Will the business end when the cousins take over?

“It’s a very different proposition to have four siblings, who grew up in the same house, with a five-year age spread, to get along than 30 cousins 30 years apart, who grew up in different houses.”

THAT is a perfect description by family expert Ivan Lansberg.

Over time, I am also asked why “wealth will disappear in the third generation” and I naturally offer the same response, but add with a stern warning that without any intervention on governance and ownership alignments, this stage has a 70 percent likelihood of self-destructing due to entropy.

The SME toolkit definition

“A cousin consortium where cousins share ownership of a joint enterprise; generally third generation members of a family in business but not necessarily—they could be second generation or even a first-generation start-up, although this is less common. A cousin consortium can be formed by two cousins or more.”

The siblings Gary and Jimmy’s simmering conflict that I wrote in my last column belong to the second stage also known as the sibling generation phase. The sibling rivalry is so common in my advisory work. In fact, it is so universal and pervasive.

The Mayfull Foods shooting on the other hand, although rare, stemmed from a case of poor or the absence of ownership governance. The animosity and provocation just became fatal.

What made the fourth son shoot and murder his two older brothers after a heated discussion related to inheritance issues was the unclear succession plan of their father.

Right after the death of the patriarch, the six male siblings naturally fought for what they believed was their share of the inheritance. The resulting fracas left three siblings dead in their head office conference room. These twin cases happened in the sibling partnership stage. Expectedly, there will be more complications ahead when the enterprise reaches the cousin consortium stage.

Cousin stage: A world of coalitions, politics, and complex structures called family branches

After having the ownership placed under sibling partnership from the founding stage, the next generation comprised of the cousins would then acquire the family business’ stakes as owners and managers. These are referred to as the cousins consortium stage.

At this point, there would be several families involved (unlike the previous stages when there was only one family) which could pose a challenge in arriving at a common vision, more so in deciding on growth and strategy.

Cousin downside: Change can be disruptive

Again, Lansberg clearly explains why this stage is disruptive. He says a “discontinuous change” shifts not only the players, but the rules.

Dipping into sports analogies, he narrates, “You’re going from solo tennis to basketball, and then to the cousin generation, to a soccer club. During transition, you have a tennis superstar coaching a basketball team, and you have trouble. There’s very little in that individual’s success to influence success in the next stage.

Cousin upside: Institutionalizing governance is key

One positive factor that puts the cousin consortium at an advantage is that the cousins would have better outlook on familial and business disputes. In the past, they have witnessed how their parents and/or grandparents fought over differing ideas and have felt the unsettling negative impact of unwise decisions. There could be a growing hope among the cousins to learn from the mistakes made during the founding and sibling partnership stages of the family business and make better choices.

Fortunately, family businesses that are able to stand for many long years — from one generation to another — experience difficulties in many areas. However, these family businesses have found that institutionalized governance is the key to success despite conflicting interests.

Torn between branch interest and the complexity of so many cousins

On the other hand, even if cousins already possess a better understanding of situations, it would still be hard to always share the same vision. Since, there would be a number of families concerned, attaining unity could not be secured at all times. There is a tendency for the cousins to treat situations from the point of view of their own immediate families. If this situation is unchecked and progresses to some form of personal gain for the branch, it will manifest into a conflict of interest situation.

Part 2 next week.

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