Can fairness be equated to equal inheritance?

I WROTE in my column last week that the likely cause of the Mayfull Foods shooting incident, where the fourth son Huang Ming-Te murdered his two older siblings, was due to the pressure felt by the killer son that he was being sidelined by his four other brothers and that his family weren’t honoring the tradition of equal inheritance.

This senseless rivalry happened after the death of their father last year leaving a $3-billion empire with no clear succession planning except the patriarch’s devotion to the Chinese culture of equal inheritance.

To quote the online magazine Family Capital, “the concept of equal inheritance in Asia most notably amongst the Chinese appears to be fraught with problems and a cause of many disagreements. It underscored “that tradition dictates that inheritance is split equally among siblings, or at least male siblings, thus equal inheritance can often lead to disputes, particularly when families don’t adhere to it.”

Fairness in a family business setting

Legal and tax advisors have observed that children tend to look at inheritances as a measure of their parents’ love for them. To put it strongly, I look at wills as the child’s final performance rating card. But leaving an equal inheritance especially shares in the family business to all children is not always the best solution — and sometimes it might not even be fair.

As founders or senior generation leaders bring their children into the family enterprise, they always have a natural formula in mind in compensating and turning over ownership shares to the next generation. By default, eight out of 10 families I have coached in Asia would always pursue the “fair and equal” model regardless of the number of children in the family.

That kind of mindset is understandable—but sadly a big mistake. In a book entitled “Managing Conflict in the Family Business” written by Kent Rhodes and David Lansky, the authors assert that “children employed by the company should be compensated according to the level of jobs they have, and how qualified they are, not simply because they are family members.”

The book also highlights another common mistake: automatically giving each child an equal stake as ownership passes to the next generation. The authors cited the iconic brand U-Haul where the founder LS Shoen, with disastrous results, equally divided the company among 12 children he had by three different wives.

In Asia, I have experienced coaching many family enterprises with siblings awarded equal shares right after the death of the patriarch. Let me cite one particular example that proved to be a challenging client. We will refer to the brothers Gary, the older sibling and Jimmy, five years younger (not their real names).

Gary as CEO and Jimmy as vice president for operations own equal shares in a company engaged in construction. Following Chinese tradition, the three other sisters own fewer shares. Both siblings sit in the executive committee and the board. In these meetings, they deliberate on growth and strategy from equally strong positions.

However, when they return to their roles as managers in which one is subordinate to the other, Jimmy as the younger brother, finds it extremely difficult to think of himself in a subservient role.

Jimmy is in a bind and is usually in a dilemma on how to manage this relationship. There is a tendency for Jimmy to be less confident than his older brother and considers himself to be at an unending disadvantage. With Jimmy’s insecurity and shaky disposition increasing by the day, Gary creates an impression that Jimmy is not competent and less capable of running the business.

Through time, Gary becomes involved in self-fulfilling prophecies. He now believes that he is the only sibling capable enough of running the business. He also thinks of his children ending up as his successors.

As he continues to doubt Jimmy’s ability, he is now casting a wide net over his younger brother effectively controlling him, clipping his powers and denying his brother any opportunity to excel and grow in the family business.

Jimmy senses that he is unreasonably being pushed in the wall and in one of their regular meetings, a petty disagreement escalates into a full blown conflict.

Jimmy, tired of being bullied musters enough guts and challenges and provokes Gary. At this juncture, the bets are off and the rivalry becomes intense. Emotions run high and decisions from all sides are no longer rational. Entropy develops, non-family managers takes sides, chaos prevails…all because the father out of his love for his two sons bequeath them with equal inheritance/shares in the organization.

Was there fairness?

 

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