Brian was devastated when he discovered that his father, Bill had shared the family-owned business equally with his two siblings. “It’s totally unfair,” he exclaimed, adding, “I’ve been working alongside my father for 17 years, ever since I left university”.
Plus, he had also spent three summers working in the business. It was during his summer jobs that he developed an affinity for the plastics extrusion business and decided that he would return full-time to work in the family business once he graduated from university. His father, Bill, was delighted with the idea.
While Brian, 41, devoted most of his adult life to the five-decade old family business, his brother David, a teacher and his sister, Anne, a nurse, chose to pursue their own careers. “They never had any real interest in getting their hands dirty in an industrial environment,” he said. His father supported them. He was a big believer in letting his kids choose their own careers and never imposed any conditions that required them to work in the family business.
Although, Brian was particularly interested in the design of tools and dies used in the plastics extrusion process, his father soon made him his right-hand man but allowed him to maintain control of the tool and die department, which was integral to the success of the extrusion plant.
Given that the plant operated 24x7 on rotating shifts, Brian found himself working long hours and even on weekends. He had complete knowledge of the operations of the business and was technically running the plant. Over the years, he had earned the trust of his father who actually expected him to take over the reins when he retired. And Brian openly accepted this eventuality.
In Brian’s mind, he would inherit the family business, or at least the greater share of it. But his expectations were shattered during an informal family meeting when his father delightfully announced that Brian would be taking over management of the plant and that he would be splitting the company equally among his three children.
“It felt like someone had just plunged a knife in my back. Anne and David, as well as my wife, Pat, were all smiles but I felt numb. I was speechless.”
It was the perfect anti-climax to what was supposed to be a celebratory moment for the family, at least in the eyes of the parents.
When equal is deemed unfair
Brian’s case represents the classic dilemma faced by many family businesses. Siblings who have worked diligently in building the business typically expect a greater share than those who choose a career path outside of the family business.
This expectation is usually in direct conflict with the desire of their parents who believe it is fair to divide the family business equally among their children. To them, it’s logical as parents not to favor any particular child.
However, while most parents look out for the best interests of their children, their vision of the future of the family business might not necessarily be aligned with the expectations of all of their children, creating conditions for family conflict and sibling rivalry.
Arguably, every family business is different but this case raises many of the pertinent questions that are often overlooked by business owners. Based on my experience dealing with family owned businesses, here are some key questions that must be considered by business owners when thinking about the division of the assets of the family business – using the Smith case as a guide.
- Though you might believe it is fair, is it necessary for all your children to get an equal share of the business, even though some don’t have an interest in it?
- How do you expect your children who are directly involved in the business to react when they find out that their siblings who are divorced from the business will become equal owners?
- Do you believe that your children who are working in the business will be motivated to perform at their best, with full knowledge that their absentee siblings will reap the rewards of their hard work and success?
- Have you considered the possibility that your “equal is fair” decision might induce sibling rivalry and create family conflict?
- Have you thought of other ways to be fair and equal to all of your children without disrupting the dynamics of your family and shattering the expectations of those who believe that they deserve a greater share of the business?
- Have you discussed your plans with your family prior to making an announcement about how you plan to divvy up the business?
Even though Bill probably thought about the answers to all of these questions, his decision about the distribution of ownership in the family business might have been hard-coded in his brain – his children were all equally entitled.
Brian, on the other hand, had different expectations. He already knew that he will eventually end up managing the business but believed that role came with a larger ownership stake. Unlike his father, he never anticipated that his siblings would have an equal share and more so could not accept that equal is fair, setting the stage for conflict with his siblings.
Avoiding the fair is equal dilemma
I believe it is necessary to have open communication and full transparency in all family business settings. Typically, family meetings – whether formal or informal – can reduce the chances of disputes, conflicts and shattered expectations.
The truth is, business transitions are not overnight events. They involve diligent planning, open discussions and consensus among family members. There should be no hidden agendas.
Here are some useful tips to consider to prevent “equal is fair” disputes.
- Open communication: Share how you plan to distribute the family business with all stakeholders before making any formal decisions.
- Full transparency: Be fully transparent. Have no hidden agenda. Avoid surprises.
- Make compromises: Make compromises and offer alternative solutions, if necessary. For instance, determine whether siblings not involved in the business would accept another family asset or the proceeds of a life insurance policy in lieu of a share in the business.
- Get consensus: Ensure that you get consensus from all stakeholders on your plans. Leave no doubts in their minds.
- Maintain harmony: As the matriarch or patriarch, it is you role to facilitate harmony among your children to ensure the smooth operation of the family business when you are no longer around.
This story is for illustrative purposes only, based on our professional experience, and does not necessarily reflect the situation of any individual or family.