Small Business

Dealing with Death in a Family Business


Times of crisis produce very different effects in different families. The only thing a consultant can know for sure is that sensitivity and flexibility are required

I've been working as a family-business consultant full time for the past 13 years. In 2006, three of my clients died, which is more deaths than I've experienced during my entire tenure. With every family I work with, I take steps to prepare their business for a death, setting up succession plans and buyout agreements. But all the planning in the world couldn't have prepared me for how to handle the aftermaths of these three deaths.

Like each family, I was put to the ultimate test following each death. My counsel and wisdom were quickly shown to either work or not work. Until you've lived through a death in a family business, you just don't know what's going to happen. And the effects on the business will vary depending on the way the family deals with the loss: Reactions can range from undergoing temporary shock to falling apart to continuing to function relatively normally.

In one scenario, two of the family's three sons had been locked in a long conflict, causing the business to suffer, and I had been hired to help resolve it. But then the son who wasn't involved in the conflict died.One of the two rival brothers tried to leverage the death to gain an advantage, by suggesting that the actions of his rival brother caused the death and refusing to join hands with his family in mourning. The elderly parents, who still served as leaders of the business, weren't prepared for this, and my work salvaging the business took a major step backward. The whole experience showed me that in a deeply conflicted family, tragedy can drive members further apart instead of bringing them closer together.

An Incomplete Bequest

In the second family, the father and founder of the business died unexpectedly. While the business was prepared for his death, with wills and other arrangements already in place, the family wasn't. And to make matters worse, the founder's spouse enforced certain terms in his will to lash out at the couple's son-in-law, who hadn't worked for the family business because he hadn't gotten along with the founder. But what was in the will wasn't what the founder had ultimately intended. That's because after the son-in-law and the founder had gone their separate ways business-wise, emotions had cooled and their relationship had improved.

Unfortunately, the founder died without having changed his will to reflect his change of heart. As a result, the surviving spouse took action to give the business to her children, who weren't involved in it and didn't live in the state—probably not the best outcome for the business. The experience showed me that even when all the proper succession planning steps are taken, a death can bring out the most unexpected reactions in family members. In fact, their actions can foul up what seem like well-laid plans. The hard-earned lesson is to review estate plans on at least an annual basis or upon each significant life event.

In the third family, the father had sold his family business and collected a sizable payout. This is what I think of as a natural evolution, a sunrise-sunset scenario. He had planned appropriately by transferring assets, obtaining suitable life insurance, and otherwise managing his estate to prevent estate taxes from gutting the business. Sadly, he died shortly after he had completed the sale and was unable to enjoy the fruits of his hard work.

Expecting the Unpredictable

I found myself acting almost as a grief counselor to his widow. It wasn't a role I had filled before but one I fell into because I was considered a source of stability as the family's longtime business consultant.

The reactions of the three families taught me that there's more to the game of family business consulting than I had realized, despite my years of experience. I realized the job isn't just about installing the right procedures and plans. I learned that when clients are vulnerable, a good bedside manner is worth as much or more than an elite B-school MBA. That was my takeaway. Perhaps it seems pretty obvious.

Family members aren't billiard balls you can spin a certain way and consistently expect a certain result. In my consulting engagements from now on, I'll continue to get the processes and policies in place to produce the result that seems appropriate. But I'll also be ready to adapt to the unpredictable needs of the family members during the unexpected tough times.

James Olan Hutcheson is the founder and president of ReGeneration Partners, a consulting group that works exclusively with family-owned and family-managed enterprises. He writes a monthly columnon family business.

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