes, four times a year won’t do it.