A tough nut to crack: family members who decline role in family business

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In my 52 years as both a clinical and organizational psychologist, one of the thornier areas I have been asked to deal with occurs when one or more family members choose not to join the family business, either during the founder’s tenure or once he or she passes the torch to the next generation.

What leads to a successful outcome in these circumstances is typically not a function of what one sees “on the table” but rather surfacing and addressing that which lies “beneath the table.”

I will attempt to explain both what motivates family members not to join the family business, especially one that is highly successful, and methods to treat all parties fairly (but not necessarily equally) under these circumstances.

1. Pressure to join: The No. 1 feeling experienced by those not joining the family business is pressure to join. Regardless of how and by whom they are encouraged to join the family business, these family members perhaps have little or no interest in doing so, have other passions they would prefer to devote their time and energy to, do not care to be involved in a business with siblings or relatives they share little in common with, or are simply not motivated by the benefits the family business has to offer.

2. Feelings of inadequacy: Whether they have the skills or aptitude to work in the family business is not the point. These family members would prefer to apply their talents in different directions. Nonetheless, seemingly innocuous statements or even statements of encouragement, such as “we know you have what it takes,” immediately suggest that it is a personal flaw that they don’t join the family business.

3. Resentment and alienation: These feelings are not far behind. Once those family members who now run the business are well entrenched as successors, many feel resentful if those not working in the business are profiting from their efforts. Often a chasm starts to form between those working in the business and those engaged elsewhere, even though the successors were not the ones who created the business in the first place.

4. Conflict avoidance: Family businesses can be a source of interpersonal conflict. Those who choose not to join may be motivated by a desire to avoid potential conflicts or power struggles within the family.

5. Independence and autonomy: Some individuals feel a strong desire for independence and autonomy in their career choices. Choosing not to join the family business allows them to pursue their own interests and establish their identity outside the family context.

6. Pursuit of passion: Individuals who follow their own passions and interests outside the family business may experience a sense of fulfillment and satisfaction in pursuing a career aligned with their personal goals rather than conforming to family expectations.

7. Risk aversion: Joining a family business often involves some risk, as the business environment can be unpredictable. Some individuals may choose more stable or predictable career paths to minimize risk and financial uncertainty.

8. Entrepreneurial aspirations: Individuals may have aspirations that lead them to explore ventures outside the family business. They may seek the challenge of building something on their own, or they may be drawn to industries and opportunities different from that of the family enterprise.

9. Desire for personal growth: Individuals may prioritize personal and professional growth, seeking experiences and challenges that are not available within the family business.

10. Respect for other family members: Some individuals may choose not to join the family business out of respect for the roles and responsibilities of other family members already involved. They may want to avoid overcrowding or competition within the business.

11. Fear: Fears felt by those choosing not to work in the family business can take a number of forms. One question often crossing their mind is whether one or more of their children who may be interested in the family business will be denied the opportunity in favour of children of those operating the business. Another concern is whether, should they become unable to work, the family will help them out.

Should non-participatory family members also profit?

Regardless of the obvious or underlying dynamic, the inevitable question is whether a family member who is not involved in the family business is entitled to profit from that business. The answer is yes, no and it depends.

A key consideration is whether family members not working in the business believe they are entitled to some form of remuneration simply because they are family, and while they chose not to participate in the family business, none of the next-gen actually created the business. So, they may say they are entitled to a proportionate share of the value of the business until such time that the patriarch either has passed on, become incapacitated or hands the reins over to the next generation.

In some situations, a family member does not expect a proportionate share, especially where other family members have already been working in the business prior to ownership being transferred. In this case, a negotiated arrangement consisting of an annual stipend for the non-engaged family member, some form of profit sharing (not necessarily equal), including a generous salary for those working in the business, has been used.

On rare occasions, a family member not working in the business but pursuing a career elsewhere will not expect any form of compensation.

The key consideration for all parties – usually some combination of siblings or siblings and cousins – is to keep family harmony intact and avoid litigation. These two items tend to go hand-in-hand.

A will or family charter

Should the family member planning to work outside the family business expect some form of remuneration, the starting point for the strategy is a statement of the patriarch’s wishes. If the originator of the enterprise clearly stated his or her wishes in the form of a will or family charter, which all family members at the time of its creation agreed to, then this simplifies the process. Everyone understands the consequences of a member’s decision to work in or outside of the family business – hence, the importance of creating such documents, in the event that neither exists, in order to guide future generations.

Some family charters state family values but are unclear as to whether family members not working in the business are entitled to some form of remuneration. In this case, family values ought to be used as a guideline. However, values are “guidelines” and use of a facilitator will be necessary since there is always a degree of negotiation and a corresponding desire to avoid conflict.

If a facilitator is engaged, that person needs to understand and be prepared to deal with family dynamics, hence a psychologist with a deep understanding and appreciation for the interpersonal dynamics of families.

On occasion, a family lawyer, wealth manager or accountant is asked to play the role of facilitator; in these cases, asking a psychologist to co-facilitate the discussion will minimize the likelihood of misunderstanding and appreciate that family dynamics and family history lie beneath the surface and need to be addressed in order to bring about a successful negotiated solution.

In summary

No family wishes to create hostilities, animosity or dissension, particularly when you have such a high-class problem as sustaining and growing a successful family business once the founder steps away. Yet human nature presents us with extraordinary features such as jealousy, fear, greed, resentment and insecurity. Any one of these alone is capable of creating challenges in sorting out even high-class problems.

Fortunately, succession issues are not new, as witnessed by the award-winning TV show Succession. In fact, these kinds of challenges go as far back as Biblical times. You would think by now we would have it all figured out. Yet, as I like to say, if you’ve seen one family business, well, you’ve seen one family business.

Indeed, there is absolutely no cookie-cutter approach to situations where one or more members of a family choose to pursue their happiness outside of the family business. The possibilities are as myriad as there are people and their personal psychologies, combined with family dynamics.

This is not the realm for amateurs to play in. It is most frequently complex and with risks that can have life-changing and lifetime consequences.

Gerald Pulvermacher has been in practice as a licensed psychologist for 50 years. His firm, Gerald Pulvermacher & Associates (GPA), is a global boutique consultancy with highly credentialed practitioners in a variety of disciplines. The firm is best known for its work transitioning leadership in family businesses and family offices to the next generation, supporting the next gen via executive coaching, working through thorny issues so that family members are willing to embrace change, helping the next gen craft and implement their organization strategy, organization redesign (should that be required), change management, development of governance structures and family charters that will stand the test of time. GPA works closely with specialists in insurance, tax, legal and investment but does not offer these services. GPA has worked extensively with families in such sectors as real estate, automobile dealerships, professional services, home care, staffing and energy, as well as related engagements with hospitals, Crown corporations, energy, lottery, long-term care, pipeline, airport, central banks, pension funds, insurance companies, merchant banks and partnerships.

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