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Articles - Succession Planning in Family - Business

Compensation planning in a family business

Tuesday, March 31, 1998




By Kathy J. Marshack, Ph.D., P.S.


For years Arnie looked forward to having his son and daughter join him in his publishing business. Arnie and his wife, Ilsa, had rebuilt the business after Arnie’s father lost everything due to some poor planning and miscalculating the marketplace. Even though the business went under when Arnie was in college, he could see the potential. He had a degree in marketing and knew the publishing business from the inside out. With Ilsa’s accounting background, they systematically restored the business to a healthy functioning. About the time that Arnie’s and Ilsa’s two children were off to college the business was in expansion mode and Arnie was counting on his son and daughter to help take the company into the twenty-first century. The children were eager to help out too. They were getting relevant degrees in college, had acquired internships at publishing houses back East, and upon graduation were ready to come home and learn the family business under Mom’s and Dad’s tutelage.

Arnie and Ilsa had laid the groundwork well for inviting their children into the family business. The kids had seen how hard their parents worked, but they weren’t ignored. The family always came first. Also Arnie and Ilsa involved the children in the business from the start. Even as toddlers, they played in the office. As older children, they helped out with odd projects and straightening up. They were familiar with all of the employees, who felt like one big extended family to them. In high school, the children tried their hands out with some of the professional work. Frequently the family business was a subject for a high school project. It was common knowledge and often discussed that both son and daughter were welcome to work in the family business after they completed college.

All seemed to be going as planned until the day came to discuss the employment agreement with each child. Never before had the family had to consider real business when dealing with each other. As teenagers, the kids had been paid minimum wage or a bit better. There were no benefits or perks because their parents took care of those things. Now the children were adults, responsible for their own lives, which meant that negotiating compensation had to be strictly business. The children couldn’t be expected to work for minimum wage anymore and they expected to be compensated for contributions they made to the company. Arnie and Ilsa had some work cut out for them.

The question was, How to compensate their children, as if they were regular employees, but with the added benefit of having trusted family members to help run the business? Compensating relatives is a sticky business. Not all people are really created equal. It is sometimes very difficult to assess and compare the talents of family members who are also employees. Nor do all family members contribute equally to the business. As a result of the stress that this causes, many family business owners ignore the problem and let compensation become a breeding ground for dissension in the family. For example, many wives in family businesses do not earn a salary at all. The reason given by the CEO for this is that it saves on taxes. The justification is that she is an owner of the business, so she is growing an investment. However, the research also shows that family business wives are invisible when it comes to decision making and that they feel isolated and unappreciated. Lack of a salary or a nominal salary may account for this.

A recent survey by Mass Mutual Insurance Company reports a wide discrepancy between the salaries of sons and the salaries of daughters in family businesses across America. On average the typical son in a family business earns $115,000, while his sister earns only $19,000. These salaries also reflect the tendency of family firms to view the contributions of women as of less value and the strength of primogeniture in succession planning. In other words sons are groomed for leadership while daughters are groomed for supportive roles and paid less than their brothers.

In other situations, CEOs of family firms attempt to avoid the problem of compensation for family member/employees by paying everyone the same, even themselves. Or they hire a family member simply because they are family, regardless of their abilities. The problem with this method is that the talented and creative employees are not rewarded for their work and may become resentful of the family members they must "carry." And the employees who are overpaid are not getting accurate feedback for their work performance, which makes it hard to improve. Likewise the CEO is not really viewed as sacrificing when he or she takes a low salary. Rather he or she is viewed as a weak leader.

Although it is not easy to put aside the anxiety caused by developing a fair compensation plan for your family members/employees, it is absolutely necessary if business is to thrive. Family relationships built upon honesty are far superior to the games required by compensation plans designed to avoid friction. So if you follow the advice of experts you will design your compensation plan according to these five steps:

  1. Write up accurate job descriptions for each employee. Include responsibilities, level of authority, technical skills, level of experience and education required for each job.
  2. Identify what your compensation philosophy is. Do you want to pay about average, or higher? Do you want to attract talent from other companies? Do you want to offset the typical male/female wage differential? Are you a training ground for young, inexperienced people?
  3. Gather information on the salaries of similar positions in your industry. Size up companies that are similar to yours in number of employees, revenue, product, geographic location, etc. What salaries and other benefits do these similar organizations pay their employees?
  4. Develop a succession plan. How will a successor to the leadership be identified among family member/employees? How will they be prepared for leadership? How will this choice affect the morale of the family/business? How will this successor be compensated?
  5. Design an affordable plan. Obviously you want to do the best you can with the dollars you have. What can you afford to compensate each family member/employee relative to their contribution?

After you have a compensation plan that reflects the family’s values as well as sound business practices, you are in position to negotiate an employment contract with a family member. It is important that everything is spelled out up front so that when you have an annual review, there is a way to compare employee performance with outlined expectations in the job description. Salary increases can then be based upon the employee’s true accomplishments.

It will be hard for Ilsa and Arnie to totally separate their love for their children from this matter-of-fact compensation plan. There is room in any business for discretion in awarding raises and other forms of compensation. However, when the money decisions are made strictly from emotion or avoidance of emotion, there is bound to be trouble. As the CEO of a family business, make the best decision you can for the business. As a parent or a spouse, encourage your family member/employee to achieve their greatest potential within or outside the business. In this way both business and family wins.

Managing Wealth

Monday, March 31, 1997




By Kathy J. Marshack, Ph.D., P.S.


Steve and Karen were $38,000,000 lottery winners, so they immediately quit their respective jobs, and bought a beautiful house, horses and new cars.

Nancy had been a social worker for most of her adult life. Her standard of living was modest but she made a good salary for a single woman. She even qualified to buy a house. At age 32, she met Mark, a software designer who made a million overnight.

Frank was a poor kid who grew up in an inner city neighborhood. After a stint in the Navy, Frank decided to try his hand at mining, then real estate, then almost any other business opportunity that turned a profit. By age 40 he was a multi-millionaire.

Sharon grew up in an upper-class neighborhood. Her best friend was her nanny, until her father fired her. She attended school with children from other wealthy families. Sharon never really knew the extent of her parent’s wealth until her father’s death, although she always had everything she ever wanted and was sent to the best schools. At the age of 38, she inherited billions.

Really, the only thing these people have in common is that they have wealth. Most people would not consider that a problem, nor even worthy of a column in this newspaper. However, another thing these people have in common is that they have to learn to manage their wealth. Like any other lesson in life, if you have no previous experience, there may be bumps in the road.

One bump for Steve and Karen was the loss of family and friends. Coming from families of modest means, Steve’s and Karen’s family and friends found it difficult to relate to them anymore. Although invited to the "mansion" for parties, they felt uncomfortable, out of place, envious. The envy turned to anger and conflict. Although Steve and Karen had been generous with the money, making loans to family who needed it, they were blamed for not being generous enough.

Nancy was overwhelmed with guilt about the money she and her new husband had. She had chosen the profession of social work because she wanted to help the disenfranchised. She was a liberal politically, so acquiring wealth while others starved seemed immoral. She spent many months in therapy before she was even willing to marry Mark, and then only after he agreed to invest his windfall in "socially- and ecologically- based investments."

Frank never really thought he experienced any setbacks as a result of his wealth. As he puts it, he "loves making money!" On the other hand, he is estranged from his grown children and is divorcing his third wife.

Sharon had been so sheltered from the real world, that she was entirely unprepared to step into her father’s business. He never considered training her to take over his business. She really had no skills to speak of except how to shop. With her father’s death, Sharon had to start thinking about what she wanted to do with her life and all of that money.

Again, if you do not think any of this applies to you, think again. The average millionaire started out an ordinary working person and acquired wealth through building their small business. To avoid or at least be prepared for some of the problems that plague Frank, Sharon, Karen and Steve, and Nancy, it is necessary to plan ahead for the day when you may have wealth. If you are in business, that is probably one of your goals anyway, so why not think positively?

Recently, the New York Times published some data on the "average American millionaire." Surprisingly, most millionaires do not lead glamorous lives. They own bowling alleys, funeral homes and small manufacturing plants. In fact, the average millionaire is a 57 year old man, married with three children. He is self-employed in a practical business such as farming, pest control or paving contracting. He works between 45-55 hours a week. He has a median household income of $131,000 and lives in a house valued at $320,000. He drives an older model car. Although he attended public school he is likely to send his children to private school. Finally, he is first generation affluent.

It sounds to me like the American Dream is alive and well. However, many of these millionaires are not doing that well in the areas of personal relationships, health and emotional well-being. Some, like Frank, neglected their marital partners and their children because they were so focused on the thrill of making money. At mid-life now, Frank is trying desperately to re-establish these relationships, but his children feel that his addiction to money is greater than his love for them. Frank waited too long to strike the balance between love and work.

Nancy’s problem is more common than you think. Ordinarily, this type of mindset prevents the acquisition of wealth altogether. But Nancy was faced with the painful situation of having to re-evaluate her social values. This pain nearly put her in the hospital with a severe depression. She felt "dirty" having money, yet she felt guilty for wanting to keep it. Nancy had to do a lot of soul searching to realize that she was just as important as those disenfranchised folk she had helped as a social worker. When she began to view the money as a gift, as love, as energy from the universe, she started using it not only to help others, but to benefit herself and those she loved.

Steve and Karen have resorted to drug addiction and gambling to alleviate the stress of their sudden wealth. The lottery not only brought wealth, but power. Neither of them ever saw themselves as powerful and had no experience as leaders. However, with $38,000,000, their friends and family have put them in the position of leadership. They long for the simple life that can only be accomplished by giving all of their money away, which may happen if they do not curb the addictive behavior.

Similarly Sharon needs to take stock of her lack of skills for leadership. She does not have to work, nor have any management responsibility in the business at all. Yet she feels a tremendous responsibility to do something with the great gift she has inherited. What Frank, Steve and Karen and Nancy have in common with Sharon is the awareness that wealth brings with it responsibility. Planning for this new responsibility will put you ahead of the game when the time arrives.

Stewardship is another name for this responsibility. Once all of the bills are paid, once the new house is purchased, once you have exhausted all of your fantasies for travel, jewelry, cars and horses, the "average millionaire" still has to ask himself or herself, "What am I contributing to my community?" This is the bump in the road that takes the most maneuvering. As long as you barely make enough money to pay the rent, or you work night and day to get your start-up business off the ground, or your days are filled with managing small children, there is precious little time to ask yourself "what will I be remembered for?" But the acquisition of wealth puts people in this spot, sometimes overnight.

Charlene took care of her basic needs after she and her husband struck it rich with their manufacturing business. She built a new house, decorated it, bought a condo at the beach, traveled to Europe, sent her children to private schools. Then one day she woke up deeply depressed because her life had no meaning. She tried therapy. She volunteered for worthy causes. She joined social clubs. She took up sculpting. Nothing worked, however, until she read about foundations. This idea took hold of Charlene and she began the process of funding a foundation that would sponsor young women interested in entrepreneurship.

If you want to be prepared for wealth start thinking now about what you really want to do with that money. Ask yourself, what is really important to me in my life? If I could change the world to make it a better place what would I do? If you can answer questions such as these, you will have principles to guide you as you acquire wealth.

Here's the secret to finding a reliable auto mechanic

Friday, January 31, 1997




By Kathy J. Marshack, Ph.D., P.S.


Have you ever experienced that chilling feeling that creeps up your spine when your car starts acting up? It's bad enough to be inconvenienced by having your car in "the shop," but what's even more frightening is having to face the mechanic, a person you don't trust, yet need.

Mechanics lie to you. They make unnecessary repairs and over-charge you. It's not just a feeling. There have been "undercover" stories on television where the mechanics are caught "red-handed." Mechanics can't be trusted. That's a fact! At least, this is what I believed until a couple of years ago when I met our current "family auto mechanic." This guy is like a breath of fresh air. He and his wife run the shop with a couple of employees. He's honest, hardworking, RELIABLE. His prices are fair. The work gets done in a timely manner. And to cap it off, my car is always better after he's fixed it. Is it any wonder that his business has grown steadily over the years, so that he had to move from his quaint little storefront to larger more professional space? I hope the growth doesn't change his values. With this issue of the Vancouver Business Journal , I began to wonder what is it that makes our "family auto mechanic" so exceptional. There are the basics. He's timely. He's knowledgeable. He's personable but not terribly out-going.He remembers my name. He charges what the work is worth, not what the traffic will bear. I always get answers; no double-talk. He rarely tells me he has no time for me. If he can't fix it, he tells me where I can get the car fixed.

He does little extras; he's willing to pull leaves out of rain drains so that the interior of my car stays dry.A major appliance company conducted a study a few years ago to learn how to improve the quality of the repairs on customer's appliances. The technicians were given tests to determine their personality style; then divided into one of two types, introvert and extravert. Introverts are people who quietly within themselves figure out the problem. Whereas, extraverts are more noisy about their problem solving, needing to talk aloud and get feedback from others. The appliance company then asked their customers two questions: (1) How satisfied are you with the repair?; and (2) How satisfied are you with the technician? While the customers found the extraverted technicians more personable, there were fewer complaints about the repairs done by the introverts. In other words, the guy who quietly goes about his business of getting the job done, but doesn't interact much with the customer does a better job. Our "family auto mechanic" fits this picture. But there's more. There's something deeper that makes my mechanic special. He really seems to love his work. He works hard, often late into the night. And his wife is working right beside him. It must be that he enjoys solving the mystery behind my car problems. He probably wants to earn money too, but money is a byproduct of doing what you love.

Obviously our "family auto mechanic" is being paid well for doing what he loves. I know that I am not alone in this desire to have a mechanic I can trust and who does quality work. Recently on National Public Radio I was listening to "Car Talk," a lively program dedicated to answering tough car repair problems called in by listeners. On this particular night I was amused to have an astronaut call in from his space shuttle orbiting the Earth. Although the reception was compromised by a little static, I learned about the problems astronauts have with their vehicles.But what was even more fascinating about the program is that the hosts were offering to set up a free locator service for mechanics. They asked listeners to send in the names of mechanics that they felt were RELIABLE and trustworthy. If you want to find a mechanic you can trust, you need to get to know the person. Just as with your physician or hair dresser, the relationship with your mechanic should be more than passing. In our frenzied world, many of us have lost tract of the community spirit, but that community spirit is what helps build trust. If I know my mechanic and his family and he knows me and mine, we can build a relationship of trust over the years. He knows just how I like things done. I know that I can trust him to have my best interests at heart. Most importantly, I want to work with someone who cares about me, not just my car; and I want to work with someone I care about too.

How do you grow up if you don't leave home

Monday, August 05, 1996




By Kathy J. Marshack, Ph.D., P.S.


Forty year old Cathy has worked in her family's restaurant business for 25 years. Her older brother Charles has done the same. Both have matured with the family business and seen it grow from one restaurant to five. Cathy's parents, the founders are nearing retirement and want the business to carry on under the care of their children. Cathy and Charles are ready and well trained (both on-the-job and college degrees) for succession. They work well as a team so there is no competition for leadership. Where's the problem? The problem is the youngest son, Brian. At 35, Brian has never worked in the family firm, preferring to try his hand in other ventures. Unfortunately everything Brian has tried has failed. Always there to help, Cathy's parents have "bailed" Brian out of one jam after another. Now as they face retirement, the parents want Cathy and Charles to hire Brian and to share ownership and management of the family business with him! Needless to say Cathy and Charles are beside themselves with frustration and fear. They don't want to offend their parents. After all, without their parents neither Cathy nor Charles would be in the fortunate position of owning a thriving business. However, Brian's inexperience, lack of maturity and questionable work ethic may cause considerable problems in the business. Neither Cathy nor Charles relish the idea of taking care of their brother indefinitely as their parents have done. This type of problem is all to common in family-owned firms. Being a parent is the single most important job in anyone's life. Most of us cherish this responsibility and we are very reluctant to give it up when the children leave home. In family firms where children may never leave home, the parenting role may continue indefinitely. In Brian's case, this appears to be true. A parent's job is to nurture and protect children so that they can grow up healthy and capable of independent adult life. But parent's don't teach independence directly. Independence is a state of mind that children must conquer for themselves. All cultures have growing-up rituals which affirm that the child has reached a stage of maturity wherein they must accept adult responsibility for their actions. The Bar Mitzvah is a religious ritual acknowledging that the young Jewish boy is now responsible for his own spiritual development.

Most American sixteen-year-olds get their driver's license, which is a type of ritual acknowledging that the teenager is fully responsible for their driving behavior. But just because a child has gone through the ritual doesn't mean they have made the cognitive leap to mature thinking. In a way, the Bar Mitzvah or the driver's license is really a license to begin learning to be an adult. To be responsible for all the mistakes one makes on the way to adulthood is the real test of maturity. Parents in family firms sometimes interfere with the growing-up process by being just a little to ready to rescue their progeny. Sometimes Mom and Dad fight over the child because one doesn't want the child hurt and the other wants the child to face their mistakes. Alternatively the child may be making a bid for independence but the parents thwart it. On the one hand parents complain that their grown child is not very strong or capable of leadership. Then on the other hand, they complain when the child speaks up for himself. One grown son complained that his father would "micro-manage me." The son carried the title of manager of one department in the family firm, but his father really never let him run the show. And to add insult to injury the father would stop by his son's house almost daily to advise him how to take care of the son's family and home. The father's complaint was that the son "never listens to me." In a fit of frustration the son quit the company, moved out of state and went to work for a competitor. But within a year he left the job and returned to his father's company. His bid for independence had been crushed by father's lack of support. Yet in other situations siblings give each other a hard time. If one child makes a bid for independence by leaving the family business, a sibling who is staying behind may become resentful if the parents are just as helpful to the departing child as to the one left behind. Also family members can feel as if the child who is leaving is breaking family ties and therefore not very loving. In order to acquire that state of mind that makes us an independent adult, a child has to prove him- or herself in the world.

This proof often comes by leaving the parental home and conquering one's fears about being self supporting. Many CEOs of family firms had no one helping them getting the business off of the ground, so they had ample opportunity to prove their adulthood. But what of their children, who have never had to look for a job? Some children can acquire maturity while working for their parents, perhaps by going off to college. But for most children they will have a very difficult time developing the strength of character required to run a business if they have not had preparation through the "School of Hard Knocks." If this sounds cruel, think for a moment about where your greatest lessons in life came from. Chances are you grew the most and gained the greatest confidence from conquering the impossible tasks that no one else could do for you. There are a variety of strategies for ensuring that the second and third generations in family firms really grow up. The strategy that fits for your business depends upon the business, the parent's skills and personality and the skills and personalities of the children. In any case the child needs an environment where they must prove themselves capable of leadership in the family business. For some this means leaving the business for awhile and working elsewhere. For others, it means getting a graduate education before returning to the family business. Another child may benefit by working their way up from the "mailroom" with no preferential treatment from the parents. Finally, some children will be better family members and more capable adults if they never return to the family business. There are two goals in family firms. One is to develop a thriving and competitive business. The second is to develop healthy independent mature adults who can contribute to society. It would be very efficient to accomplish both goals within the framework of a family business, but this isn't always possible. And these two goals are not mutually dependent. Keep in mind that the business can be successful without the child and the child can be successful without the business. That is, set your sights on accomplishing both goals independent of each other, and you may be surprised how they come together in the long run.

A beginning and an end: what comes after the prom

Monday, May 01, 1995




By Kathy J. Marshack, Ph.D., P.S.

My husband and I were married in late April so each year when we take each other to dinner to celebrate our anniversary, the promise of Spring fills the air. It's a wonderful time to renew our commitment to each other. We usually like to go to dinner at a nice hotel, sometimes a resort. This year we drove the 40 minutes to Skamania Lodge in Stevenson and enjoyed one of those rare sunny afternoons in the usually rain-drenched Gorge.As we enjoyed the meal, the view and the company, we began noticing the young couples entering the restaurant. Each year at this time of celebrating our anniversary it's like going to the Prom. We invariably are one of the few older couples in the restaurant amid the young teen couples out for dinner before their senior prom. The young men are dressed in tuxedos; this year seems to favor the traditional starched white shirt, cummerbund and black jacket, some even with tails. The young women are lavishly dressed in evening gowns, shoulderless and backless. Their hair is styled with curls and glitter. They look nervous and laugh a great deal. They look so young, yet grown up too. And they always order dessert, usually chocolate. Like our anniversary, the Prom signals an important passage for these young people. They are no longer children. They must make their way in the world as adults. Some are off to college, others to travel, others the military, and many straight off to work. Whatever, their direction, they are no longer kids. We may think they still need guidance, but they will move into adulthood without looking back. If we haven't prepared them for this move by now, the parents in their lives have little to say anymore about the life paths they will choose. In a family-owned business preparing children for entering into adult life is different in some ways than for other families.

In addition to teaching life skills parents assist their children to integrate independence and confidence. They are preparing their children to fly freely and strongly when they leave the nest. But in a family business the assumption may be that the child will stay in the nest; that they are being groomed to take over the family business when the parents retire. There is an inherent conflict in grooming your child for independence and yet holding that independence in suspension until the parents retire.Family business owners who wish to groom their children to succeed them in managing the business, need to work with this inherent conflict. Too often the mistake is made that the child is never fully prepared for leadership and thus they remain a child indefinitely (much like Prince Charles). Or another mistake is to assume that the child will take over the business when they are not interested nor inclined to. Preparing children for taking over the family business requires that parents selflessly attend to preparing their children for healthy independent adulthood first. A child who has grown into a self-sufficient, wise and autonomous individual is in a much better position to assume the role of leader. A child who remains subordinate to the parent into his or her 40s can hardly be practiced at autonomy or leadership.Therefore, those family businesses who plan ahead for succession require a more thoughtful approach to emancipating their children. Having young children work in the family enterprise teaches them skills they could not learn otherwise. They not only become familiar with the product and style of the business, but they acquire confidence. They are participating in taking care of the family which is an important value to instill. As children get older they can be given more responsibility, even management duties. However, their progress up the ladder should not be based upon the fact that they are the son or daughter of the owner. They need to be evaluated as would any other employee.This teaches the child to do the hard work of improving themselves.There comes a point in adolescence when a decision needs to be made about whether a particular child is leadership material.

If so, a new path must be developed for this child. It is impossible for the child to become a leader and continue to work under their parents. They need a period of proving themselves in the world, apart from their parent's protection. If they have never worked for anyone other than their parents, how can they or you be sure that they really can handle decision-making alone?Parents are often very reluctant to let their children leave the nest. In a family-owned firm this reluctance is extremely strong. The business has evolved as a reflection of the family identity. It almost seems as if the family is breaking up or the business if a family member leaves. But for the health of the child, the family and the business, children must leave and discover their own talents.Firms who have handled this transition gracefully, have encouraged their children to leave home and work elsewhere for a period of years. If after this time the child is ready to return to the family enterprise, and there is a suitable position for the child, then the match can be made. The risk, of course, is that once out of the nest the child will never return, that they will find another life that suits them better than working in the family business. But then isn't that what parenting is about? The business will be much more successful being managed by strong capable leaders who want to be there and by a leader who has proven his or her talent in more than one arena.It is important for families in business to be open about their planning for business succession. Children should be advised early about who is being considered for leadership. But there should also be flexibility about this decision. Over time another child may prove to be the better successor. Or perhaps the chosen one chooses another direction. If parents keep in mind that their job is to raise healthy autonomous children, then they are a success no matter which direction their child chooses. Whether the child chooses to return to the family business or not, they can always be a contributing member of the family.

Daughters as heirs or caretakers of the king

Tuesday, January 31, 1995




By Kathy J. Marshack, Ph.D., P.S.


"A son is a son 'Till he takes him a wife; But a daughter's a daughter The rest of her life."

My mother was fond of telling me this little aphorism when I was a girl. Perhaps it was because she had two daughters and no sons. Or perhaps it is because she was the only daughter in a family of sons. Whether she was trying to teach me the lesson, or to merely advise me of a fact, I have noticed the truth in this saying more often than not. The value of relationships does seem to be more important for women than for men. Not that men do not enjoy loving relationships, but that women tend to define themselves more in terms of their relationships. Women and girls are more willing than men and boys to put their needs aside to maintain a relationship. Within a family firm for example, it is often the wife who does not take a formal salary. She is equally likely to forgo a formal title in the corporation, although she is just as hardworking an asset to the business as her husband. Likewise with daughters. Daughters in family firms often see their roles as supportive of the family. They are not as driven to be leaders as are their brothers. This does not mean they do not want recognition. Rather their first priority is to ensure the success of the loving relationships. After all, these relationships came before the business. They are the driving force behind the business; the reason it came into being. The research indicates that family owned firms were started by their founders primarily as a way to support the family. The women in family firms still recognize this intent long after the men have turned their attention to developing a thriving enterprise.But this concern for family first often gets in the way of founders considering their daughters as successors. Although their daughters may be hardworking, college educated, committed to the family enterprise and have many other talents, founders most often groom their sons to succeed them in the leadership of the business. The research shows that even founders who have no sons overlook the possibility of a daughter taking over the business. Considering the importance women place on nurturing the family, and considering that a successful family firm requires a cohesive and committed family, daughters may be the most likely choice to succeed the founder of a family firm. In her study of 18 family firms, Collette Dumas identified the roles that daughters typically play in family firms. Dumas chose only those family firms where the daughters held management positions.She also identified the qualities that make for a successful transition of leadership from fathers to daughters in family firms.

The majority of fathers and daughters that Dumas interviewed expressed great difficulty in managing the ambiguity in defining the daughter's roles in the family and in the family business.The roles assigned by both fathers and daughters ranged from "Daddy's little girl," which emphasizes a fragile, defenseless, dependent position, to that of a tough and independent manager in the business. While the daughters studied were capable and assumed several roles in the family business, their primary role with their fathers (and which was learned at an early age) was that of defenseless dependent. As one daughter put it, "Even though I've been working here a long time, I still have to kiss him every morning. Otherwise he'll be hurt. I don't think he's made the transition to seeing me as an adult. I'm still his little girl." While sons may also stay boys in their fathers eyes, at least sons come into the family business with the expectation that someday they will take over. Daughters rarely have this illusion. Therefore, they may remain Daddy's little girl indefinitely. This position leads many daughters in family firms to struggle with a sense of identity. Many daughters in family firms, as well as their mothers, work side by side with their brothers, yet their names are not on the organizational chart. All of the fathers Dumas interviewed reported that they had never considered their daughters as potential successors in the business before their daughters came to work for them. And all the fathers reported that long periods of time went by after their daughters came to work for them before they considered the idea. Dumas refers to this phenomenon as the "invisible successor." Only when a crisis emerged where the daughter was needed to help out Dad, did either party consider her potential as a successor. Unlike sons, who come to work for the family business to further their career and eventual ownership, daughters come into the family business out of dedication to Dad and the family. As a result of struggling with these issues (role ambiguity, invisibility and identity), daughters in family firms develop one of three styles according to Dumas: "Caring for the Father," "Taker of the Gold," or "Caretaker of the King's Gold."In the first style, "Caring for the Father," the daughter may feel a lack of purpose and direction. She has not developed a clear and strong identity. Such people often attach themselves to strong leaders or father figures and become dependent on them in an attempt to feel "alive." In the family firm these daughters are largely oriented toward pleasing the father and caring for his comfort and wishes. His needs come before the daughter's. While there is nothing unhealthy about caring for another person, to do so exclusively not only robs the daughter of her identity, but may harm the firm.

If the daughter's behaviors are oriented toward caring for her father to the exclusion of actions that would be beneficial to the organization's effectiveness and survival, she will not be prepared to take over the CEO's role when she succeeds him. In the second style, "Taker of the Gold," the daughter has taken the opposite extreme by developing a rigid identity or sense of self. She works hard to achieve and even overachieve, but she thinks only of herself. In the case of daughters trying to become independent of fathers, the takers-of-the-gold become more interested in taking charge of the business assets than in responding empathetically to the father or recognizing his accomplishments. While these daughters are strong and quite capable, they operate independently and thus do not take advantage of the resources available to them to make informed decisions. These daughters have behaviors that are rebellious and disrespectful of the business's norms. In the long run this style produces a great deal of conflict between father and daughter and potential distress for the business. The third style, "Caretaker of the King's Gold," represents a mid-point between the first two styles where the structure of the identity is harmonious and stable and at the same time less rigid and dramatic. This daughter suffers less from a sense of inner emptiness and is less inclined to continuously prove her existence to others. In other words, this healthy sense of identity allows the daughter in a family firm to simultaneously take charge and take care of the "king's gold" (the business), "the king" (the father), and herself. This style may seem to cast the daughter back into the dependent role of "Daddy's Little Girl." However, daughters who represent the style of "Caretaker of the King's Gold," have found their identity through interdependence with their fathers. While sons cannot feel like men until they break away from Dad, daughters mature through affiliation and interconnectedness. Fathers with this type of daughter find that they can gradually phase out of the business. Their daughter is capable of running the business with out them, but she also values working with her father for as long as he is capable. Murray Bowen, a family systems psychiatrist has suggested that interdependence is one sign of a healthy family. Certainly this is no less true for a family firm. Fathers and daughters who are able to be respectful of each other, nurture each other's developmental needs and both creatively pursue the business are in a better position to make a healthy transition from father to daughter when the time comes for the succession of leadership.

Family Business -- When is it time to let Jr. run the show

Saturday, December 31, 1994




By Kathy J. Marshack, Ph.D., P.S.


"The acorn doesn't fall very far from the tree," as the old saying goes. Fathers have for centuries taken great pride in their sons' accomplishments as they groomed them for adult life. Likewise for centuries sons have worked hard to earn their fathers' respect and eventually earn the privilege of manhood. In the family-owned-firm this familial pattern has evolved into sons going to work for their fathers and eventually taking over responsibility, management and even ownership of the family business. In spite of the anthropological significance of this rite of passage, the transition from son to president of the company, or from child to man is not a simple one in our modern world. The fallout from a poorly planned transition can be financial loss and alienation of family members. The key to making the transition successful is recognizing the developmental needs of all parties concerned, the father, the son and the business. Two researchers, John Davis and Renato Taguiri in 1989 studied family-owned-firms to discover the influence of life stages on the work relationship of fathers and sons. Interestingly they found that age and stage of life of both father and son does have a powerful impact on the relationship and on this transition from child to man. For example, when a father is in his forties and his son is between 17 and 22, the relationship is relatively problematic. A man in his forties realizes that there is an end to life and begins to question his accomplishments. There is an urgency to make changes, to correct one's mistakes before time runs out, to prepare a legacy to leave behind (i.e., the family business). In other words men in their early forties are facing the mid-life crisis and generally pour themselves into their work. They are very controlling of their destinies at this stage and don't take kindly to suggestions from a youngster right out of college. The son, on the other hand is in the stage of life where he is still in the process of separating from the family. This separation is a necessary component of growing up. Without it, the child cannot learn who he is separate from his parents. Conflicts with father are common and emotionally charged at this time. And going to work for father at this stage of life is like extending childhood to a young man, which he can hardly tolerate. However, as the father moves into his fifties and the son is between age 23 and 33, the working relationship becomes harmonious. In fact fathers and sons both report that the best working relationship during the entire period of working together occurs

when the father is between 51 and 60 and the son is between 23 and 33. This period of time for the fathers is a period of tranquility. They have weathered the mid-life crisis and their sons coming of age. Now their goal is to use reason instead of control to run the company and their lives. They still want to maintain the "old" ways but they are much more willing to negotiate. Men at this stage have proven themselves and are now less competitive, less condemning of others, have less need for possessions, and they are more attentive to relationships, including their sons' developmental needs. Sons between 23 and 33 are not particularly emotionally stable. However, this is a good time for fathers and sons because the son needs a mentor. The sons are experimenting with life, work and relationships in an effort to find their true calling. An older man who can guide them in the process is welcomed because the son feels extreme pressure to grow up, now! Since father is no longer so competitive and is even inclined to encourage his son's development, the son can feel free to nurture his dreams and develop mastery in an area. By the age of 30 to 33 the son has made a commitment to marriage and a career. It is during this stage of development that fathers are able to give their sons recognition for their accomplishments. Again the shift away from harmony and toward problems occurs as the father enters his sixties and the son is in his forties. Men in their sixties are facing retirement even if they own their own firm and expect to work until their death. At this age men are aware of their decline and the eventual loss of meaningful activity. Many fathers at this stage are unwilling to turn over the family business to their sons because of this fear of death. They have a strong need to still demonstrate their skills and authority during this period. At the same time that fathers are facing aging and decline, their sons are facing the mid-life crisis. The sons have a strong need to re-evaluate their relationships. They no longer want a mentor. Rather they want recognition, advancement and security. They resent reporting to father. They feel held back by father and annoyed by his "old fashioned" ideas. As the sons feel more confidence in their role as a competent man and authority figure, they may challenge their fathers more, causing considerable strife in the work place.

Quality relationships between fathers and sons don't just depend on life stage, however. They also depend on understanding, communication and planning. Davis and Taguiri for example, found that the sons they studied were more aware of the problematic relationships than were the fathers. There could be many explanations for this phenomenon, such as the possibility that the fathers discount tension in the relationship because they feel more responsibility for the way things are. Another explanation is that the person with the least power is often more aware of the tension in relationships. In any case, both parties need to be aware and communicate about their life stage and that of the other. Fathers who retire gracefully from their firms have developed a succession plan that takes into consideration the developmental needs of both parties. When the son is mature and competent to run the business he should be allowed to do so. However, the father does not have to give up his life. As the son assumes the presidency, the father can become chairman of the board. Some retiring CEOs turn their creativity to other projects such as a community endeavor or even another entrepreneurial venture. Also young men should be encouraged to "find themselves" outside of the family business. If they never separate from father, they will never really trust their competency as adults. Extending adolescence by working for Dad during the teen years and early twenties does not prepare a man to take over the presidency at age 42. Many successful family-owned-firms encourage their sons to work for competitors or in other industries before they are allowed to take a position in the family business. By the time the son returns to the family business, he knows that he can make it on his own. Then he puts that confidence to work for the family. The ability to work for one's father is one of the most rewarding experiences a child can have. In one study, researcher Ann Patrick-Lemay found that offspring of entrepreneurs report the number one benefit of working for their fathers is the chance to have a close and meaningful relationship. This was even more meaningful than salary or career advancement. If fathers and sons can keep these findings in mind as they negotiate through the years together in the family business, they will have much more success weathering their own and each others' developmental crises.

Who's going to run the business after dad dies?

Monday, October 31, 1994




By Kathy J. Marshack, Ph.D., P.S.

"Carson Resort For Sale." I read with great interest the front-page article in "The Columbian a couple of months ago about the sale of the Carson Hot Springs resort. The old hotel is kind of a historic landmark to most residents, so no wonder it was front-page news. But what really caught my eye was the authors comment, "Rudy Hegewald died unexpectedly at the age of 88."

Twice the author made the comment as if the Hegewald family as well as the reading public would be surprised at the death of an elderly man. It seems to me that 88 is a ripe old age even if he did take mineral baths daily. Rudy actually lived well beyond the 70 or so years of normal life expectancy for a man of his generation. So why is anyone surprised at his death?

The irony of this is that this "surprise" is all too common among family business owners. A strong willed entrepreneur like Hegewald takes advantage of an opportunity, builds the business to success, then dies leaving the family totally unprepared to continue the business. The business gets sold and the family legacy dies with the founder.

Family owned businesses are as common as varieties of chocolate chip cookies. In fact, half of America's grow national product is produced by family firms. As well, 50 percent of the nation's workers are employed by family owned businesses. Yet family business owners are notoriously poor at planning for the future of their businesses. They literally act as if the founder will never dies. As a result, most family firms don't live beyond the first generation.

Death is not an easy subject to talk about; nor is retirement, especially for rugged individualist and entrepreneurs or their families. But it a subject that needs to be addressed by all members of a family firm. Is the business merely a reflection of the founder? Is it his personal property? What part do other family member play, shareholders and stakeholders alike? Who will run the business after the founder steps down? When will the founder step down?

Answering these questions and others leads to the development of what is known as a "succession plan." Even though it is tough to plan ahead to the day when you are no longer running the business you founded, it can be exciting and rewarding to know that your creation will live on and prosper under the guidance of a trusted family member. Equally rewarding is knowing that you have provided for your family.

While it is too late to work on a succession plan after the death of a founder, it is never too early to plan, even if you have no successor or just started your business or your kids are too young to even work yet. Succession plans can evolve over time to fit the changing needs of the family or the business or both.

At first, you plan may be nothing more that the understanding with your spouse that you both want the business continued after you retire. The initial plan my include provisions for how to groom the successor when one is chosen, for example. The key ingredient in all plans is that the stakeholders are communicating with each other about the need and that you are looking towards a healthy future.

When considering a succession plan it is best to enlist the aid of professionals who are knowledgeable about the unique needs of a family firm. Attorneys and CPAs can assist you in addressing the issues of estate planning. Management consultants can advise you about the most desirable business structure. Perhaps it is time to look at professional management, for example. Or perhaps your niece is better suited for he presidency than you son.

The toughest questions that need answering about succession, however, cannot be answered in an attorney's office. The founder and his or her family need to break down the old barriers to talking about death and retirement. All of the old "skeletons" in the family closet need to be cleaned out. Emotions, biases, age-old grudges need to be vented, explored and settled.

Until the family can talk openly and honestly about how they feel about each other, they cannot make a reasonable decision about how to run the company. Like it or not, the family system or style is what really dictates how things will go in business. So understanding your family system and improving it contributes to a healthier business.

Just as with legal and financial decisions, the emotional or psychological aspects of succession planning usually require the assistance of a professional. Psychologist trained in the dynamics of families as well as the workings of a family business are best suited to guide you through the emotional process of succession planning.

The psychologist's job is to meet with all stakeholders individually and in a group to discuss absolutely everything that can affect the succession plan. This is not a time to be secretive. The future of the business and you livelihood depends upon open and honest communication. Families who don't plan ahead not only lose control of the business, they often have a myriad of other problems associated with the loss of the business, such as infighting, divorce, alcoholism, depression, etc.

A psychologist understands these kinds of "people" problems that are intertwined with business decisions. Their goal therefore is to help you create a plan that suits two purposes, 1) To ensure the success of the business, 2) To ensure the health and happiness of the family.

In order to accomplish these important goals family members need to face the tough issues that most other people avoid.