Navigating Tough Family Business Conversations

A Family Business Journey

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“You’re talking about my wife’s salary? You have a lot of nerve,” I said while banging my fist on my desk.  I may or may not have owed a few bucks to the swear jar.  My kids’ college funds thanked me.

My family member (removed to protect their identity, in case they stumble upon this post) had asked a question about the overhead expense on our division’s P&L. My wife and I ran this division, and subsequently were a big part of that overhead. The division had solid revenue growth but was struggling to turn a profit. Compensation discussions are fair game for any business – often it is the largest line item.

It was completely legitimate point to raise.

But not here.  Not my wife.  Not coming from someone I eat family dinners with regularly.  This was personal.

How should your family business have discussions around sensitive topics? Perhaps it is a patriarch who has run one too many strategic board meetings, the cousin who refuses to take their Vice President role seriously, or the aunt who is rather loose in defining what a “business meal” is.  “No Aunt Millie, this is not a case of defining what ‘is‘ is.”

My father-in-law, who served under his father in his current media company, has a simple family-business goal: He wants to be able to sit and have Thanksgiving dinner together, comfortably.

In nearly eight years of family board meetings and employment, he has shown me how to work towards that goal, even with tough conversations.  While we have written previously on what not to say to ensure family harmony, we want to be proactive as well.  Here are three tips I picked up from him during my time at our family business to ensure we were willing to pass the Sister Shubert rolls gently, as opposed to throwing them.

1.  Don’t forget the complex relationship.

When I think of my colleagues at Mercer Capital, my relationships are linear and simple.  I have teams I work with and people to whom I report.  Now, think of a prominent member of your family business.  They likely have multiple levels of relationships and titles: parent, boss, fellow board member, in-law, fellow trustee and/or trust beneficiary, or grandparent (all for the same person!).  The key point is that different roles have different goals.  As CEO, you may want to lead a growing and vibrant organization that plows earnings back into future capital projects.  But you are also a sibling, and your sibling wants to maximize real-time income and distributions.  When having tough conversations, remembering relationships may make it easier to balance dueling interests with equal consideration and, hopefully, cool heads.

2.  Attack the conversations head-on.

Mercer Capital, fortunately (and unfortunately) has a wide range of experience in assisting contentious (read: litigious) shareholder and familial dissolutions in valuation and financial engagements.  The family has a way of getting under our skin and can sow discord – leading to frayed relationships and, ultimately, poor family business outcomes.  I could have contained my anger and let the comment go, choosing to complain about the question later in private to my wife.  But what would have changed? Not much.  And our business cohesion would have likely suffered due to possible resentment.  I may have even begun avoiding similar conversations to stave off potential conflict in the future.  Instead, after the temperature subsided, we had a meaningful conversation around the tough reality of our P&L.  We leveled the conversation to the numbers and got in front of the issue – helping push us forward and keeping our relationship in a good place.

3.  If possible, have an intermediary.

Remember me in the lead?  Likely, if our CFO or head of HR were in the room, I would not have acted the way I did.  With a family business, it can be helpful to have a neutral third party in the room to mediate or arbitrate contentious issues.  Getting bad business news from a third party or professional colleague often stings.  Hearing the same thing from your mother?  Well, we’ll leave that to the imagination.  Trusted third parties or intermediaries often can blunt other complex familial layers and limit the discussion to the business at hand, making tough conversations manageable.  It’s not easy, but it is manageable.

Conclusion

Ultimately, my family member and I reconciled and have a good relationship today.  This family member was older, lower on the organizational chart for this business unit, but higher on the corporate family board chart.  There was a hierarchical waltz we danced successfully through the conversation.  We also discussed the topic right then and there – the issue did not marinate longer than a minute or so in our P&L review.  The one-piece we missed and could have used to avoid tempers flaring was an intermediary.  The lack of a neutral moderator left the full, family relationship on display and the conversation veered in a negative direction briefly as a consequence.

If you need someone to help you lead these tough conversations with your family, business team, or shareholder base, Mercer Capital has experience in thousands of valuation and financial consulting engagements for family business clients.  If your tough conversation has a dollar sign attached, email us or give us a call and let us help you get on the other side of it.