Software Can’t Solve the Soft Side of a Family November 2024 (Underlined sections are for emphasis)
“Meghan West grew up immersed both in the family business, CNC Software, and in the tight-knit, loving family that ran it.”
But the family’s closeness did not guarantee a smooth generational leadership transition when Meghan took over from her father, Mark Summers, in 2015. Mark had run the company since its founding in 1983, and his brother, Brian Summers, had been involved for most of that time. Mismanaged expectations and a lack of clear communication about the transition led to tensions in the family.”[i]
When we talk with families who own a business and/or have a large net worth, and explain that the combination of wealth, a business, and people within a family is almost always a formula for an impending catastrophe, their response often is, “We have a loving family. That will never happen to our family!” That is usually the first indication it will most certainly happen to their family. Implied in their statement is the fact they have done nothing to avoid the train wreck that will happen because they do not think it will happen. It is not a question of if, the question is when it will happen.
The extent of their succession planning, if they have done any planning, is having their wills and trusts completed. Those documents are usually based on simple math; divide by the number of children and every child gets an equal share. Unfortunately, lack of planning creates several problems.
First, it is likely the children have never been exposed to what those documents say. That creates the problem the Summer’s family mentioned, “Mismanaged expectations and a lack of clear communication about the transition led to tensions in the family.” Planning in secret is the equivalent of asking your children to drive from the west coast to the east coast with everyone wearing blindfolds.
Another problem is the children do not believe they are equal because, in fact, they are not. Is it fair if one child has never married and another is married with four children, and one of those children has special needs and everyone gets an equal share? Or, two of your four children work in the family business, one has a very responsible role, and the other is in the business just to draw a salary rather than taking on responsibility. Another child is a successful entrepreneur, and the fourth is a schoolteacher. Are all four children equal? Which children will lose the wealth they inherit? What happens to the business when dad and mom pass on? Is the business sold or retained in the family? If the latter, who owns it and how is it owned?
If retained, who will take the lead for the business, and who for the family wealth? “With no one asking those questions, tensions grew among the family members who were leading the company – and those tensions did not stay contained in the family. It was starting to bleed over into the operations,” Meghan said. “It seemed like we needed to address the issues so we would be able to be the most effective company.”[ii] In CNC Software, Meghan’s uncle, Brian Summers, has been involved in the business almost since its beginning while Meghan was growing up. Now, Meghan is the new president and Brian works for her. “A lot of it had to do with me struggling to navigate the dynamics of being elevated to a role in the business hierarchy that put me above somebody that had been my uncle and guide and life coach for my whole life,” Meghan said. She has childhood memories of Brian – who at the time she took over was vice president and a partner in the company – making her pancakes and teaching her how to ski. “I think the situation was almost exacerbated by the fact that Brian and I had such a strong relationship before.”[iii]
“For my entire relationship with Brian, we never had to develop tools for how to manage conflict,” said Meghan. “He was the best uncle I could have ever asked for – fun-loving, a very attentive, present person in my life. When we were managing the company together, when we both had the same vision or idea, it was great. When we didn’t, we didn’t really know how to talk about it.”
“Families making decisions about succession planning and other pivotal issues for their business face a dual challenge: Their decisions will affect the future performance of the business – and they will also change the dynamics of the family. Meghan, Mark, and Brian had not fully reckoned with how the leadership transition would affect their family relationships.”
“The friction that had been developing was difficult for the family but brutal for the rest of the business,” David (the professional advisor the family engaged) said. “When family feels excluded from a process, regardless of what the answer is – even if it’s the right answer – conflict can ensue and at times catch non-family employees in the middle of family challenges and dynamics.”[iv]
This highlights a third problem. Too often families think they can solve these problems themselves. Since what is happening in the CNC Software family happens in every family and the statics often prove 70% of a family’s wealth will be lost each time it passes to the next generation, and gone at the end of the third generation, it is obvious families cannot solve these problems. The reasons are too many emotions and too many historical issues that continue to seethe and have never been quenched. The family doesn’t have the experience and expertise to solve these problems themselves. Bringing a non-family professional advisor to the table who has no emotional attachments, is not biased toward any one person or group of persons, and has experience in addressing these issues is a must.
“It’s a valuable thing to consult with an outsider who might have a different perspective that could help you – especially somebody that has gone through this with many family businesses before,” Mark said. “I’m sure they see patterns, and . . . know what solutions are effective.”[v]
So, what should a family do? The challenge is there is no one solution that is right for every family. Families are unique and dynamic. That is both the good and the bad news, but here is a short list of some of the steps a family should consider.
The first step is to get help. Succession planning in many ways is equivalent to walking through a minefield. Families do not have the experience, expertise, emotional stability, nor the time to devote to this activity; and they do not know the right questions to ask of themselves and the professionals they will need, or what professionals they need.
If a family business exists, there are several alternatives for what can happen with the business. Should the business be retained or sold? Should it just be allowed to go away because it is not saleable, and no one wants to take it over? Should it go public with an IPO? Should it be sold to the employees using an ESOP? If there are partners, will they buy out the departing partner’s interest and for how much and how financed? Does the family want to continue owning and managing it? If a family business does not exist, these same issues must be addressed regarding the family’s net worth.
If the business is retained, who will be the owners, and what percentage of ownership will each person receive. Will it be gifted or will there be a plan for heirs to purchase an interest while the patriarch and matriarch are alive? Will the ownership be equal or unequal and how will that be determined? What if not all of the heirs want ownership? Will they receive something else to compensate for their lack of ownership?
Who will be the new leaders and what roles will each play? Not everyone can be the new CEO, but they could fill other roles within the business. How will they be compensated and how much? What if no one in the next generation wants involvement or does not have the experience or skills to take over a role? Would it be better to bring one or more non-family people into leadership roles even if one or more family members would like to have a role?
If a family member does not want to be involved in the business, can they still be an owner? Will their interest in the business be purchased by the business or by other family members if they do not want ownership? If a family member wants to be involved, can they come directly into the business, or must they hold another job outside the family first?
If more than one family member wants the same role in the business, how will that decision be made and who will make the decision? (See Succession Planning below) Will family members act as a board of directors to make these decisions as well as investment and financial decisions for the business and the family as a whole?
Does the business have Value, Vision, and Mission Statements? Does the family have these same statements? What are the family values, and does everyone agree? Does a family constitution exist? How will in-laws be treated? Can in-laws hold leadership positions in the family and/or the family business? Can in-laws have ownership, and if so, how much and how will those decisions be made? How are children treated if yours is a blended family?
Succession Planning. It’s a Lot!
I have stressed the importance of having non-family advisors at the table. Families and family businesses should also have directors and committees that include non-family members. The JP Cullen company is a good example. Jeannie Cullen Schultz and George Cullen spent two years competing for the top job at JP Cullen, a construction management and general construction firm headquartered in Janesville, Wis. Their great-great grandfather, a carpenter, started the business, which now has more than 700 employees and more than $500 million in annual revenue.
The siblings were the two fifth-generation family members who stepped forward when the company’s non-family president, who had been brought in to steer the company until the fifth generation was ready to lead, said he would be retiring in a few years.
The management succession committee—which consisted of the owners, the president, and outside advisors—spent two years evaluating both of them.
Then the committee surprised them: “They said, ’We’d be doing the business a disservice if we elevated one of you over the other,’” Cullen says. “They challenged us to think about whether we would be open to a shared leadership model.”
It was a bit of a letdown after two years of competition. “But then we went to our favorite lunch spot, and the conversation quickly turned to, ‘What can we do together to propel our business?” Cullen says.
They met with three other businesses that have co-presidents and were energized by their success stories. They created clear areas of responsibility. Cullen oversees the Milwaukee division and the industrial division, and Cullen Schultz oversees healthcare and the Janesville division. They also divided up the support groups. “If something is in Jeannie’s purview, I won’t, in a public setting, voice a different opinion,” Cullen says.
Through the selection process and now as co-presidents, they have kept family relationship at the forefront. “We knew our relationship as brother and sister and with our immediate family needed to never be sacrificed.” Cullen Schultz says. Going into it and coming out of it, we’re first and foremost brother and sister.”
The siblings are now in their third year as co-presidents. “Our goal is to perpetuate this business to our children and establish this as a sixth-generation family business.” Cullen says.[vi]
The soft side of a family is the most important family value taking priority over the financial side. However, it is also the most difficult to manage and unite. It requires intentional and constant communication, honesty, and help from objective and unemotional people who can see, hear, and uncover what families too often have buried or swept under the carpet.
[i] CNC Software: Improved Family Communications Helps Business Move Forward, Family Office Consulting Group, 2022
[ii] Ibid
[iii] ibid
[iv] ibid
[v] ibid
[vi] Succession Planning. It’s a Lot, Family Business Magazine, February 2023, by Margaret Steen, a freelance writer and frequent contributor to the magazine.
Review The Book: You Can Have It All; Wealth, Wisdom, and Purpose
Return to Learning Hub to read additional articles.