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Sibling Partnerships:
How Limited is Your Family Limited Partnership?
Ellen Frankenberg,
Ph.D.
Family Limited Partnerships are a hot topic for family business
owners right now. Far-sighted entrepreneurs are huddling with
bright estate planners, devising sophisticated strategies
to outsmart the tax man, maintain lifetime control of their
assets, yet still bequeath generous fortunes to the family
they love: a solution to many issues in one neat package.
But as these partnerships are developed, who is preparing
these sons and daughters to receive their inheritance as partners?
What are the odds that Jack (who saved enough money cutting
grass to buy his first truck on his 16th birthday) and Joe
(who has already squandered by age 29 the $237,000 he made
as a day trader) will be able to make amicable decisions together
about money?
Many successful parents choose a FLP, precisely because they
know all too well the latent animosities and personal diversities
of their offspring. "A sibling partnership is almost an oxymoron",
says Julie Thomas, Vice President of Priority Dispatch, a
Cincinnati-based delivery company. Although some siblings,
like Julie and her brother Jeff, now Chief Operating Officer,
have developed ways to work together successfully, the path
ahead for sibling partners threads through an emotional minefield.
One of the problems of getting along with siblings (usually
the longest relationship of life) is that no one gets to choose
how many there will be, their genders, their ages, or their
ideosyncracies. And since genes are scrambled with each subsequent
birth, to insure biological diversity within the family, there
are no two - even identical twins - exactly alike. Birth order
alone establishes such a powerful pecking order that it affects
personality throughout life: the eldest will probably continue
to be highly responsible, and a little anxious with things
beyond their control; the youngest usually takes more risks,
going places where older sibs have never gone.
Whose magic will make
sibling partnerships work?
What magic
will make Family Limited Partnerships - or any sibling partnership
in a family enterprise - work successfully? If one sibling
(the eldest, an accountant/MBA) becomes General Partner, with
sole power to make decisions about his/her sibs' access to
their "fair share" of their inheritance, the estate planners
must believe that he/she possesses the wisdom of Solomon,
the grit of Edmund Hillary, and the wry humor of Will Rogers.
Sometimes, because of the tradition of confidentiality that
surrounds estate planning, only
the trusted attorney and the parents know the plan before
the will is read. In what other situation do the deceased,
who can no longer change their minds, determine who shall
be partners with each other, or who (as General Partner
in a FLP) shall make decisions for other adults of sound mind,
without the prior consent of the partners?
Selecting a General Partner for a FLP may be even more challenging
than selecting the next president of the family firm, because
each sib, even the independent ones who chose not to work
in the company, will be affected by each decision about each
distribution.
If all the siblings are designated as equal partners, their
communication, conflict resolution and consensus building
skills need to be Herculean. It only takes one disgruntled
heir to initiate a lawsuit, which can destroy a family, if
not the assets the parents worked so hard to give them.
What does it take for
brothers and sisters to work together effectively?
Diversity
within a family and differing talents within a family business
can be terrific assets. But differences will lead, sooner
or later, to conflict between any normal adults, especially
when the stakes are high. Perhaps, since conflict is predictable,
future sibling partners need to learn, before the will is
read, how to disagree creatively, how to fight fair with each
other.
A 1997 article entitled "How Management Teams Can Have a Good
Fight", published in Harvard Business Review by Kathleen
M. Eisenhardt, Jean L. Kahwajy, and L.J. Bourgeois III, reports
that conflict is an essential part of healthy business decision-making.
The outcomes of their 10year research project with top U.S.
management teams should be good news for emerging sibling
partnerships. Fighting can be a source of energy within a
partnership. Here are some suggestions from that article,
adapted for family firms, for using that energy successfully.
1. Focus the debate
on sufficient, up-to-date facts.
Whether
the debate is about which investment advisor to select, or
whether to accept
a buy-out offer for the company, decision makers do best with
more information, not less. Each partner needs to be committed
to learn as much as possible about the facts and implications
of each choice, without getting lost in pointless debate based
on opinions about "how the world is". The old rivalries, the
gender differences, the birth order prerogatives can be by-passed,
if the participants have clear data to compare and contrast,
until the choice becomes evident on its own merits, and not
only because of the personal clout of the one who first proposed
it.
2. Develop several
alternatives to enrich the discussion.
Teams
that manage conflict constructively consider lots of options.
Sibling partners may, for instance, during a financial squeeze,
look squarely at developing strategic partnerships, refinancing
with another lender, developing new marketing strategies,
refining core products, cutting costs, hiring non-family management,
or as a final option, selling the company.
As members of the team generate lots of alternatives (even
those they never would have
said out loud when Grandpa was alive) and digest the facts
supporting each option, they will no longer feel like they
have only two choices, "my way or the highway".
The role of "devil's advocate" can be rotated, so that each
sib takes a turn highlighting the dark side of each scenario.
If nothing else, taking turns being oppositional means that
those who usually say "no" to everything will have to find
a new gig. With this kind of open discussion, individuals
don't have to win or lose. They can search for an innovative
solution together, which may integrate several options that
the majority can support, for example, refinance and develop
new marketing strategies: win-win.
3. Create common
goals.
Parents
may assume that their sons and daughters share common goals,
but their differences may, in fact, be greater than their
similarities. Adult experience has made them more diverse
since they left home. The spouses they have chosen, and their
children, have more day to day influence than parents or sibs.
The culture in the USA has been through several revolutions
since their parents came of age. Assuming that every sib shares
the same family dream is a blueprint for disaster.
Setting up a relaxed time and a comfortable place for siblings
to rediscover each other, and define the goals they do share,
is an indispensable basis for building an effective partnership.
There is just too much emotional residue left over as a result
of birth order alone for siblings to work together objectively,
unless they can agree to dump their lifelong pecking order,
and recognize new adult identities. I might even discover
that my little brother no longer aggravates me; he's learned
a lot since I left home when he was 13.
If sibs can work together to articulate a common dream, perhaps
with the help of a professional facilitator, they may grow
closer than they ever were in that long ago backyard.
4. Laugh Together.
The laughter
in family gatherings has a special warmth when brothers and
sisters tell outrageous stories about the gags they played
on each other, and the pranks they didn't tell their parents
until the youngest sib was 29. Healthy sib partners haven't
forgotten how to laugh together, with each one taking turns
at the punch line. Everyone may have already heard the story
43 times, but it's the re-telling, with grander and grander
embellishments, that makes it fun. The sibs all know that
no one else in the world can really visualize these same episodes;
the things that make them laugh together are part of what
binds them into a unique kinship.
Humor is strikingly absent in teams which are marked by high
interpersonal conflict.
A good joke dilutes hierarchy, and puts the group in touch
with the human ideosyncracies they share. Within their unique
history, humor can bring sibs back into the circle of childhood
laughter once again, when everything was possible, and innovation
really was the game of the day.
4. Balance the Power
Structure.
Because
most siblings grew up comparing and contrasting the treatment
each received from their parents, they quickly focus on what
is "fair". They are more likely to go along with the final
decision, even if it's not their first choice, if they believe
they were heard, that the process was fair. Not only Eisenhardt,
Kahwajy and Bourgeois, but also some classic social-psychology
studies indicate interpersonal conflict is lowest when there
is a strong leader, but each team member retains some power,
especially within some well-defined niche.
This means that each sib claims a share of responsibility
and authority for what needs to be done. Each does homework,
comes to meetings prepared, can challenge the designated leader,
listen to all points of view, accept the final decision and
work for
its implementation.
Another way to balance power is to recognize that contemporary
business leaders are
not elected for a lifetime; that privilege belongs only to
the pope and federal judges. Leaders within a sibling partnership
can be designated for a specific term of office - 4 or 5 or
10 years - to quicken again the energy at the top and all
around the table too.
5. Seek Consensus
with Qualification.
Most
family business owners prefer to reach decisions by consensus,
according to
a recent Arthur Anderson survey, because they really do want
to see the whole family
celebrating the 4th of July picnic together. But consensus
is tough to reach, so some entrepreneurs put off making any
decision at all, especially those that involve family. A partnership
mired in endless procrastination is unacceptable.
A manageable process includes four steps:
-
agree
in advance who will break the tie and the deadline by
which the decision will be made.
(Some families rotate the tie breaker role, offering
each one a turn; others agree to accept the decision of
a designated leader.)
-
listen
and challenge each viewpoint,
-
take
a straw vote to see if consensus is possible,
-
if
consensus isn't possible, the tie-breaker, having listened
to all viewpoints,
within a reasonable time frame, makes the decision.
Signing
the papers in a lawyer's office is only the beginning of a
successful Family Limited Partnership. Like everything else
entrepreneurs do well, great sibling partnerships require
preparation, hard work, commitment and, always, a sense of
humor. Success will belong to those brothers and sisters who
learned long ago how to take turns, play by the rules, tell
the truth, listen to each other and even shake hands after
a good fight.
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