08/3/17

Relationships In The Red

Family businesses fail more often due to relationship challenges than for strictly business reasons.

For some of my blogs and newsletters over the past month or so, I have been mining the wisdom found in Maps for Men, A Guide for Fathers and Sons and Family Businesses by Pyles and Pyles. In it this father and son team has shared an incredibly meaningful understanding of and guide for families in business.

Here is one of their observations about relationships that I find important when thinking about these challenges:

“Relationships are the emotional bank in a family business. Communication is the main currency of the bank, where deposits and withdrawals are constantly being made. Like any bank, when the withdrawals outnumber the deposits, the relationship is in the red. High stakes situations require trust and leadership skills in order to turn anger and hurtful situations into meaningful and constructive dialogue and decisions. Those leaders who have the most influence create a parallel process of solid relationships and effective results.”[1]

As social beings we are dependent upon good relationships and open communication. Failure to cultivate these within both the family system and the business system is a major threat to multi-generational success.

[1] Pyles and Pyles, Maps for Men. A Guide for Fathers and Sons and Family Businesses (WestBow Press, 2016), 162

 

07/7/17

Wealth Transfer And Human Capital

This week I am continuing to present ideas and passages from Maps for Men: A Guide for Fathers and Sons and Family Businesses by father and son authors Edgell and Thomas Pyles.

On page 186, the Pyles’ reference Family Wealth: Keeping It in the Family by attorney and family business consultant James E. Hughes Jr. According to Hughes, the top reason for failure of transferring wealth across three generations “is that family leaders concentrate on the family’s financial capital to the exclusion of its human and intellectual capital.”

The Pyles’ go on to present results of a study by Dr. Dennis T. Jaffe with Wise Counsel Research. The researchers identified a set of seven core qualities common among families whose net worth exceeds $200 million who, through at least three generations, have successfully transitioned their wealth. Among these: Active development of human capital.

When it’s so important, why is this core quality so often neglected? The Pyles’ research shows that the reasons are primarily psychological. Loss of trust, lack of communication exact a high price. Building relationships among family members; accepting weaknesses, developing strengths, encouraging ambitions, imparting values is essential for transitioning “talent” capital through the next generation, and thus ensuring the successful transitioning of monetary wealth as well.

The Pyles’ issue a warning: “Considerable creative and constructive effort can be directed at crafting sophisticated trust documents, elegant business plans, and family constitutions, but the keys to implementation are locked up in the family psychology.”

06/9/17

I Have Been Fired Twice By My Father.

No, not me.

Rather this is an opening line I often use when introducing what I do professionally. The original statement was made by a student in a class on entrepreneurship I was teaching at New York University.

The student had related that his father had been saying he wanted to retire soon. The student’s response to this was to increase his own involvement in the business, proposing ideas for expansion and operations efficiency—areas his father struggled with. The student’s father resisted all of his suggestions and told his son in so many words: “Just do what I tell you to do. When you are in charge, then you can do what you want.” When the young man persisted in his bid for increased involvement, his father issued an ultimatum: “My way or the highway.”

Dynamics like these are not uncommon in family businesses, where a son or daughter is pushing to have relevancy; significance; to make a difference, and having their ideas rejected. When their aspirations are interpreted by incumbent leadership as irritants, or threats, an invitation to ‘hit the highway’ becomes an obvious solution.

The foundations of these dynamics are not simple, and solutions may involve psychological intervention to address deep-rooted conflicts. Apart from that, or perhaps in conjunction with it, taking deliberate steps to open lines of communication can be very helpful, providing for honest and constructive conversation about such important considerations as:

  • Values and vision for the business and family
  • Possibilities for the business under the leadership of the next generation
  • Policies and procedures for next-generation family members wanting to enter the family business
  • Areas of the business the next generation may be given ownership or uninterrupted control of
  • Goals of individual family members for themselves and for the family today and ten years from now

It is important to recognize that multigenerational success in a family business is not a random occurrence, but something that requires the guidance of the older generation. In their book, MAPS for Men: A Guide for Fathers and Sons and Family Businesses, Edgell Franklin and Thomas Edward Pyles point out that, “Research on the correlation of success in family business shows that a positive relationship between a father and son represents a strategic advantage.”[1]

I believe this finding is relevant to a positive relationship between any parent and child.

[1] Edgell Franklin Pyles, Thomas Edward Pyles (2016). MAPS for Men: A Guide for Fathers and Sons and Family Businesses. Bloomington, IN: WestBow Press.