Family business love letters

by J. Kevin Heaton

I just have to share this commentary! 

Uncle Bill and Aunt Janet's knock-down, drag-out argument over the value of a property Aunt Janet wanted to buy from the Trust resulted in an amended operating agreement. The legal document provides the rules, but what’s important is the intent behind the document—the story. Write that story within a letter to accompany legal documents that explains the history and the circumstances behind the operating agreement.

1)    Align compensation with the market and reward performance and above all, reward performance. Ownership is oftentimes the result of family relationship, so performance compensation should directly reflect the responsibility of the family member and their performance results.

2)    Avoid Regretful Giver Syndrome - by my own definition, a Regretful Giver is someone who gives and gives of themselves only to realize at the most inopportune time (such as proceeds from the sale of a business being distributed) that they’d like to make up for what they’ve sacrificed for the family’s sake.  With this common affliction, family members who rise to leadership ranks can become so committed to the family that they leave their own wellbeing to the wayside. Having the proper compensation and incentive plan ensures that no family member becomes a Regretful Giver.

3)    Host family meetings with performance reports - by far, the biggest reason that families end up in dispute is that something unexpected happens—good or bad. Meeting regularly and reporting on the performance of assets ensures everyone’s understanding. This is a good time to have fun with “what-if” scenarios that contemplate a disruptive transaction.

4)    Employ family members with purpose - hire family members who have a purpose and have a purpose for the family members you hire. 

As my dad used to say “life is not fair,” but we can strive for harmony in the family business, and set families up to never experience a lifestyle disruption, nor to believe that an unjust enrichment has occurred. This, of course, requires setting things up the right way in the first place, or proactively implementing some of these recommendations. Bet you thought that guy who said “I built this company into what it is today” was the greedy, regretful giver.

Turns out, he was one of the good ones and his family continues to co-invest with each other today in harmony.

Written by J. Kevin Heaton,  a principal of i3 in Columbia, SC