“I won’t shoot my uncle.”
“I get it, John – how are you by the way?”
At his second coaching session John Jr. the forty-one year old COO of a family business drew the line. “I won’t shoot my uncle, so don’t bother suggesting it.” His was a large and moderately successful family business with many offices, more than a thousand employees and an enviable North American market presence. The Chairman and CEO of this business was John’s uncle, John Sr., who at 71 showed no signs of relinquishing his role to John Jr. or anybody else for that matter. And why should he you might ask? The business was profitable (barely); it was growing (almost not at all) and; it had new products in the pipeline to build for a brighter future (one long shot and a handful of threadbare retreads). The parenthetical asides were supplied by John Jr. on behalf of Uncle John Sr.’s executive team and a disgruntled majority of shareholders – all family. Disgruntled because they couldn’t exert any significant influence on Uncle John Sr. or the business. You see, once upon a time, when the business was on the threshold of market relevance, it and its shares were enticed into a safe harbor, a tax haven type trust. This vehicle – as the tax specialist explained – sheltered profits, prohibited undue outside interference to the family ownership structure, and set wealth distribution policy once and for all. This is to say that family members received distributions but exerted no legal influence on the trust itself because, by design, the only trustees of this safe haven locked-tighter-than-a-drum trust were Uncle John Sr. and his lawyer. As long as Uncle John Sr. was alive, he could pretty much do what he wanted.
In this second monthly coaching session, John Jr. sits across from me and explains his predicament. He is trim, obviously in good shape, wearing jeans and a starched white shirt, no color, and uses his hands to dramatize the story. He speaks in short sentences. He is articulate and so it only takes ten minutes to get to what he called the big question. “I feel like I need some strategic advice, a game changer, actually.”
“A game changer… that sounds like a tall order.”
“Yeah, I know. In fact, I can’t even imagine what that advice might be.”
“I have a couple of questions first. I hear what you are saying about the trust, but, for example, are you a lawyer?”
“No, God no!”
“So before we talk about strategy, you need to get the hard facts about this safe harbor device, the trust.”
His assignment was to engage his lawyer, not Uncle John Sr.’s lawyer, to do a detailed review of the trust documents and to give him legal advice about what a family member might be able to do if they wanted to push for some change. I explained that he didn’t have to follow any of the lawyer’s advice or commit to any overt act: he just needed to know where he and the other shareholders stood vis a vis the trust. I also suggested he talk to his Uncle about succession. John said he had already tried the succession conversation. Uncle John Sr. told him: “I’ll let you know about succession when I am ready to talk about succession and not one minute sooner.”
At John’s third coaching appointment he took me through what he called “the news”. He talked from a two page memo prepared by his lawyer. He started by telling me it was the most expensive letter he had ever solicited, suggesting, I thought, that he was none to happy about my assignment. “The news is grim,” he said. “And god-damn-it I knew it would be before I unleashed those people!” The trust was pretty much unassailable. Were it breached or altered, a huge tax bill would come due. Then there would be no tax or asset protection and everybody would be angry. “Further,” John Jr. continued, “My Uncle is the man in charge until he isn’t. That is to say, unless he wants to step down and pass the trusteeship to another person, or he dies – heaven forbid – or he was judged incompetent: he is the only person in charge – full stop. That’s it, I’m screwed, oh and one other thing. I was feeling a little desperate so I asked him again about succession and he basically threw me out of his office. He just flipped and went off on me! He’s not going to talk about succession with me any time soon!”
“So now we know something.”
“Yeah, thanks for that, we certainly do, I do, I’m screwed, and finding out was really expensive, that’s what I know.”
“Perhaps, but we don’t need to count you out yet.”
“What do you mean?”
“I mean you know a lot more than when we first met: you have the facts. We know a lot more about the situation as it stands now. This gives us something to work with.”
“Well how about what would happen if you went out and got another job?”
“Oh come on! That’s nuts! The whole damn family is counting on me, I’m counting on me, I can’t leave now!”
“Well, perhaps that’s true, but at some level I wonder what your uncle would do if he thought you were going to leave?”
“He’d fire me on the spot.”
“And then you would have to go out and get another job.”
“Well, yes, maybe, I mean we have some money.”
“Okay, let’s try another scenario, what if you approach the family members and see if they will back you to bring pressure on your Uncle, family pressure, personal pressure!”
“He wouldn’t care.”
“I’ll bet that isn’t true. I don’t know what he might do, but I would bet he does care what the family thinks and says, especially about him. Why don’t you talk to each of your family members, separately, and ask them what they really think about the trust and Uncle John Sr. Tell them you are just trying to get a sense of the family attitude, to poll their feelings about the business and so on. They might appreciate the attention too. I’m guessing Uncle John Sr. doesn’t talk to them much.”
“That’s an understatement!”
At our next session John Jr. looked like he might be ill. Oh, the white shirt was starched and pressed, the tailored jeans were creased and his loafers were shined, but he slouched like a much older man, a dispirited older man.
He sighed, turning hollow eyes on me, sighed then said, “I hardly know where to start. It’s a lot worse than I thought.” With that, John Jr. told of meeting with each family member. He named each one, placed them on the family tree with their shareholding percentage and gave a brief summary of their views about the business and Uncle John Sr. There were twelve on his list, all of whom but one were either upset or very upset with Uncle John Sr.’s, as one family member put it, vice like grip on their business.
“So at least you have some allies.”
“Well, I am not sure they are my allies. A couple of them want me to lead a coup d’etat. None actually said it, but you could feel it. They want me to shoot him… sorry not really shoot, but you know, take him out of the picture.”
“And you, after hearing this, what do you think?”
“I am not going to shoot my uncle!”
“No matter what?”
“No matter what!”
“What if your disgruntled family members want to shoot you?”
“Let them, I’m not going to shoot my uncle.”
It was as if John Jr. had taken the oath before coming to my office that day. “I promise to tell the truth, the whole truth and nothing but the truth.” He had taken the oath, refreshed his resolve before sitting down across from me, pulling a yellow legal pad from a canvass back pack, a disposable fountain pen, uncapped the pen, assumed the writing position and sat, pen at the ready, poised to work, to take notes and more than anything, to tell the truth. I watched him, his expression, as he talked. And here he was saying “this man is my uncle, I owe this man, the family owes this man, and I won’t try to bring him down, not even in the face of a family uprising, especially not in the face of a family uprising. I won’t shoot my uncle!” It was a big moment. It was an even bigger anchor. John Jr. had discovered what was right and what was wrong for him in the situation, and John Jr. was going to do what he thought was right, no matter what.
His eyes weren’t young any more. Early traces of wrinkles etched there. His closely cropped hair wasn’t black any more: random gray hairs softened and aged him. More wrinkles around his mouth were showing too, more when he was serious but you could also see them even when he smiled. It was this aging John Jr., the number two executive of the family enterprise who diligently came to coaching sessions for the next three years. During that time, the family was in open rebellion, one of John Jr.’s sisters and her husband filed suit against Uncle John Sr., the lawyer who drew up and administered the trust, and just for good measure, John Jr. for aiding and abetting the plot to deprive the family of its birthright. Birthright, well not quite. Yes family members had been born into the family, and family members did hold shares, but the company broken up into shares wasn’t worth much compared to the value of an ongoing business, even an old anguishing business. But the ultimate outcome was cemented by the signed documents enshrining the trust, its rules and restrictions, all of the documents signed by each shareholder, initialed on each page and then certified and witnessed. In the end, it wasn’t even a fight – it was a legal rout. Even though John Jr.’s sister and her husband persisted, it was clearly a pressure move, not a real threat. After three years of way to. much time spent defending the suit, the result was only to confirm that the Trust as a legal entity was cast in stone, and the management of the trust was unequivocally confirmed. Of course while all this was going on, John J.r and I talked plenty about the trust but our main focus was on his job and running the business, managing up to Uncle John Sr., and managing down to the business and its employees. Given his position, he worked out what he could do and what he couldn’t do, what he would do and what he wouldn’t do. For those three years, handcuffed as he was, he did his best.
If you read at all about businesses, you might assume that even large businesses are fragile, brittle, and must be carefully attended for otherwise they will stumble and die. And yes, it is true, businesses do die, but they rarely die all at once, or suddenly. This business generated hundreds of millions in sales, and although it had lost much of its creative and strategic energy, during the three years after John Jr.’s admission, he found plenty of ways to improve the business and to avoid seriously damaging his relationship with Uncle John Sr. So although the business did not grow its sales, or significantly increase its market share or even its geographic footprint or change its products much, it continued to make a decent return, pile up retained earnings and while getting stodgier, almost humdrum, when measured in balance sheet terms, it was a rock, a great granite monument to the family. And after three years John Jr. was wondering whether this large granite edifice could be a foundation for something good in the future of if it was to be his (figurative) tombstone.
“What if it were a tombstone? What is the worst thing that could happen if you continue to do nothing regarding Uncle John Sr. and his grip on the business?”
“I’ve given it a lot of thought. Although I would be the least popular person in the family, I don’t see any way around forcibly removing him, and I won’t do that.”
“And at some point I’m sure he will have to lose his grip.”
“What if it came too late?”
“You know, there is no such thing as too late in this scenario. Oh sure, I could make it bigger, more innovative and so on, but so what? This company is plenty big to spin off of some money for all of the shareholders even in decline. One of the other good things about the trust is the trustees can’t kill the company, they can’t raid the company and so we’ll all be left with something if it begins to falter.”
“Your family thinks what they see as a series of lost opportunities is a sure indication that the business is in a death spiral.”
“Well that’s a convenient idea for them, but what do they really know about running a business? I’ve lived in this god damn thing for twelve years, it’s just not that simple! Yes, we could have been more innovative, taken bigger risks and ended up racking up some big losses, that happens you know! Instead we do what we are good at and we repeat and repeat and it builds our balance sheet. Not all bad. And it makes for pretty amazing dividend checks for everyone, including the not so loyal opposition.”
“How about you, what’s it like for you to do your job in this environment?”
“Part of me is busy as hell. We employ a lot of people and have a ton of different products we sell. Part of me feels underused, yes, and there are times I itch to move into new products or to make acquisitions. But the biggest thing is I am there to run the business for the whole family. No one else stood up or was willing to put in the years working at the business. I was the only one, and no matter how angry they may be, they will be greatly enriched by my effort. I’m proud of that!”
And so it went. The business did shrink about 20 percent during the 2008 recession, but it remained profitable quarter after quarter even while weathering the second great economic meltdown of the last hundred years. Uncle John Sr. did grant John Jr. greater authority to bolster and maintain existing operations. Uncle John Sr. was now 73 and, according to John Jr., he was showing his age. The recession had taken a big toll on the older man. He was traumatized seeing the banking and investment system in the United States on the brink of collapse and although he wondered aloud what had happened to the country he had known virtually all of his business life, he no longer acted like he had an optimistic answer. It was as if the recession was a kind of betrayal, happening at a time in his life when he was least able to deal with such a catastrophe.
During a coaching session John Jr. told me that Uncle John Sr.’s wife, ten years his junior, was agitating at home for a change. She wanted Uncle John Sr. to retire while they still had time to travel and see the world. She also wanted him to spend time with their three children, one of whom was John Jr.’s mother. She told him that he had gotten everything there was to get from the business, but he had little to show for being a father, a grandfather, or for that matter, a husband.
“That sounds like pretty serious talk.”
“Yea, that’s what my mother said too, she says it’s serious.”
That was it. Surprisingly, stars shifted and aligned in a surprising, some would have said, an impossible pattern. Uncle John Sr. went to the Mayo Clinic for the full-on executive physical he’d been resisting for years. His results included onset type 2 diabetes, high blood pressure, off the charts cholesterol, high levels of arterial plaque, and plenty of previously unreported aches and pains. The clinic is in Scottsdale Az. His wife traveled with him so there was no chance of suppressing or glossing over the clinic’s excellent and thorough diagnostic summary. After his two day physical they left the clinic and checked into The Boulders, an upscale spa just north of Phoenix. She had arranged this amendment in the sun, anticipating what she would later call – the showdown. She confronted him about the results and insisted that they collaborate on next steps, meaning: what steps are you going to take to avoid dying prematurely, being divorced and left on your own? Although collaboration wasn’t Uncle John Sr.’s long suit, apparently, at the boulders, he became a fast learner.
John Jr.’s next coaching session was about change. Working with several pages of handwritten notes in the omnipresent legal pad, he launched into his manifesto; orating, lots of gesticulation. John Jr. was the newly minted CEO and he was on fire! He also had been named Chairman and administrator of the family trust by Uncle John Sr. and his lawyer. The baton had finally passed.
Afterward: Uncle John Sr. is fully retired. Under the supervision of his wife, he is practicing at being a father, grandfather, and husband (and painter and golfer and ardent traveler). John Jr. is running the company. He amended the Trust agreement to expand the number of trustees, inviting three family members, a lawyer and a senior executive from their accounting firm. He initiated a comprehensive leadership development program for his key executive team and a more general developmental program for the next generation of leaders in the business. He intends to drive a succession initiative into virtually every leadership job in the company. The family owners are mostly still prickly, but less combative. One of John Jr.’s strategic initiatives is to give them more voice as owners without “turning over the institution to the inmates”. Another initiative is to reshape the business to create and maintain a balance of sustainability and growth, a whole new field of exploration for the company as it morphs into its new, post Uncle John Sr. future.
NOTE: I know for some of you, reading this story is frustrating. Were we talking about chess pieces or avatars in a video game, we all know what we would do in this situation… Bang! It happens often that a family business reaches a certain point where someone in the family suggests that the patriarch or matriarch must go, be moved out, figuratively shot. Usually, executives come to work with me because they are experiencing such difficulty. So I have watched cases where the matriarch or patriarch was forcibly moved out but also many more where the Uncle John Sr.’s scenario played out. When change was abrupt and forced, usually involving nasty legal action, the business sometimes benefits, but in every case, whatever family there was before the shooting is not just lost, it is destroyed, worse, the family is poisoned essentially forever. Even if the business is greatly improved by the change, the family is shattered, often across generations. When John Jr. said he wouldn’t shoot his uncle, he was saying I will not destroy my family, business or no business. As a business person yourself, this may be hard to take, but as a family member you might understand. And as a family member of a family business, well you probably could have written this story yourself.
One last thought. I believe that family business is a tremendous societal resource, and has an unjustly negative reputation – especially among business leaders, teachers, and consultants who don’t work with family businesses. The complexities of family spilling into business is not materially different than a proxy fight, or management civil war in a non-family business. There are many, many successful businesses owned privately by families that contribute considerable heft and wellbeing to our societies and economies. The idea that we can do business without human complexity is to misunderstand business. In the case of family business, it just happens to include the complexity of family, a gathering of people who, in a way, know too much about each other, and in another way, understand too little about each other…. in other words, they are all human, all family, and just happen to be joined in a business.