This scenario is familiar to those who have seen the inheritance on television or followed the real-world drama of the Murdoch family, owner of the Fox Media Empire. They may have succeeded under the founder's leadership and survived the transition to risk to second generation in a malicious battle over who will do it next.
Doug Baumoel lived it as his own family company was forced to sell a court order due to an internal dispute. Currently he runs Continuity Family Business Consulting. This is a Boston area company that closely detains businesses on how to manage the tricky process of inheritance and how family management is maintained.
“Family business is the most likely chance of conflict,” says Baumoel. “Changing a system can put the system at risk and instability can lead to competition.”
housework
The bad news is that there are no legal silver bullets to facilitate the manager being caught in the middle of a family fight. At best, there are company bylaws and employment policies that describe everything from dividend policies to the qualifications required for company leaders. (The latter is useful when a business owner decides to hand over the reins to a romantic partner with a landscape architecture background, rather than an engineer heir who is widely expected to play the role.)
However, controlling shareholders must agree to share management with external directors before the board can do anything. To minimize conflict, he says, the governance and nomination and comp committees must be run by independent directors. Families should also listen to those committees, even if this means moving forward with non-family candidates for important leadership positions.
“It's not the board's job to prepare the company for good governance,” says Baumoel. “You cannot outsource your work to the board.”
To ease tensions in the boardroom, he advises clients to form a “council of owners.” This is a safe space for families to have their differences. Meanwhile, the director must respect the fact that family owners may have different goals than shareholders of public companies. Baumoel cites the example of a closely held biotech company that fired an outside director who valued selling the company on its founder's long-term goal of curing cancer.
Doreen Lilienfeld agrees that the director will serve as a brake for family owners who are out of control. Lilienfeld, a US co-management partner at international law firm A&O Shearman, says closely held companies usually take bylaws and other legal actions.
For directors, that means closely monitoring the succession process to ensure that the company is identifying eligible candidates to manage the company after the current generation leaves. The succession plan should be a regular agenda item for the NOM/GOV Committee, if not the entire board of directors.
Skills and Scion
If the candidate's primary qualification is family, they must receive guidance and training to meet the company's employment requirements. It may be difficult to tell the founder that his son simply isn't getting any grades, but it is the supervisor's duty to do so, says Lilienfeld.
“All conversations about closely managed businesses are difficult,” says Lilienfeld. “It's very sensitive, but that's what the board does.”
Of course, the owner can fire the entire board if he disagrees. But most directors in large, closely held companies have a unique reputation for working on multiple boards and protecting them, she says. A sturdy owner should keep that in mind before threatening to fire an intervention supervisor.
“It's true that they could get fired, but they can walk,” says Lilienfeld.
