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Don’t Overdose Businesses With Sibling Rivalries

Sibling rivalries can ruin families – and they can also destroy a family business. Consider two recent cases:

#1 You Can’t Hit My Wife
Two brothers have been 50/50 partners in a local restaurant chain for 30 years. Two other brothers had been through the G2 business, and were bought out under difficult circumstances…they just couldn’t all get along! The departing brothers have managed to maintain decent relationships with the remaining brothers.

But the remaining brothers have a love/hate relationship…so much so that a different form of domestic violence has erupted. The younger brother (55) didn’t care for his older brother’s (64) new wife. Without any discussion with his partner, the older brother employed his new wife and her two daughters giving them compensation well over fair market value. That just added some salt to the old wound of the children by his first marriage also working in the restaurants – each in lower level management positions.

The brothers were barley speaking and when they did it was usually in elevated tones. The office environment was extremely tense – full of bickering and insults. One day things erupted and the younger brother pushed or hit (depending on who you ask) his sister-in-law. The older larger brother intervened beating his younger brother (just like when they were kids). Police were summoned and the younger brother who allegedly started the whole thing was carted off in handcuffs.

The family offered to drop the charges, but the prosecutor refused – although he did offer a plea bargain. The accused declined the offer wanting a jury trial for vindication. He was found guilty and sentenced to a year of probation.

Their corporate attorney, realizing that the situation was untenable for all involved, was trying to negotiate a “business divorce.” He had drafted a Letter of Intent whereby the business would be split as evenly as possible between the two brothers. With the help of a collaborative professional team and an outside facilitator, after months of negotiations they closed on the business divorce.

#2 Pick a Side
This second generation contracting company is still making money in spite of the ongoing war between a brother, Mickey, and his sister, Josie. They can’t be in a room together without erupting into a shouting match. The company has two distinct divisions, one commercial and one industrial, that have some synergies, but have very different end users although their direct Construction Manager clients are the same. This sibling team is anything but! Furthermore, if you work for the company you will need to pledge your allegiance to one of the two. And, if you pick incorrectly you will likely not last after the beheading.

The war is fueled by succession issues – who will be the next CEO? Dad is still active and acting CEO, but is 74 and wants out. He has tried everything he can think of to douse the fire – outside consultants, board of directors with outsiders, eliminating voting rights, compensation based on “getting along,” and even a COO peace keeper. Nothing has worked.

Mickey and Josie are each college grads – even went to the same school and lived together off campus. They each got Bachelor of Science degrees in business, but not related to construction or management. Neither has particularly good people skills, nor has done anything to improve their skills. They are each in their 40s and feel that their work experience has provided them with the skill sets they need to be CEO, and neither is willing to take a back seat in any way.

Their differences are more than gender. Both are intelligent and strong-willed, but have an “entitlement attitude” that they act on frequently. Mickey is a micro manager who uses reports, email and his phone for communications; while Josie is a loner (doesn’t need a cell phone), and believes that her subordinates will rise to the challenge without constant oversight. Mickey is sales oriented, Josie is an engineer. They don’t see eye-to-eye about much of anything and neither is very good at their job…so much so that Dad can’t give either of them voting rights to their stock, or officially allow them to head their divisions. All they do is fight, and everyone is drawn into the fray.

About eight years ago, Dad put his stock in an irrevocable trust as part of his estate plan to save taxes with Mickey and Josie the beneficiaries. They will become 50/50 owners. Dad named his oldest son, a physician, as Trustee thereby eliminating the voting rights for Mickey and Josie until he dies. It’s real ugly. The older brother is thinking of resigning as Trustee because “he just doesn’t need it anymore.”

This family has come apart at the seams. Family gatherings are almost nonexistent. Grandparent visitations with their grandchildren are being withheld. Birthday parties for cousins are being boycotted. And the beat goes on…

Finding a Better Way
Established sibling rivalry is almost impossible to unwind. It most likely started in childhood and has continued through adult life. If folks can no longer be civil to each other, then the normal outcome is to part company. Someone needs to leave, or the business needs to be split. But it didn’t need to be that way.

To avoid sibling rivalry families need to establish “best practices.” Naturally, it all begins with good parenting, but that isn’t our place here. Here are some best practices for family businesses that will help minimize sibling rivalry:

  • Hold Regular Family Meetings (at least annually) with an outside facilitator to openly discuss issues.
  • Establish a true Board of Directors, with outside directors, that meets at least quarterly.
  • Design a clearly stated Management and Ownership Succession Plan with exit strategies for seniors.
  • Develop a written Compensation Policy based on Fair Market Value treating family and non-family employees equitably.