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In-laws, Out-laws and How They Affect a Family Business

Few issues are more difficult to navigate in a family business than the role of in-laws, or out-laws for that matter. In either case, they are relatives by someone else’s choice. Hopefully we all make good choices for partners, but what’s good for you might not be good for others. On the other hand, your choice of a partner could be the saving grace for your family’s business.

During my tenure as a family business consultant I have certainly seen it go both ways.  The challenge becomes to find a level playing field that will work well for both the family and the business.  When it comes to in-laws, finding that field can range from the “field of dreams” to a sinking hole with no boundaries.

Two Extremes
Families tend to take one of two directions with relatives of choice:  either inclusive or exclusive. Some families approach in-laws as being the same as blood – same rights, privileges, opportunities, and perks. Others take an exclusionary approach and deny all “out-laws” any employment, ownership or even input. These families tend to reserve family business opportunities for blood lines only.  Sometimes, these exclusionary families prevent any dilution of ownership in strongly worded legal documents.

Both positions have merit. Neither is right or wrong. The faith that our blood relatives will make good choices and add new strength to the family’s human capital has worked well for many. But sometimes those choices yield very different results, causing the need to discharge the once in-law who is now an out-law, and when that happens the results can be devastating for both the business and the family.

One family I worked with has two in-laws successfully running sister companies … and another family’s founder had to fire his son-in-law, and that couple eventually divorced. Consider what happens when divorce (legal or otherwise) alters the family tree and the business team?

Determining Family
Family trees have become very complicated. Defining family has changed and has impacted the family business. Couples are living together for years or decades, some having children out of wedlock. Sibships, step-sibs, half-siibs can also be challenging.

What if your Mom started the business, divorced your Dad and remarried? Here it is 10 years later, and she wants to give her step-son a good job. He is 7 years your junior, never finished college or held a decent job, but gets entry at a management level. While your family has always been “inclusive,” it was meant to include your blood relatives and their partners, and not the child of your Mother’s second husband with that “other woman.”

At what point in a relationship is a significant other considered family, and whose decision is it? Is the only defining moment marriage, or is a “ring and a date” good enough? Or how about long-term couples who live together, and how long is long enough? Again, no right or wrong here, but these are questions that families should navigate before making decisions about how relatives influence the family business.

Setting Up the Policy
It’s reasonable for the family to know the rules, and it would conform to best practices. Treating the significant other of one very differently than another would yield family conflict. How family members enter the business is a very critical piece of long term success. So, how relatives of choice fit into an Entry Policy is crucial. It is important for long term harmony and success that the family has input in this decision-making process through a series of thoughtful family meetings. Since entry addresses a beginning, it’s a great place to establish some decision-making protocol and authority.

Establishing a small committee of different generations, varied family branches and employment (or non-employment) positions would be a great start. I suggest that those with the “big stick” be left off this small think tank. The task at hand would be to develop an Entry Policy for family. Once the committee has done the hard work of mixing the family values with the business needs, they will present a draft of a policy for broader consideration, editing and eventually approval.  Part of the task will be to define family and the position of non-blood relatives.

First, define family. One way to approach this is to see who fits on the family tree, and as you do that, define why, or why not, some individuals belong on the tree. Then consider what would need to happen for those who have been left off the tree to be included.

The past is a key to the future. Psychologists tell us that family patterns can run five generations deep. While skeptical at first, I have found this to be true in most cases. Your first step, then, should be to explore your family’s history of the acceptance of outsiders. Is your family one that has a history of long successful marriages and a sharing of holidays and lifecycle events? Or, is there more of a pattern of broken relationships, avoiding holidays, and sidestepping family events?

If your family fits the former, then you are probably more toward the inclusive side of the spectrum. If you’re on the latter then your family is more exclusive.

Next, determine whose decision an Entry Policy will be, and how they will decide? Keep in mind that at some point owners will have to empower stakeholders. If that doesn’t happen during life, it does after death. Ultimately, the hire decision will rest with the management team, but giving them some guidelines on how to deal with the family will make the process more professional and less controversial.

Who gets the final say will be another big decision. Will it be the owners by proportional vote, owners by one-person-one vote, or by consensus of the family? How decisions are made is crucial for buy-in and empowerment. Normally those with input during the decision-making process will buy in to the outcome even if they don’t fully agree.

Dissemination
Once a policy has been established it needs to be communicated to all the parties it affects – the stakeholders.  Policies effecting the broad family should be rolled out at a family meeting attended by all who are expected to observe to the policy.  The rollout will give the family an opportunity to discuss the policy and its development.  Keep in mind that the value of this process is multifaceted, but two key points are central: the discussions in the small committee will set a tone for how this family will “do business” with each other, and entry into the business will be defined in a way that will prevent future conflicts that come with a – shall we say – a more flexible impromptu policy.

Policies are living documents and should be altered as things change.  Part of an Entry Policy should be an exception process and an amendment process.  Any exception process should be intentionally burdensome to prevent circumventing the intent, and an amendment process should require the same kind of due diligence as the original policy.

Summary
Developing an Entry Policy for your family enterprise will help avoid future conflict. It will impose existing family values on the opportunities that the family business presents while setting guidelines for family employment. A well drafted Entry Policy will define family including relatives of choice and prevent future struggles over issues that are likely to surface if not clearly delineated beforehand.  Furthermore, by establishing a process to develop an Entry Policy, the family can design a procedure for governance.  As always, professionals trained in family business will add meaningful insights and improved outcomes to your process.

Richard Segal

Rick Segal is the principal at Segal Consulting. He holds an Advanced Certificate in Family Business Advising with a Fellows status from the Family Firm Institute. Rick is the founder of the Family Business Council and its affiliated study group. Reach Rick at [email protected] or by visiting www.segalconsulting.biz

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