Paul Hennessy is the partner-in-charge of PricewaterhouseCoopers' Family Business Service practice in Ireland.
Sibling rivalry is an added complication in the life of a family business and has the potential to destroy both families and their businesses. Achieving a harmonious partnership requires commitment and is a challenge that needs to be faced with conviction
Family businesses face many of the same financial issues as other companies – managing profit margins, negotiating external financing, producing shareholder return. However, the existence of family management adds an additional layer of complexity. Managing family communications, sibling rivalry and new leadership transitions are some of the most formidable challenges a family business can face. Indeed, these emotional "non-business" issues are more difficult to deal with than cut-and-dried "business" issues.
Sibling rivalry is a powerful phenomenon that can destroy both families and their businesses. But properly managed, it can be minimised and even eliminated.
The trouble with siblings
There are two major points in the structural evolution of a family business. They are moving from the founder to a sibling partnership and subsequently from a partnership to a team of cousins.
The fact that so many businesses never make it to the "cousins stage" reflects just how difficult it is to manage as sibling teams and how important it is to minimise rivalry among team members.
As businesses pass on to the second generation the crucial question is: Are siblings who are personally ambitious and committed to the business really capable of an equal share of power or will competition, rivalry and jealousy eventually tear them apart?
The starting point in minimising rivalry is to recognise that it is present in families from early childhood. It has its roots in each sibling's need for parental approval. Minimising the impact of sibling rivalry and providing a basis for shared sibling management is therefore a process and the earlier it is commenced the more likely it is to be successful. Unfortunately the preparation and planning required by both the founder and the children involved is all too often a case of "too little and too late".
Setting the tone
The best preparation starts with the creation of a shared family culture. Awareness of common heritage, traditions and values goes a long way towards building co-operation. Ensuring that siblings have a fundamentally healthy relationship is equally important. Time spent ensuring that they recognise and appreciate each other's strengths is critical if they are to manage a business in a way that takes best advantage of these strengths. The founder also needs to inculcate "inclusivity" in working practices so that the succeeding siblings enjoy working for common rather than individual goals.
Setting the tone in this way may be frustrated if in-laws or spouses are not supportive of the management structure and this essentially means that they have to feel included and valued. Most importantly they need to understand what's going on. In practice this requires an effective communication process with the peripheral family members and preferably one that has been functioning
successfully for some time.
It is against such a background that sibling rivalry can best be minimised. However, three other steps are necessary if sibling co-management is to be successful. In short, siblings need to:
- Agree on the roles each will play;
- Segment areas of responsibility;
- Agree on a basis for resolving disagreements.
The determination of the roles and segregation of responsibilities enables siblings to work in the same business but have separate turf that each can dominate. It gives each sibling capacity to act on their own initiative, be decisive and yet still remain team players. Quite often roles and responsibilities are fudged and this not only hampers commercial effectiveness but also gives rise to conflict.
Agreeing a mechanism for resolving conflict is critical. Typically, a strong board with non-family independent directors will serve this purpose. However, less formal solutions also work providing the siblings agree to abide by them. For instance the nomination of an individual to act as a "tie breaker" suits many companies. Essentially, this individual is approached where siblings reach an impasse.
The tie breaker's decision may be arbitrary but it does break the impasse and enables matters to move forward. While this is not a textbook solution it does work in many companies where the people involved are comfortable with it.
There are many variations of the tie breaker concept. For instance, in a second generation business, managed jointly by two brothers, a resolution process was agreed that was not dependent on a single tie breaker. Essentially, their approach when they met an impasse was to let the issue sit for a defined period (typically two weeks) during which time they would seek advice from others.
They would repeat this if necessary for an agreed number of times and if the matter was still not resolved they would call in an independent consultant. If it was not possible to resolve the matter with the consultant the issue would be parked and no decision would be taken.
Again this is not a textbook solution but it has enabled the parties to manage their business very effectively over a long period of time. Essentially it does not matter if the mechanism is unconventional as long as it achieves the objective of avoiding a stalemate and enabling the business to move forward. Once an agreed mechanism becomes established, it should become part of the business culture that is clearly understood by all family members.
Achieving sibling equalisation
When presented with the challenge of dividing business ownership in a fair manner, a founding parent may find it difficult to allocate assets on an equitable basis. Where there are a number of siblings involved, each with their own agenda, what is equitable to one party may not seem equitable to another.
Equalisation is further complicated when not all siblings work in the business. The issue quite often is to allocate to the non-participating siblings assets that will generate income at a level similar to that generated by the business. Property is an asset commonly allocated to non-participating siblings. If income-producing, this asset can replace the salary earned by the business owning sibling. Although the appreciation in each asset may not be identical such an allocation does act as a starting point in equalising.
It is therefore advisable to determine what assets are available for equalisation at an early stage. If assets are insufficient the best solution may be to commence an asset acquisition programme to provide a basis for equalisation on the transition of the business to the participating siblings.
If equality is achieved by passing business ownership to all family members, regardless of whether they participate in the business or not, then some mechanism must also be established so that the non-participating family members can either relinquish ownership or receive an appropriate level of earnings from the business.
Minimising sibling rivalry and achieving sibling equalisation is a tough business. It requires a commitment from all parties and siblings must continually exchange information and trade off individual needs for the common good. The subjectivity and emotion involved makes it difficult for families to build these processes and structures effectively without the involvement of an outside facilitator who offers an independent voice.
Dealing successfully with sibling rivalries requires a generosity of spirit, commitment to a common purpose and objectivity. Bringing these components together is the key challenge for many families. And one that needs to be faced early and with conviction.