Business Services Industry

Case Study: Choosing Between Siblings

Nation's Business, Sept, 1998

They are both capable leaders and have achieved significant success in their own divisions of the company. Their styles are different, however. Pat is more introverted, a planner, and strong on detail and follow-through. Jody is more extroverted and creative and possesses excellent interpersonal skills.

Though they have different personal interests and travel in different circles, they have always been fairly competitive with each other.

Their dad, Malcolm, 59, founder and president of Mayday, wants to address succession issues. The future of ownership is perfectly clear to him. "Ultimately, Jody and Pat will each own 50 percent of the common and voting stock," he says.

When it comes to leadership succession, however, Malcolm is stumped. "Every so often, I consider the notion of co-leadership, and I wonder if it might work. I've done a lot of reading about family-business issues and want to avoid a stalemate, but both of my children are capable leaders. I think they ought to decide for themselves who should run the company."

And, of course, Pat and Jody think Dad ought to be the decision maker. So what is Mayday to do?

Response 1

Take A Test Drive

David Gage, founder and a principal of Business Mediation Associates in Washington, D.C.

A co-leadership arrangement can work, but it can also lead to conflict. Rather than Dad or the children guessing about whether it will work, Pat and Jody should take a road test.

The siblings can engage in a rigorous process directed by a neutral third party, and at the end, either they will have the confidence that they can forge a strong partnership or they'll know that working as co-leaders isn't for them.

The road test consists of creating a "partnership charter." This is a written document that goes well beyond the legal and financial concerns of the usual shareholder or partnership agreement and beyond the obvious issues of decision making, compensation, perks, and resolving impasses. It deals with the sensitive issues, such as bringing in additional partners or family members, measuring and rewarding performance, comparing levels of ambition and commitment, discovering what each brings to the business and takes out of it, and determining what feels fair.

As part of the process, they would examine their personal styles and values to see how these mesh and include what they would be willing to do to enhance their working relationship.

Creating a charter also involves extensive scenario planning. A mediator or trusted adviser gets the siblings to negotiate their way through myriad "what ifs"--for example, what if the company's fortunes nose-dived and capital infusions were required?

If they learn that they can negotiate with each other and complete a charter, they'll deserve their father's--and each other's--trust and confidence. The process of working on a charter removes the guesswork. And if they can do it, they'll have an invaluable map to guide them into the future.

Response 2

Decide As A Group

L. Joseph Comeau III, a partner of Arthur Andersen LLP and leader of the Private Client Services practice in the firm's Boston office.

The decision on leadership succession must be reached jointly by Malcolm and his children. Pat and Jody must be comfortable and confident that co-leadership is a viable option for them.

Before starting the succession discussion, Malcolm needs to set his own goals, determining if and when he would like to retire. This information is crucial to Pat and Jody in setting their own goals. Mayday must also have a clear, strategic business plan, and ultimately that plan and the succession plan must complement each other.

The family must also appreciate the difficulties of co-leadership. It is an equitable and harmonious concept, but it can be very difficult to execute. It requires the following:

Well-defined roles. Pat and Jody should evaluate their strengths and weaknesses to determine the roles in which each is most comfortable and effective. They should also define the roles of nonfamily members who are critical to the business.

Respect for the roles. The family must clearly communicate the roles that siblings have agreed upon to Mayday's other managers and employees. Pat and Jody must respect the roles they have defined and insist that others also respect the roles.

Communication. Each co-leader must be the alter ego of the other. They must have constant communication and share information while respecting each other's decision-making realm.

The family may want to use a third party to facilitate the leadership discussions. This independent party will do reflective listening and keep the discussions on course.

In addition, the family should seek out other companies with co-leaders; they can offer practical advice and help Jody and Pat avoid pitfalls.

This series presents actual family-business dilemmas, commented on by members of the Family Firm Institute and edited by Paul L. Karofsky, executive director of the Northeastern University Center for Family Business in Dedham, Mass. Identities are changed to protect family privacy. The authors' opinions do not necessarily reflect the views of the institute. Copyright c by the Family Firm Institute, Boston. You can comment on this case study on the World Wide Web at www.ffi.org/forums.html.>