Two's company

Entrepreneur, May, 1997 by Patricia Schiff Estess

ONE FAMILY BUSINESS; two with capable adult children in it. What's a parent to do when the time comes to retire?

That was the problem Marshall Paisner grappled with a few years ago when he thought about succession planning for ScrubaDub, a Boston auto wash chain he started in 1966. "Choosing one child over another is certain to hurt the one who has been passed over," he said to himself and others. "And they're both good at their jobs." Furthermore, he knew his sons, Bob and Dan, would ultimately have to live with the decision.

So he turned the problem over to them. "I told them they had a year to come to a decision they could live with on how to structure the company when I was no longer actively participating," Paisner says. "They had a sum of money to draw on if they needed outside counsel to help them."

"All of us business advisor-types figured Marshall was copping out because he didn't want to get one of his sons angry at him," recalls Paul Karofsky, executive director of Northeastern University's Center for Family Business in Dedham, Massachusetts. "But in the final analysis, his understanding of his children was better than ours. He realized they were going to have to work together, and whatever decision they arrived at they had to 'own.' Indeed, if they couldn't make this decision, how could they be in business together?"

Co-leadership, often scorned as sure-fire failure, has developed a new cachet. In fact, a recent survey conducted by accounting and research firm Arthur Andersen shows that 42 percent of American family businesses are considering it (though a far lesser percentage institute it).

Dan Paisner, the younger Paisner brother, admits he pushed the co-leadership idea. "I didn't think the birthright for leadership automatically belonged to the first-born," he says, "especially since Bob and I were both competent and had operated as a team up until this point." He set out to prove his theory by presenting examples of companies successfully using co-leadership.

"We had always planned on working together as partners," says Bob, "but I have strong feelings about titles. Though [they are] not important to me, I think employees and vendors need to know who the anchors are."

The brothers sloshed through succession discussions. Several meetings were spent making certain they agreed on their vision for the future and the corporate culture and philosophy they wanted to perpetuate. Then they thrashed out the details of how co-leadership would work. Eventually, they agreed. They would have the same compensation and percentage of stock ownership, different tides (Bob is CEO; Dan is president) and responsibilities (Bob's are research and development and operations; Dan's are training, sales and marketing), a method of resolving disputes, a stock redemption agreement, and parameters surrounding their own children's entry into the business.

Bob and Dan Paisner were likely candidates for co-leading the company. They had a history of managing by consensus. But with siblings or cousins who lack that history, says Bonnie Brown, president of family business consulting firm Transition Dynamics Inc. in Eugene, Oregon, "it's essential to try some joint projects before deciding upon co-leadership."

* MOST LIKELY TO SUCCEED

Teams of siblings or cousins "are more synergistic and can look at issues with a broader perspective and a wider range of skills than a single person can," says Brown. Still, the co-leadership option only works if the following are firmly in place:

* Inherent mutual trust and respect. Being family doesn't ensure you like each other or share values. Without these things, though, effective co-leadership can't exist.

* Divided responsibilities. It's not impossible for co-leaders to have overlapping or identical responsibilities, but clarity of roles makes the relationship easier. "We do different things," says Dan Paisner, "but I'm sure we could do each other's job if we had to."

* A board of advisors. "Co-leaders need an additional authority to whom they can go for support, counsel, an ear, and to help dilute emotions," suggests Karofsky.

* A way to resolve conflict. Many co-leaders agree that, unless they have strong objections, they will go along with the other's decisions in their respective areas of responsibility. If strong disagreement exists, the decision is re-evaluated. Suppose, however, even after re-evaluation the co-leaders disagree. A deadlock resolution has to be set up. A small portion of the Paisners' voting stock, for example, is held by a third party - currently, their father - who can break a stalemate. "After me, it will go to a mutually agreed-upon third person," Marshall says. The Paisners took conflict resolution one step further: They set up a stock redemption agreement. If one of the brothers is so unhappy with the decision that he wants out, he can be bought out in a way that will not disrupt the company's financial security.

* A formal structure for communication. "Got a minute?" communication is not good enough when two or more people are running the same ship. "Communication channels need to be formalized," says Karofsky. The leaders need to know that on Monday at 10 a.m. or Wednesday at 3 p.m., they have a meeting - and a commitment to that time that is as firm as a meeting with a customer.