Mixing family and money is a very hot topic and one that generates strong feelings - and sometimes "fisticuffs." When a business owner is ready to pass on assets to the next generation they often stress the desire to "be fair." But what about the children that are not in the business? Should these children be getting a share of the company that is equal to those siblings that are "working the business?"
The terms "fair" and "equal" are often used interchangeably. However, the two are not synonymous. Equality means that everything is the same in a given situation. Fairness, on the other hand, implies that just treatment is given to everyone. This can vary depending on a person's needs and contributions.
I recently had a business owner tell me he wanted to treat his three children equally as we were putting together a plan for transitioning his assets. I questioned him if he really meant equal or if instead he meant fair? He stared at me with a puzzled look and then replied, “Yes, in an evenhanded manner.”
We were then able to talk about how to transfer the family business to his two sons who had been working and growing the business for the past 20 years. It was under their dedication and leadership that the business has had tremendous growth during the past two decades. The 3rd son had never shown interest in the business and not put forth any effort to contribute. This discussion became very easy as we simply split the business among the two sons working the business and then split the remaining family asset values evenly among his three children.
For many families this splitting of assets is not so clear cut. Often the only real asset is a family farm or the business and one of the children is a daughter who has chosen the important career path of raising her children and not to be active in the family business. What then?
It is these circumstances that become much more difficult to reconcile. However, I have found that when people see themselves only as a “family business” they struggle with the desire to treat everyone equally - this despite varying contributions to the business. These families tend to focus only on equality as the deciding factor when setting salaries, paying bonuses and when passing assets to the next generation. This is often the situation when I get invited in to assist with family disagreements (or worse…all out family war).
But when people see themselves as a business family, they tend to focus on good governance (including a family charter), sound business principles and reward people based on performance (therefore attempting to reduce nepotism & entitlement). These families usually have an Advisory Board and a family involvement policy in place to help manage the family and have often had family meetings with all family members explaining the difference between being fair and being equal.
These families tend to focus on the qualitative and not simply the quantitative variables. With family, this is the only way to truly achieve balance and hopefully harmony.
So does fair mean equal? Clearly no, but then again, equal does not necessarily mean fair. I believe that it is acceptable and actually healthy for family members to struggle with these issues, so long as they're ultimately reconciled.
Please feel free to contact me if you would like to discuss further.
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