Thursday, April 13, 2017
In spite of their importance – to our economy, to our workforce, to our culture, countless families in business together continue to struggle. From our research and years of experience – both as members of family businesses and as professional advisors to numerous clients – we believe that many family struggles are due to their plans focusing principally, sometimes exclusively on “money,” traditionally through estate plans, tax plans, insurance plans, and buy-sell agreements.
While we acknowledge the importance of these and related plans, too many families in business together, along with their professional advisors, have paid insufficient attention to strategies and plans designed to help individuals, the entire family, and the team of people working collectively in their organizations enjoy life, enjoy each other and, by working together effectively in business, succeed together - to flourish.
While family businesses can achieve great economic prosperity and outperform their non-family firm counterparts, the emphasis on “financial planning” without a comparable attention to “people planning” often comes at great costs. While impossible to measure accurately due to the private and confidential nature of most family business affairs, some authorities continue to cite statistics suggesting that approximately 70% of family businesses fail to successfully complete a transition to the second generation, and a staggering 90% of family businesses fail to complete a transition to ownership by the third generation. The commonality of family business struggles is often expressed through the well-known proverb, “shirtsleeves to shirtsleeves in three generations,” – a proverb that seems to have a counterpart in every country with family businesses. While the accounts of what compromises these statistics will often only be known to the family members and their advisors, many of whom serve under professional obligations of confidentiality, there are nevertheless seemingly endless published accounts of prominent families in business together, including the Gucci, Guinness, and Gallo families, whose infighting has become known through the public litigation process.
Beyond what these inherently imprecise statistics and anecdotal published reports reveal is the tragic human toll taken as a result of family business dysfunction: parents, children and siblings who no longer talk to each other, sometimes as a result of intra-family litigation, sometimes, in our experience, even as a result of physical altercations and fisticuffs. These disputes inevitably spill over and impact non-family employees and the broader community.
We are excited to launch this blog as a forum to describe historical planning strategies – and offer our explanations as to why those strategies are necessary yet insufficient - while introducing a new planning paradigm and accompanying strategies and actionable plans based on applying new insights from social neuroscience and positive psychology - what we refer to as “Stage 4” planning.
We welcome your feedback and questions on our posts and hope that, like many of our clients, you find our suggestions of value.
Scott E. Friedman, Andrea H. HusVar, and Eliza P. Friedman, Advising Family Businesses in the 21st Century: An Introduction to "Stage 4 Planning" Strategies, 65 Buff. L. Rev. (forthcoming May 2017).
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