Tag Archives: Family Business Advisor

Stop Behaving Like a Father

I want to start 2018 by upsetting the family and business systems in a positive way.

Knowledge is power and ignorance breeds conflict so allow me to share a powerful quote from Prof Kim Eddelston related to a “Fredo” child or better known as a black sheep family member,

“As Fredo demonstrates, these bad apples can disrupt both family relationships and the firm. Continuing to reward Fredos while ignoring their damaging behavior leads to more problems: the child’s sense of entitlement increases, higher levels of relationship conflict in the family firm result, and more problems with productivity and teamwork emerge.”

Unmasking Fredo

A “Fredo” behavior rears its ugly head when the business leader, usually the patriarch, behaves more like a father than a business owner and his actions are manifested in many ways:

  • Bias in choosing family over the business
  • Is motivated in hiring family members regardless of their qualifications and competence
  • Failure to enforce discipline against the erring or underperforming family members

With the next generation family members getting “kid glove” treatment, a “Fredo” will naturally surface and is emboldened to flaunt his or her entitled behavior.

Paradoxically, as the parents continue to ignore the telltale signs of misbehavior, they remain hopeful that their “Fredo” will change and become motivated. Despite the “Fredo” child’s inadequacies, they reward him or her with promotions and bigger compensation.

Creating this environment will naturally make the child demonstrate poor business decisions, commit abuses, initiate tension against his or her siblings and inevitably create conflict after conflict with whoever crosses his or her path. This phase is characterized with constant clashes during meetings, poor performance, high employee attrition rate and professional managers leaving their jobs as a result of the heightened conflict.

When the “Fredo” child is left to do things on his or her own, the disruptive behavior will worsen over time and the acrimony spilling over to the rest of the siblings. When the parents are no longer around, the conflict escalates to an ownership tussle among heirs.

In “The Godfather” novels, Vito Corleone realizes his son Fredo’s shortcomings, but he insists that Fredo, like his siblings must also be given the same opportunity in the family business.

Parental Action Spells Danger

I have witnessed many family businesses led by patriarchs, where the dysfunctional behavior of their “Fredos” are generously rewarded by way of higher pay and new positions in the hopes that the change will motivate them to perform better.

The actions are dangerous, unwise and counterproductive. In the absence of any deliberate effort to contain an aberrant family member, any form of appeasement that parents do to win their “Fredo” to their side will likely fail. And to rub salt into the wound, business owners may unknowingly foment a conflict if they are currently doing the following:

  • Rewarding an underperforming family member
  • Tolerating the family member’s bad and disruptive behavior in the workplace
  • Continually providing financial support to non-working family members
  • Appointing unqualified family members in managerial positions and worse, elevating them to the Board of Directors
  • Giving equal compensation to active family members
  • Giving higher compensation to family members over professionals
  • Not subjecting active family members to performance and Accountability Rules
  • Flip flops on the issue of wanting to retire but refuses to relinquish control
  • Letting the next generation family members decide for themselves on the issue of succession and direction of the business but retains the patriarchal shadow
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Founder Inaction Can Cause Business to Fail Part 2

With tension escalating and family members demanding for more entitlements, Mr. C, the founder, no longer had the passion to grow the business he started in 1973.

Unless there was real intervention, it was obvious that the family business was on a downward trajectory.

In the course of our assessment, there were instances we hit a brick wall.  We discovered that the gap was so wide and the acrimony between siblings so deep.

There was a time in my advisory work that every meeting I attended would always end with a virtual confrontation punctuated with a shouting match that can be heard by employees and visitors in the executive floor. And as if on cue, assistants would immediately disallow visitors from entering the floor. Mr. C would then just quietly leave the boardroom, disheartened and embarrassed by his children’s actions.

At one point and out of desperation, Mr. C became emotional and told me “how he wished his business never grew so big so he will never have to contend with his entitled, squabbling and disrespectful children”.

He also lamented about the issue of money and power plaguing his adult children… “why are they fighting for the small pot? If they can just work as a real, united family, there is a much bigger pot to create!

Mr. C was used to the hard life, at a young age of 12, desperate and hungry, he decided to join the exodus of Chinese laborers leaving China with only one thing in mind…hope for a better life.

As he was about to tear up again, I comforted him that all was not lost. In tense situations where the Patriarch or Matriarch is being pressured by family members to make decisions, there is a very strong likelihood that they will end up suffering in silence and feeling helpless. Such is the case of Mr. C. He chose not to decide, opted to procrastinate and remained neutral in the course of our intervention.

This pattern of indecision is not only wrong but destructive. Unfortunately, the “Do Nothing” option is by far the most popular option. Therefore, it makes sense to consider a third party intervention as time is critical.

An experienced family business advisor, bereft of any emotion, will guide the family members the appropriate governance mechanism to make critical decisions based on what is best for the family and the enterprise.

After the children swapped accusations of wrongdoing, it was apparent that if my firm, W+B Family Advisory cannot help them, their only recourse was to seek the legal route. It didn’t help that both parties were being goaded by their lawyers to seek court intervention.

In a KPMG report, this case is what they refer to as a classic Rags to Riches and likely back to Rags family.

The report highlights that starting a family business is easy, relatively speaking; sustaining it beyond 2 or 3 generations is the hardest part. Indeed, it’s often said that the rags fall on the third generation. It’s a sad commentary on the reality that faces family business.

Every family member must recognize that family issues, not business nor external events, will define the very survival of the next generational change in family businesses.

After a series of assessments, one on one sessions with the family members and a slew of governance interventions replete with drama, a breakthrough happened that averted what would have been the biggest mistake the warring family members would have committed… go to court and scar the family for life.