How Multi-Generational Family Firms Transfer Management Control Successfully

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.

The Genus Methodology
Intergenerational Conflicts
A Dialogue about Control and Succession
The Cost of Doing Nothing
The Psychology of the Senior Generation
The Psychology of the Younger Generation
Resolutions and Solutions
An Illustration
Choosing the Optimal Outside Advisor
Differences between European Family Businesses and American Family Businesses
Rules of Thumb


Genus Resources has been engaged by nearly 200 family controlled businesses since 1985. We have developed a conceptual framework about how business owning families function, how family issues drive the business, and a specific methodology whereby Genus consultants interact with both the family system and the business system to facilitate change. Our methodology is not suited to all family businesses. Our clients comprise those family controlled enterprises concerned with addressing both family relationship issues that are lived out in the enterprise and strategic organizational level and financial issues of the business. We have developed consulting protocols that translate into a set of requirements that the families must meet before we are willing to accept them as clients. Therefore, our ideas and conclusions about family businesses come from working with this self-selecting population. Our conclusions and assumptions may apply to other parts of the general family business population. But we do not claim this to be true. We believe that our methodology increases the likelihood of success, which we define as healthier and more functional relationships in the family and material growth in long-term profitability of the business.

The Genus Methodology

Step One: the Initial Interview

Our screening process assesses a necessary threshold commitment of the family to each other and a willingness to work on the issues facing them. We require every family member presently working in the business to participate in an initial family meeting with Genus consultants. We never meet with any individual family member prior to this initial family meeting. It is critical that all members of the family see us as neutral. Our client is the business as opposed to any individual family member. Meeting with any individual first compromises our relationship to the client business and our neutrality. We are frequently asked by the senior generation of owner managers to meet with them first so they can educate us about the issues and the different personalities of the key players. We believe that this meeting is the most "dangerous" of all. Most professional advisors are perceived by the entire family as working for the senior generation and represent their view of the world. If we enter the system after having been briefed by the senior generation, then we are perceived as just one more set of hired guns selected by the senior generation with the mission of re-creating the world as seen through the eyes of the generation in charge.

Alternatively, when families agree to meet for the initial interview, they have by definition all agreed that there are problems to be addressed when they arrive for this initial meeting. They are interested in facing the challenges ahead of them; willing to talk to one another and to entertain the idea of working together; and are, at some level, committing to change. Much is accomplished just by having families fulfill our first protocol of coming to the initial meeting.

Step Two: The Assessment

The second step of a Genus family business engagement is an assessment of family issues, business issues, and how they overlap and may thereby create difficulty. This assessment is done through a series of individual interviews. We require clients to grant us access to interview all family members and spouses (regardless of their involvement in the business). We believe that the entire family is affected by the family business and that a family member does not need to cross the threshold of the office or factory in order to have his/her life affected by the business. We conceptualize the family as a group of people standing in a circle holding onto a rope. When one person tugs on that rope, everyone feels it. Therefore, we ask, "Do we have your permission to interview each member of the family, whether active in management or not, and each senior non-family manager?" If the answer is negative, no engagement with our firm can begin for a clear and simple reason. Entrepreneurs, founders and chief executives of family businesses are masters of control. If they control whom the consultant interviews, they control data input on the family business' problems, and therefore, definition of the family business issues in the case. If they control the interview list, they control the consulting engagement. Independence for the consultant is thus lost at the first battle. Under our rules of engagement, the family's decision about the scope of assessment interviews marks either the beginning of the consulting engagement --the entry phase in which the potential client commits to the conceptualization of his problems as family business issues and to the endeavor of resolving these issues--or it is the final encounter with the client.

A family business' trust is not easily earned. At the entry phase, family business consultation may appear faddish to some members of the system (much like the insurance salesmen who paraded as financial planners in order to overcome resistance by prospects to insurance sales). It is necessary in the entry phase for the family business consultant to teach the potential client that there is a system for conceptualizing the issues which are so painful to the family and so capable of materially and adversely affecting the family business. Therefore, at the initial meeting, the consultant to a family owned business must provide the family with the following information:

  1. Explain the conceptualization of the client's business problems as family business issues.
  2. Identify what the specific family business issues may be.
  3. Explain the existence of a profession known as a family business consultant (because the family most likely is not familiar with such a profession), and
  4. Prove that this firm is the best suited to conduct the consulting intervention.

It is our firm conviction that consulting to a family owned business demands the skills of a team of two trained professionals with widely divergent professional training and experience, one skilled in family systems and one as a traditional business advisor. We maintain that this methodology is most clearly required in complex cases where there are multiple problems requiring simultaneous interventions in both the family which owns or controls a business and in the management, ownership and governance of the business enterprise.

Complex Cases

We refer to complex family business cases which present such multiple, concurrent problems or crises in both family and business as "hard cases." By "hard," we mean cases in which there are concurrent, chronic and often acute problems in many of the following areas:

  1. Family relationships within one generation
  2. Family relationships across two or more generations
  3. Management of the daily operations of the business
  4. Struggles for control of the business
  5. Governance of the business
  6. Ownership of the business
  7. Conflicts in corporate culture
  8. Consequences of managing family wealth
  9. Pathologies and addictions

These cases often present multiple, simultaneous crises which many family business consultants denominate as "ownership succession" and "management succession," as well as individual psychological issues and family systems conflicts in the nuclear and extended families.

In complex cases confronting family business consultants, issues in family systems of profound complexity and difficulty often arise. How is a traditional business advisor to address these matters? Simultaneously, management, legal and accounting questions may be presented which are beyond the competence of all but the most highly trained specialist. In addition, even if issues in a family firm are actually articulated in the context of a consulting intervention, these cases often present problems. By what logic, by what coherent means of approach, is a practitioner to overcome resistance to an intervention and facilitate a favorable outcome?

Many consultants to family businesses using multiple methodologies succeed in assisting their family business clients. However, commentators have recognized that family business consulting interventions become more onerous for practitioners when the family presents a pattern of substance abuse or when the business is experiencing financial difficulties. As stated above, we believe that a consulting theory assists practitioners to fashion a methodology for resolving complex cases with outcomes that are predictably favorable. Our experiences have led us to believe that the interdisciplinary team model of an experienced, well trained family therapist and a similarly well trained and experienced traditional business advisor may be highly suited to achieving favorable outcomes in a predictably high percentage of complex cases. Also, we recommend that advisors and others who assist family business 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 "broken" 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 so closely with 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 magna 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.

Building Intergenerational Dialogue

When two family generations begin to talk to each other, they are speaking from different frames of reference. We are each 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 experiences of all kinds than their progeny, simply by virtue of age. However, the variety of experience is less important that the sharp intergenerational differences in these experiences. For example, the son or daughter thinks differently not just because s/he is less experienced with business or life than his or her father or mother, but because his or her generation looks at the world through a different prism.

One family business we worked with illustrates well 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 younger son was bright and capable for his age, but he was also hot tempered and impatient. When this son and his father disagreed about significant issues, the son would become angry and quit his job. The father would become upset by his son's departure, concede to his son on whatever issue had triggered the outburst, and beg the son to return to the business.

When we began working 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 pursue him. Three weeks later, the son asked the father to take him back!

This illustration is designed to point out that communication between this father and 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. Although there were many other issues, the father had attempted to give his son the life he'd never had growing up. Consequently, the father had indulged his son in a variety of ways and had never held him accountable for his actions. The father had taught his son that the best way to get what he wanted was to "throw a tantrum," e.g., leave the business. Given the son's history of not understanding the word "no," the father 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 repeated, abrupt departures when he did not prevail was a continuation of their different backgrounds and experiences. The father knew how tough the world could 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. However minor, this experience created common ground for father and son on the realities of life and a level of appreciation for the fortunes of their current life. For the first time, the son was able to put himself in his father's shoes.

The gap in years and the corresponding differences in life experiences between the two generations can become a chasm dividing fathers and sons, parents and children, as each generation tries to communicate from its own reality.

Ownership Issues

When one approaches the issue of succession, it is our experience that most time and energy is spent on ownership concerns. Since these issues usually present quantitative questions which are measurable and objective, most people address those issues first. Accountants and lawyers are also trained to deal with the quantitative and legal issues raised by ownership transitions and are, therefore, often extremely helpful. But it is our experience that the ownership transfer is the easiest part of the family business succession process. The most difficult decision often involves whether to include those members of the family who are not active in the business in the ownership of the enterprise. If the answer is negative, then one can equalize the inheritance through inter-vivos or testamentary disposition of other assets. At a minimum, the business will be free of the burdens of non-manager owners. If the answer is affirmative, there are well established structures and strategies that can be utilized to minimize the impact of multiple owners on the business, such as shareholder agreements and active boards of directors or councils of advisors on which family members can sit and be educated about the progress and financial health of the business. Such strategies afford them emotional ownership and responsibility for the enterprise rather than just financial ownership (in the same way that one might own General Motor's stock).

Management Issues

The more challenging piece of the succession process is that of management succession. Unfortunately, when business owning families, business advisors and academics address the issue of management succession they do not generally appreciate fully the quality of communication necessary to complete the succession process successfully. They often conceptualize management succession as a decision. It is not a decision. It is a journey. Effective planning and implementation of changes in management from one generation to another require years to think through, years to plan, and years to implement. Most business owning families concerned with heritage or legacy as well as with assets know this to be true. However, passing management/control of a business to the next generation is such a complicated task that business owners will frequently defer addressing the issues because their resolution can be so daunting and complicated. It's easy to become overwhelmed about how and where to begin.

Intergenerational Conflicts

Understanding the Sources of Intergenerational Conflicts

Conflicts arise in every family business in which more than one generation is active in management. Such conflict can occur on many fronts. In the family business context, conflict means that the senior generation has views about money, authority, intimacy and other aspects of relationships that differ from their children's views. The two generations may have similar values regarding these issues, but they frequently argue over them because these topics surface when conflicts over control erupt.

Money and control are two historical family issues that are the subjects of struggles between father and son practically from the birth of the child. It becomes impossible to separate this very powerful family issue from business matters 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 experiences raising their children, now grown and working in the business. Parents remain parents regardless of the age of their children, and continue to remain involved in their welfare. If there is a struggle in the business between a child and one of the parents, both parents quickly become engaged. If the mother has always believed that the father acts in an unreasonable manner managing his children, she will bring that attitude into any discussion of business problems between her spouse and her child. Her presence and her lobbying will undermine the control/authority of the father 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 business locus of the problem would define who is in charge of the solution, but it usually does not. Issues of authority in this setting are complicated and confusing.

Authority is usually defined by responses to such questions 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 simultaneously as business relationships and as family relationships. 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. Our view is that from time to time, in virtually all family businesses, the business becomes a stage or a venue on which classic family dramas are evaluated.

One such drama is a young person's drive for independence. As one goes through the developmental stages of autonomy and independence (adolescence), the primary emotional task is to challenge authority. But working in the family business increases the difficulty of separating from the family. As a result, a younger family business member may not work through all the necessary emotional and developmental stages en route to real independence. He or she can become stuck in some of the adolescent stages in his or her relationship with parents. When this occurs, 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 in the business. The ambiguity of this situation is very difficult to work through and creates tremendous stress and frustrations for all parties.

Reaching for Resolution

Resolution of family conflicts being enacted in the venue of the family business can often be achieved by striving to clarify the roles of each family member in the business and to improve communication. The first reality family members must accept is that each individual is responsible for his or 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 consists of structured times and places for discussion of those areas where family and business overlap. If it is assumed that the younger generation may assume control of the business some day, those presently in control of the family business should ensure opportunities for that generation to ask questions about the rationale for certain decisions or strategies of the company. This time and space for discussion comprises a crucial component of succession training and education. However, it should not be seen as an occasion for second-guessing. It is only one solution. But it should not be seen as sufficient to overcome all intergenerational conflicts.

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. Two generations of a family often begin a dialogue with the expectation that the other generation should understand and sympathize with its position. The expectation is that the other generation (either the parents or the offspring) should be willing to meet them half way at the very least--since they've come half way to meeting the other's position. But the intergenerational conversation frequently deteriorates because members of each generation expect the other to come not just half way across the chasm, but further than is possible, by adopting their position completely. Neither side is able to deliver because they could not compromise. When this scenario eventuates, each side may feel very disappointed with the other. Such disappointment may give rise to anger. Communication may become even more difficult.

In comparison to managers and employees of non-family businesses, members of family firms are more likely to expect a meaningful dialogue on authority, or on any other issue that arises. This expectation arises because participants feel that membership in a family imposed a greater duty on each member to be sensitive to the needs of the others. Reciprocal obligations are a uniquely defining feature of family relationships. But ironically, it is this sense of obligation that can block meaningful dialogue because the generational differences surface in the process of each family member's effort to sort out his or her obligations to himself or herself, to the business, and to other family members. It is extremely difficult to choose among those three different constituencies. The act of choosing can feel like "Sophie's Choice," generating a sense of helplessness which is manifest in family members avoiding necessary dialogue. The challenge for each family member active in the business is to negotiate between and among these three conflicting duties.

A Dialogue about Control and Succession

Business as Passion

Most senior managers in family businesses are loath to retire. Many family business owners experience work as a passion, not a job. Retirement is a decision for individuals who hold jobs. 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 nourishment. It is also a place where they can continue to feel worthy.

As long as the founder or owner controls the business, he or she remains a force to be 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, any remaining areas of proficiency become especially prized. Usually 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.

As one pundit reflected upon how he felt on his 63rd, "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 to exercise authority over the family business for as long as possible. Indeed, we have listened to owners describe leaving their businesses as equivalent to dying. The threshold issue for family 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 about a shift in power and control.

The Need for Negotiation

Most business families enter this kind of negotiation because they must. Discussions between generations about issues of power and control are always difficult, painful and argumentative. As a result, families in business usually avoid such discussions. The reality is that the discussions are hard because family members have difficulty facing these issues. For the seniors it involves getting older, ceding power and control, and preparing for death and loss. For the juniors it involves growing up and accepting responsibility. Moreover, realities involving money confront both juniors and seniors. Yet it is difficult to overstate how many families have the communication skills to talk about these subjects. Almost all families have the skills to do so. Yet paradoxically, few begin.

We believe that such conversations must be formal and structured with respect to content, but intimate in style. 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, as well as the negative consequences for refusing to participate in the dialogue. The reward is continuity of family. The consequence for refusing to participate in dialogue is that the legacy of being a family business "dies" with the present generation. Of course, there are other rewards and there are other consequences. The survival or the loss of the business is, however, the most important outcome, and one that all family members can understand.

Mentoring the Next Generation

If the present generation of owners really wants family control of the business to continue into the next generation, they must confront the issue of authority in order to determine who is to take charge. This transition requires not only planning but also training the successors.

By analogy, this dialogue on the intergenerational transfer of control resembles that of a first year teacher beginning to teach a class, all of whose students love him. When the discipline in the classroom begins to deteriorate, the teacher finds himself spending the rest of the year trying to regain control of the class. In the meantime, the students have learned little because all of their energy was consumed in a battle for power and control with the teacher. A good experienced 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 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. What is required for success in intergenerational transfers of power and control in family businesses is both tough love and sufficient training of the younger 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 controls one's life: one's self, one's children or one's parents? In family businesses the answer is all of the above.

Parents take care of their children, who depend upon them for their very survival. Everyone--parents included--assume that 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 family businesses, children never really leave home. They may sleep in different homes, but they may literally still share the same bathroom and live under the same roof for at least eight hours each working day with their mother, father or both. The lives of an entire family may remain closely intertwined in very concrete ways on a daily basis.

When the two generations are unable to work through the authority issue described above--of power and control in the business--issues of dependency becomes acute. For the younger 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, which is internalized as 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. Parents must then set appropriate limits on the two-year-old and teach him or her appropriate behavior through a system of rewards and punishments.

Beginning the succession planning process in a family business recreates a dynamic similar to that between the parent and the two year old child. Management succession is at root an issue of the next generation developing autonomy. This outcome can generate an accompanying ambivalence manifest as insecurity and the need for parents 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. In fact, many additional, complicated issues surface when the succession process is finally tabled for discussion. Resistance to resolution of the issues triggered by tabling management succession for discussion can take many forms, the most common being denial. It has been our experience that a very powerful emotional event, such as 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, may be needed to initiate substantive succession planning negotiations.

Costs to the Family

The absence of adequate planning can be catastrophic. 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, dividing the heirs in the next generation. From our extensive consulting we know that once the heat between family members starts to rise and one family member seeks advice from an attorney, the chances of creating a reasonable dialogue among family members for the purpose of resolving family business issues drop dramatically. Very few attorneys understand and appreciate family dynamics. Most attorneys view their duty as representing the client who has come to them. Indeed, under their canons of ethics, American attorneys must represent the individual client who engages them, often at the cost of the best long term interests 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 ethically representing an individual client can start a war that may destroy the family and the business.

Costs To the Business

The financial cost of doing nothing is often the least of the family's worries. Money is only a problem when the family doesn't have enough. Strong family businesses and strong, capable people can manage the money issues. The emotional cost of doing nothing is truly the greatest risk. Family relationships built up over a lifetime or even generations can come tumbling down in the absence of an effective plan to transfer power and control, 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 endured. This client wanted to include in his succession planning a pledge elicited from his sons 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 every client that they will earn 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 issues that matter to them, including business concerns, the easier it is to talk about these issues.

Obviously, one of the issues most likely to require sustained discussion is intergenerational conflicts generally and ownership transfer and management succession in particular. But it is important to note that family members, both those owner/managers and non-management owners, cannot expect to become engaged in such a highly charged conversation without first developing a relationship capable of comfortably carrying emotionally laden content. Therefore, 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 time both to develop relationships between generations and training the next generation. It is not sufficient just to provide for the technical aspects of planning that can be solved by professionals. If succession planning is left only to professional advisors without close attention to family dynamics, then not only will the business be placed at risk, but family relationships may also be permanently damaged.

The Psychology of the Senior Generation

From our experience, there is an age after which the senior generation is unlikely to undertake any significant estate planning or to consider passing control on to the next generation. Although there may be some exceptions, family business owners are most likely to engage in succession planning from their early fifties to their mid to late sixties, with the midpoint 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 explanation for this conclusion 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. Successful adults have been programmed all their lives to be independent. But the aging process creates an increasing and inescapable high 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 parentfounder or other senior member of the family business.

In the arena of family business succession planning there is almost a point of no return. As noted, if the founder lives beyond his late sixties, but has not yet planned for the continuity of the business, the next generation must face the reality that their choices are very likely limited to continuation of the status quo or departure from the business. Fundamental change is increasingly unlikely. When the choice is that stark, and final, the two generations can easily come to the brink of a conflict where stress on both the business and the family relationships may destroy both the family and the business. Consequently, in every case we advocate that the senior generation begin the planning process as early as possible.

The Psychology of the Entrepreneur

When discussing generational issues, one needs to distinguish the entrepreneur-founder of a family business from the senior family member in a business that is now in the hands of the second or third generation. Entrepreneurs differ 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 retells the classic story of the birth of an entrepreneur. Danco describes him as the man who comes home and says, "Hi, Honey. I'm 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, are ejected by either the professional managers whom 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 true 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 has not had 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 experienced as a child, but was denied. In fact, entrepreneurial founders can often be persuaded of the need for communication between generations because they understand intellectually the emotional needs they experienced in their relationships to their own fathers. Entrepreneurial seniors can often find the wisdom to change even before being pushed by their children seeking more autonomy and responsibility, who seek, in short, a benign exercise of authority by their parents.

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 cases where the founder's presence casts too long a shadow for the younger generation to 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 behavior, 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

Relationships between the founder and the next generation are often conflicting. Feelings between seniors and juniors may become so entangled that major business issues are not addressed. This dynamic can stunt 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. When the relationship between the spouses is good, they can do many things unrelated to the business 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 will be required to spend more time together, an outcome that is not desired.

The Psychology of the Younger Generation

Every person deserves the chance both to achieve success and to feel good about him/herself. When one enters 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) of joining 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 also to same generation relationships 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.

Members of the next generation are entitled to the expectation that they will have access to the opportunities to prove that they can manage the family company. One situation which stands in the way of a younger member of the family achieving this objective is competition between parent and child, most often a father and son. This competition can be a very subtle thread running through their relationship. Freud was right. The father and son compete for the wife/mother/woman. But in the family business, the wife/mother/woman is the business.

This Freudian tension is the reason that relationships between fathers and daughters are so different from that of fathers and sons. The daughter is not usually 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 family businesses than they do in the rest of corporate America. Women comprise 5% of senior management in corporate America where they comprise 25% of senior management in family businesses.

At the same time gender based discrimination may operate when the successor for the family business is chosen. Although the father does not consciously want to discriminate against his own daughter, he may do so unconsciously. We have met many 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 which 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 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 sets of business issues may appear almost identical when viewed strictly as business problems. But they are clearly not identical because each family brings to the business an altogether different history, culture and communication system. However, there are certain structural solutions which 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 lies 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 non-fiduciary 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 sixtyfive yearold 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 nonvoting. He transferred more than 90% of the economic value to his six children in the form of gifts of nonvoting 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, nonfamily managers? Initially Tom went the trusted advisor route, but these nominees withdrew after a bout of interfamily 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 postgraduate 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 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 obviously cannot be expected to provide counseling and therapy. Nor should the advisor even consider attempting to do so. 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 should choose 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 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 language 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. In the United States, 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 can provide references. 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 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 also 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.

Differences between European Family Businesses and American Family Businesses.

We have not conducted formal research on the differences between family businesses in the United States and family businesses in Europe or South America. Therefore, our comments on this topic are purely anecdotal. But in our consulting practice with international clients, we have experienced broad cultural differences between American family business owners and those in other countries around the issue of individual autonomy and the relationship of autonomy to development of individual self-esteem. Regardless of national origin, each of us needs individual identity. But the legacy of American folk heroes like Daniel Boone has inspired generations of Americans to internalize as a positive value the drive to separate from their families early in life and to "make it" on their own. By contrast, we have found that Europeans, as well as citizens from many other nations, create identity to a far greater degree through connection to family.

As a result of this basic difference, being a member of a family business has many more psychological rewards in a European family than in an American family. Non-American families struggle far less with issues of authority than American families. There are advantages and disadvantages to both situations. European family traditions clearly authorize those in control (the senior generation) to make decisions about family business succession and, therefore, automatically eliminate the struggle over succession between generations. The senior generation decides who will succeed and how. Americans, on the other hand, implicitly believe that the younger generation should have a voice in the future structure of the family business. However, this democratic approach leaves a lot to be desired. When everyone participates in the discussion about succession, each voice can be heard and differences are discussed. Resolution of these differences is more likely because, theoretically, each person has had the opportunity to be heard and will experience a sense of having been treated fairly. Conversely, this kind of dialogue fails when members of the younger generation are asked to solve issues beyond their experience or abilities. It is possible for results of such dialogue to be even more damaging than if the senior generation had never asked for the views of the younger generation, when the discussion veers to challenging authority rather than discussing values shared within the family.

Ideally, the senior generation should allow the younger generation to express their views, but at the same time retain responsibility until the younger generation can create an effective solution. If none is achieved, the senior generation always retains the right to choose what it feels is in the best long term interest of the enterprise.

Rules of Thumb

  1. Family business decisions should always be driven by the long term best interests of the business.
  2. The best time to start planning for succession is today.
  3. The next generation requires explicit, well-articulated training programs.
  4. Qualitative and relationship issues 'not financial issues' in the succession process will determine the future success of the family business.
  5. It is important to have structured scheduled communications between and among family members.
  6. If you have any ambivalence about whether relationships can tolerate discussion of difficult issues, retain a professional advisor specifically trained in non-financial family business issues to evaluate the situation.
  7. A governance process that truly supervises and holds management accountable is a highly desirable forum for owners and managers to discuss issues arising from intergenerational changes in power and control.


The powerful and committed (and often curmudgeonly and irascible) individuals who dominate family businesses 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 myth of the entrepreneur as lone wolf and successor to the pioneering frontiersman. They dominate many markets and industries, hold our communities together and, with tenacity, often manage to pass on both their legacy of values and heritage, along with their assets, to the next generation. Many, but not all, 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.