Choice Points in Family Business

Choice Points in Family Business …
Pivotal times and subtle opportunities for steering the future course of a business and a family

By Cathy S. Sunshine, CMC

March 5, 2004

Presented To The Colorado Family Business Council

“what was I thinking … when I ………………………………”
“I have no choice but to ………………………………”
“How could I have known that it would lead to ………………………………?”
In all these examples where mistaken perceptions of reality were used to guide large companies, there is one big, recurring paradox: what seems obviously false with the benefit of hindsight seemed obviously true at the time.
Why Smart Executives Fail
Sidney Finkelstein
  1. We solve to the wrong problem
  2. We perceive we have fewer choices than we really have
  3. We isolate ourselves, fail to check our assumptions
  4. We fail to understand the consequences of each choice over time
  5. We become urgent – we get hung up by our emotions Enthusiasm, anger, fear, embarrassment, pressured
1. Think of a choice you made in the past year you wish you could take back.
a. What problem were you solving to?
b. What was happening for you at the time?
c. What assumptions did you make?
d. What consequences did the decision have?
2. Think of a decision you are facing now that causes you to be concerned about its outcome.
a. What is the problem you are solving to?
b. Whom might it affect?
c. With whom have you discussed it?
d. What choices do you have?
e. What might the consequences be for each choice?
i. For the family
ii. For the business
What do I mean by choice points?

These are points in time when we make choices, but where these choices leave footprints, have consequences long past the time of the decision.

Sometimes we are surprised and taken off guard. Other times we can prepare.

There are active choices and there are passive choices – choosing not to act and let time take care of the decision.

These are key times where by making one choice over another, by turning left instead of right it puts a chain reaction into motion that charts the course of your family or your business.

They may be minor choices or major choices – like: should he get a promotion? Should she join the company, even though it is her first job? Should we hire a non-family manager? Who should she report to? Should we sell the business? Should he run it?

How do we make the decisions we make?

Are there times when you wished you could take back a decision? When you wish you had done one thing rather than another?

What happens in our minds when we make one choice over another. When, by just making another choice the future of your business … the future of your family … might have been different?

I want to examine with you what happens that influences us to tilt one direction rather than another when we make a decision … a decision that can mean the difference between:

A family staying connected vs. a family alienated
An individual leading the company rather than leaving it
A business kept rather than a business sold
Business success vs. business demise
Today, I will tell a few stories – describe situations where, by making one decision over another, it made a critical difference to the relationships within the family and to the direction of the business.
  1. We perceive we have fewer choices than we really have
  2. We solve to the wrong problem
  3. We fail to look at what might happen over time
  4. We don’t get sufficient input from others
  5. We aren’t aware of how our choice might impact others
  6. We become urgent – get hung up by our emotions: gloom and doom
  1. We solve to the wrong problem. (Instead of examining and clarifying the roles of employees, we fire the non-family manager) a. Focusing on the wrong thing b. Illusions – avoid facing reality
  2. We perceive we have fewer choices than we really have
  3. We isolate ourselves, failing to get sufficient input and failing to scrutinize our assumptions
  4. We fail to look at what might happen over time and the impact on other individuals
  5. We become urgent – get hung up by our emotions: anger, fear, embarrassment, shame, gloom and doom. a. Choices narrow b. Take the path of least resistance, or so we suspect
We think of times of key choices mainly when we consider transitions of all kinds: Death, disability, divorce, illness, Marriage, College graduation Being fired from a job
One. The Case of Adultery
3rd generation family brewery in the Midwest.
Eldest son had been groomed to take over the business for the past 10 years.
He’d come up through the ranks, and though both Dad and Son wanted it to work, there was still some question on Dad’s part and the part of the non-family President whether son had the right skills to run the business long term.
Dad was a pillar in the community. The company had just received public honor for achieving the highest ethical standards in the industry when uproar ensued in the business, surrounding the behavior of the son.
His adulterous behavior became very public. When a former lover discovered to her dismay that he was now sleeping with another woman and made it very public, son went on the offensive and called his managers together to discredit her, thus revealing all his indiscretions. Dad and the non-family President knew they needed to do something.
But what?
What were their choices? This was clearly a pivotal time in the future of the business and in the future of the family.
Son’s actions (not only his indiscretions but the way in which he handled the controversy in the office) proved to Dad and the President that they were right about his immaturity. He just didn’t have the right stuff.
They decided the best thing to do was to just fire him and move on. Thus, they could save face in the community, refocus the management team and find somebody else to take over the business. The answer was clear.
What were the consequences?
Were there any other options?

What is the problem they are solving to?
Quelling the disturbance. Easing the shame and embarrassment. Avoiding potential law suits.

Is this the right problem?
How would we know?

How about solving to the problem of leadership.
What might we do instead?

Two: To Sell or Not To Sell … that is the question (or is it?)
A Lodge in Santa Fe
Father, mother (2nd wife) ran the Lodge. The grandfather had bought it from its founder and it had been handed down to Pam and her family. She had 1 sister, 1 step brother and 1 step sister.
Oldest son. A ranch guy. Eldest daughter, Mo, real estate. Pam, MBA, hotel management, Cheryl – training dogs, nothing to do with the lodge.
Father a pilot during WWII. Called to come back to the ranch because his father wasn’t well and left his career to help out at the lodge.
Everything in the father’s head. Nothing written down. Stewards of the business.
Conference facilities. Grew
Financial people pushed estate planning and succession. Father interviewed and selected a non-family general manager to begin his succession process and help train the son to head up the next generation.
As father was touring the new General Manager, his first day on the job, he dropped dead – in his early 60s.
1 month later, mom finds a letter with his wishes. Son would not run the company. Pam and Mo continue to have a relationship with the lodge but they were not ready to take over.
Get outside people to run it until the wife decided who would take over.
Accountant brings a potential sale to the mother – the mother decides to sell.
What problem is she solving to?
What are the consequences? For the family? For the business?
Are they solving to the right problem?
What assumptions had she made?
Daughters caught her just in the nick of time. Regrouped. Gathered more information. Valued the business. Conducted meetings to evaluate selling by using criteria all the family had agreed to. Sold. Made $20 M more than they would have made. All the family was in agreement.
Three: The case for succession
Small wholesale office supply company in Chicago. The two sons had been basically running the business for over six years. Dad had promised to turn over the leadership of the family business but was not acting on it. The eldest son had managed the marketing and sales of the business and the second had managed all internal affairs.
Dad maintained the corner office but had little to do with the running of the business, though he keeps tight rein on the books. They have lost their patience and are worried that the results of their long, hard years of work will never pay off. They will never be given the business to run, really. It is just talk.
They need to confront the issue and either make him give it up or leave.
What is the end state they want?
To run a business
What is the problem they are solving to?
Recognition and reward for their work and stature in the business.
The focus is on their personal feelings of anger and frustration. Is this the real problem?
Four: The case of the non-family manager
Decided to hire a consultant to evaluate the skills of the non-family president The family vice president doubted his skills – but was this really the issue? Was this the problem to solve to? Or was it really —
  • that the children had lost their role
  • that the non-family president had uncovered secrets
  • that the business was in trouble and nobody wanted to see
Five: The case of the long term marriage
Husband and wife have come into a great deal of wealth through the wife’s side of the family. Husband began a business that, in short order, failed.
What’s the problem they are solving to?
Find a business that husband can win in
Help her gain more control of the money?
Live off the interest and not work
Get a divorce
Make sure every decision goes through her since it was her inheritance