Your sons and daughters' choices of life partners could have a more profound impact on your succession plan than all the accountants, tax experts, financial advisers, and attorneys you can assemble. Your new in-laws can contribute mightily to your family's fortunes, or triple the risk for your whole family's enterprise.

Unfortunately, even the most controlling business parents cannot predict which 22-year-old beauty their brightest son will bring home to meet the family. Will it be Jessica, with her Chicago MBA, or Jessie, with her penchant for sky-diving and gambling boats? Will the young man who lights up your daughter's eyes and your phone bill—the scruffy guitar player with the earring—mature into a marriage partner you could welcome to the company table?

You know that arranged marriages don't work, but what does? In spite of all the technological advances we enjoy, we remain in the dark ages about the chemistry of love. How will your successors choose their mates, and how will their marriages impact the family firm? How can a business capitalize on the new partners who join your family through marriage? Are there any reliable signs to tell whether your son or daughter's marriage is likely to endure?

The 5:1 ratio

Psychologist John Gottman summoned the courage to spend 20 years of his professional life videotaping the interactions of 2,000 married couples over two decades. He and his associates assessed thousands of bits of communication—words, gestures, silences, behaviors—and categorized them as either positive or negative. In his book, Why Marriages Succeed or Fail...and How You Can Make Yours Last (Simon & Schuster, 1994), Gottman wrote that he can predict, with 94 percent accuracy, which couples will stay married and which will divorce—very helpful information for family business owners developing succession plans.

Regardless of the emotional style of the couple, whether volatile or withdrawn, Gottman found that the couples who stayed together had an average of five positive interactions for every negative interaction.

The “positive interactions” took many forms: a hug, a smile, a thank-you. The nature of their negative interactions were also significant. These were couples who could disagree, get angry, and even fight without being overwhelmed by negatives. They were not automatons but self-differentiated persons who could vigorously disagree but still return to positive ground.

What, if anything, can you and your spouse do to implement the 5:1 ratio in the next generation long before your son buys the engagement ring?

It's scary, but your successors have already learned a great deal about choosing marital partners from you and your spouse, even if they currently declare they will never do things the way you did them. In much the same way, you learned from your parents—positively or negatively—what kind of marriage you wanted or didn't want.

When you walk into a home you can feel the warmth or the hostility, the gorillas or the icebergs, looming between husband and wife. The emotional fiber of the relationships that surrounds each child becomes the oxygen of life, as normal as breathing.

People who come from families with a tradition of loving, stable relationships have better odds of building another one themselves. The daughter raised in such an environment may become enamored with the “best–looking guy on the planet,” but if he turns out to be mostly iceberg or gorilla, she'll know the difference. Her own uneasiness will tell her, eventually, that this relationship is not “normal” according to the template of her own experience. If you have helped her to identify what really matters in a marriage, your new son-in-law may be quite trustworthy, despite the earring.

Few among us had parents who were perfect models. Sometimes we feel their presence in our bones, and hear their echoes inside our heads, long after the lights are turned out. Dysfunctional feelings and attitudes from our parents' generation can intrude into the most intimate moments of a marriage: “You can never really trust a man,” or, “No man can ever understand a woman, so don't even try.”

Some marriage experts believe there may be at least four other people in bed with you and your spouse. Both sets of parents have affected the fundamental attitudes you have both developed toward self, toward the opposite sex, toward married love, toward when it's safe to share your intimate feelings, and toward resolving conflict.

If you can appreciate how early primary relationships influenced you, you may understand more clearly how the next generation may also unconsciously continue to replicate the marriages—or divorces—they grew up with. If you want your successors to build strong, loving marriages, you may want to dust off your own best relationship-building skills, so they can see how it's done. How about complimenting your wife—based on the facts, just the facts—at least once a day? Or turning down a golf date because it is her birthday and you had promised to spend the day with her? Or letting your son know that you won't make a major decision affecting the family without talking it over with mom first?

Healthy individuality

At least half the parents of the children who will inherit your generation-skipping trust will come from families with different attitudes toward work and money, and different expectations of their children. Healthy individuality in the next generation is good news for the family firm. You really don't want clones of mom and dad succeeding you, but individuals who can make their own decisions. Especially around the choice of a spouse, autonomy has its value.

If your beloved Benjamin or Amanda can attract a partner who has reached a similar level of psychological independence or “self-differentiation” from his or her own family, the new couple can choose to sustain the best practices from both families of origin. Their new marriage will then have a chemistry all its own, unlike any ever seen before, and each partner will be encouraged to develop his or her unique gifts.

One of the more delightful experiences I have had in working with families in business is meeting the young men and women who have married into the successor generation. Despite some initial concern from parents about bringing them into the family forum (where family members learn fundamental information about the business and help develop policies about the family's future participation), my experience is that these new family members bring fresh energy to the table, and even some great business savvy.

As family firms develop global markets, and their own daughters and sons go to school in Luxembourg rather than Lexington, the odds also increase that your family will learn most about diversity through the newly married members of its own next generation.

Although conventional wisdom indicates that couples with similar backgrounds certainly have fewer obstacles to overcome, differences that can be managed successfully can become an asset in the new global business economy. The fundamental design of the human family is strengthened precisely because of its capacity to integrate new ingredients—new personalities, new DNA, and even new recipes.

Even if your new daughter-in-law comes from the “wrong neighborhood” or serves foods you can't pronounce, she may still develop a remarkable synergy with her new family, especially if she is included as a valued contributor. If the marriage lasts, it will be partly because your son has discerned in her some qualities that are similar to yours, or his grandfather's. She was already “familiar” in the original sense of that word.

You can't control your son or daughter's choice of a spouse. But you can control how these young, bright, independent-thinking in-laws are educated about the business. It's better to have them working with you to support the family enterprise than to leave them out in the cold. They are entitled to receive correct information from someone besides their spouse, so they get “the big picture” about the company's long-range strategies. Otherwise, they may be tempted to gossip or manipulate behind the scenes to learn whether they or their children have a future in the company. Even if they never work a day inside the company, they can often offer practical ideas from their own experience or add the perspective of consumers and parents of the next generation. Over the years, they may even learn to articulate the core values of your family better than you can.

Ellen Frankenberg is a family psychologist who consults with families in business. She welcomes feedback on this column at bizfamily1@aol.com.

Marriage aids

Good marriages by your sons and daughters can enrich both the family and the business. A few things you can do to help support and sustain them:

 

• Identify and reject negative influences about marriage inherited from previous generations.

   

• Celebrate the individuality that emerges within your own family.

   

• Express positive stuff at least five times more often than negative stuff.

   

• Educate newcomers about the potential of the business, and respect the contributions they can make.

   

• Enjoy your grandchildren, knowing you can influence them but not control them.

-- E.F.

Few topics generate more interest among family business owners—and more heat—than how in-laws should be treated. At the risk of sounding like a fence-straddling social scientist, I’m afraid the answer to most questions about in-laws is, “It depends...”

At worst, in-laws are meddlesome, divisive, suspicious, and interested in only entitlements. At best, in the view of many business owners, they mind their own business and don’t do anything to embarrass the family.

When talking with business owners and their spouses, I am always struck by how quick they are to blame the in-laws for being unable to get along with the family, while ignoring their own contribution to strains in the relationship. In many families, the in-laws are simply a mirror for the unspoken tensions and concerns of the business family. What the business family often sees in the mirror are mere reflections of their family dynamics.

Take the case of two brothers who have worked together in a family company for many years. They have a long-standing rivalry, but have managed to keep it under control in order to avoid disrupting the operation of a successful company. But one day they have a nasty argument over a business issue and both go home fuming. Each can’t wait to tell his wife about the selfish and conniving behavior of the other brother.

By the next day, however, the brothers have usually forgotten their pique. They return to the office, make amends, and go back to work as if nothing happened. The trouble is that they neglect to tell their spouses. So the next time there is a family get-together, no one can understand why those disagreeable daughters-in-law “just can’t get along.”

Rivalries within a business family often get “displaced” onto in-laws in this manner. By letting their spouses do the fighting for them, the brothers, in effect, carry on their rivalry while maintaining the stance of innocent bystanders. This process enables them to avoid arguments and preserve their relationship at the office. They are probably completely unaware that they are doing it.

Communication between owner-managers and their spouses about developments at the office is often imperfect. Even when the business participants talk about disagreements, they may not tell the whole story and the spouse often overreacts. Naturally, in such cases, it doesn’t take long for the in-laws to become emotional baggage-carriers for the family.

The fact is that in-laws are different. They have grown up in other families that may have had quite different values and perspectives. What many business families don’t appreciate is that precisely this difference often enables in-laws to add value to the family and the company.

As outsiders, in-laws are quick to perceive the hidden side of family relations and its impact on the business. For instance, one very smart daughter-in-law who has an MBA from a top-notch school described to me her frustration at not being able to get the point across to her husband’s family:

“For years I’ve been telling my husband and his family that they needed to revitalize their textile business,” she recalled. “I even suggested that they sell it off and start anew in a growing industry in which foreign competition wouldn’t be as stiff. However, in my husband’s family, the textile business was a sacred cow that embodied my father-in-law’s dedication and hard work. I quickly learned that it was heretical to question the viability of the business.

“In the end,” she added, “they went into bankruptcy, and I was left feeling like Cassandra, condemned for seeing the future and invariably ignored. Worse still, I felt that my children’s inheritance had been squandered and that I had not been able to prevent it.”

Like this woman, in-laws are often the messengers who get shot for saying what the blood family feels but dares not say. Their perspectives on family or business matters, even when accurate, are either ignored or dismissed as motivated by envy of the family’s power and privilege.

In one business family, the son-in-law was ostracized for questioning the competence of the successor, who was the founder’s oldest son. In fact, the son’s inadequacies were apparent to almost everyone but the father and threatened to sink the enterprise. But the founder continued to dismiss the son-in-law’s substantive criticisms as simply reflecting a rivalry with his son.

In my consulting practice, I often work with exceptionally able sons-in-law and daughters-in-law, some of whom have proven to be more competent than the business owners’ own children and have taken charge of the company. Of course, generalizations are risky and the extent to which in-laws, as outsiders, are able to offer new and constructive perspectives will vary. When their viewpoints are self-serving or destructive, their input probably deserves to be ignored. Too often, however, in-laws are shunted aside as intruders whose opinions simply don’t count.

The consequences of ignoring or mistreating in-laws can be especially serious in family companies that are, or will be, owned and managed by siblings and cousins. In these usually later-generation businesses, cooperation between partners is a fundamental requirement for success. The possibilities of divisive rivalries and jealousies are multiplied by the number of families involved. For better or worse, spouses will have a great deal of influence on the whether the partners can forge collaborative work and shareholder relationships. They can play a positive role by supporting collaboration or a negative role by aggravating conflicts.

But how can in-laws strengthen collaboration in the business if they have not been invited to share the family’s values and aspirations? How can they play a constructive role if they are treated as meddling “outlaws?” Just as important, how can they teach the next generation about the family’s values if they themselves have not learned what those values are?

The best way to enlist the loyalty and support of in-laws is not to think of them as “in-laws.” Business families do a better job of managing the relationship when they treat in-laws as full-fledged family members whose opinions and attitudes are valued. In these families, in-laws are encouraged to participate in family discussions and meetings. Through involvement in the family council they can learn to appreciate the family’s values and traditions. They hear first-hand about ownership issues that are likely to affect their children’s future, rather than having their spouses interpret for them what the family is thinking and planning.

There is always an element of luck in whom one’s children end up marrying. Whomever the children choose, however, the business family must do its part to ensure harmony in the relationship. The truth is that most families get the in-laws they deserve. If they hold up their end of the relationship, accepting their share of responsibility for whatever tensions arise instead of blaming in-laws for their own emotional entanglements, they will surely have fewer in-law “problems.” They may even see themselves more clearly in the mirror.

Ivan Lansberg, an organizational psychologist in New Haven, CT, works with many family businesses in the U.S. and abroad.

Even Shakespeare warned against it. “Neither a borrower nor lender be. For loan oft loses both itselfand friend,” Polonius advises his son in Hamlet. Somehow, though, one suspects the bard neverhad a son or daughter who needed cash to start a small business or go back to graduate school or makea down payment on a first home.

Many people agree that loaning money to those close to you can lead to trouble. At the same time,family members loan each other money all the time, and owners of businesses probably do it more oftenthan most people because they have the money to do so. What are these lenders risking, besidesmoney?

“The danger is that it creates opportunities for family conflict and disappointment, and familybusinesses usually do all they can to avoid any kind of conflict,” says John Ward, professor ofprivate enterprise at Loyola University-Chicago and an advisor to family businesses. Ward says thattoo often loans to family members become “tests of personal responsibility,” rather than simplefinancial transactions. Terms and expectations are left unclear, leaving both sides vulnerable tofeelings of unfairness or betrayal. And, in many cases, loans are never repaid in full, leaving badfeelings on both sides.

On the one hand, parents who loan money to children have been known to try to unfairly to influencethe recipient's personal decisions, such as where to live and what kind of career to go into, whilethe money is still outstanding. On the other hand, borrowers who haven't thought clearly about payingback the loan have been known to get quite defensive when asked about starting a repaymentschedule.

Judy Barber, a family business consultant in Napa, California, talks about the pressures on bothparent and adult borrower from such a loan. “What it can do, unless both people are relating to eachother in an adult way, is reel that young person back into the parent-child relationship,” Barbersays. “Part of that has to do with payment of the loan, and part of it has do with whether the parentsthink the child is spending the money in a way that is beneficial.”

If you are considering loaning money to a child, a brother, or other relatives, you should askyourself a number of important questions first. You have to examine how the borrowers will use themoney, whether the money will really help them, what your expectations of repayment are, and whetherthey are capable of meeting the terms.

THE PAYBACK FROM FAMILY LOANS

Bruce McGrath has seven children and has loaned money to all of them. As president of the McGrathAutomotive Group in Cedar Rapids, Iowa, he also has one son and two sons-in-law working for him. ForMcGrath, deciding to loan money to his kids hasn't been nearly as difficult as deciding not to loanmoney to them.

“Sometimes the worst thing you can do is give them the money,” says McGrath. “The best thing is tosay, ‘Not now—this is something you need to do on your own.'” This is especially true with a familymember who requests money for personal needs, such as a football gambling debt or to keep up thepayments on an expensive car.

Still, McGrath is a willing lender of first resort for his children, and he likes it that way. “Wedon't make any secret of the fact that we've lent money to the kids. And we'll do it again and behappy to do it,” he says. Like many family business owners, McGrath enjoys being able to help hischildren out when they need him, even if it occasionally means he might not see the money again anytime soon. McGrath is willing to loan money to his children if it will strengthen the familyrelationship and help build self-esteem by giving them something worthwhile to strive for. But if themoney is just a bailout, he's less likely to help, fearing that family relationships might onlydeteriorate as a result.

Obviously, when banks decide whether to make a loan, they don't consider the benefits to therecipient's character development and self-esteem. They make a careful calculation, based on theborrower's credit rating, of the risks of default. For personal loans within a family, a good loan isone that is likely to end in full repayment without rancor. Many more personal considerations enterinto the decision.

For the child who is seeking a down payment on a home and has a steady job and a young family, thedownside risk is low. Same for the son or daughter who wants to go to graduate school and has alwaysbeen a good student.

Things get more complicated when the request comes from the daughter who is struggling to get settledand wants money to buy a $25,000 sports car. Or a son who has reached his limit on six differentcredit cards and wants you to help keep the wolves from the door. Or when your brother asks for somemoney to tide him over during his second month of unemployment, even while you know he's hardly donea thing to find a new job.

If a family member who seeks a loan to start a business has shown little affinity for the rigors ofentrepreneurship, and even less horse sense, then it may be a good idea to say no—even if it rufflessome feathers. Better yet, advise the person on how to write a business plan or introduce him or herto someone who can help with startup planning.

Kenneth Kaye, a Chicago psychologist who works with family businesses, counsels realisticexpectations. “Don't go into a business relationship with a family member expecting to change theother person,” says Kaye. In fact, he adds, “Expect that the most difficult thing about that person isonly going to be exacerbated.”

Requests for money to start or expand business ventures are easier to evaluate in objective terms, andprovide a look at the factors that should be in place if any loan is to be a successful transactionfor both sides.

John A. Fusco, president of Gaeta Imports Inc., remembers four years ago when his bank was mergingwith a larger out-of-state bank and started calling in lots of business loans around his Babylon, NewYork, headquarters. Gaeta was asked to pay a six-figure loan in full, even though his business wasprofitable and making its payments faithfully. The problem was that the company didn't have that kindof cash on hand. So Gaeta went to his parents, who were happy to help. “If I didn't have my familyavailable to me, it would have put me out of business,” says Gaeta, who runs the family business withhis sister, Deborah.

The loan started off as interest-only for the first year and was paid off completely at the end of thesecond year, Gaeta says, adding, “The bank lost out in the end.”

Rob Field, a financial planner from Palatine, Illinois, remembers his father loaning him a smallamount of money when he left a CPA firm to start his own financial planning business. It enabled himto buy office furniture and other basic necessities. “He wanted to see his son succeed and believedthat I had the ability to do that and pay him back,” says Field, noting, “I'm sure it would have beenimpossible to get the money from a bank.” Within a few months, Field had paid his father back.

Although both of these loans were handled rather informally, with no set repayment schedule, theyworked because each borrower brought tangible assets and skills to the table. Gaeta had a growingbusiness that he was committed to, and Field brought several years of experience and modest startupcosts.

If you're asked to lend a significant amount to a startup or existing business, try to be a bithard-nosed in evaluating the request. Ken Kaye says he wouldn't advise lending to family membersunless they can get a traditional lender to kick in money as well. “If the person can get outsidecapital and then has family members who want to get in, I don't have a problem with that,” says Kaye.“The problem is when they turn to a relative when no one else will finance them.”

Expect to see a business plan from the borrower and ask good questions about it. And if you make aloan to a family member, avoid any temptation to do it through the family business. It's best to makeit a personal loan with your own funds, says John Ward, although he suspects quite a few familybusinesses have also been used as family banks. “I don't like the idea of lending money from thebusiness,” says Ward. “My major caveat is the symbolism of it and the way it blurs the lines betweenfamily and ownership. It creates a precedent of using company money for personal needs.”

LOAN OR GIFT?

If you end up deciding you do want to provide money to a family member, there are some practicalmatters to consider, including important tax and estate planning issues. These considerations willvary depending on whether you actually make a loan or decide to make a gift instead.

“If there's a 50 percent chance that the person is not going to pay it back, set it up as a gift not aloan, because the lender is setting himself up for disappointment,” says Judy Barber, the familybusiness consultant in Napa. The fact is that many family business loans don't get paid back. Newbusiness ventures fail or relatives whose lives have never quite gotten on track remain derailed, evenafter your money is spent. Knowing this risk, you may still be willing to help a child or other familymember. There's a lot less likelihood for tension if you just give them the money. You might tell themthat if they ever have the opportunity in the future, they can make it up to you. By removing thepretense of anticipating timely repayment, you make the transaction clearer and less burdensome. Ifyou're not willing to give the money to a high-risk family member, you probably shouldn't lend it tohim or her either.

From the standpoint of good estate planning, a gift makes more sense than a loan. A husband and wifecan give up to $40,000 per year tax-free to a child and spouse. If you have considerable assets (morethan $600,000, including life insurance), and know that such estate strategies will be necessary,consider making a gift when a child asks you for money. You can always take the gift intoconsideration when you decided how to divide up your estate among your heirs. But in the meantime, youhelp a family member in need and, perhaps, earn some gratitude.

There are some other tax questions surrounding a loan or gift to a family member as well. Until 1984,you could give a no-interest loan to a child without tax consequences. A U.S. Supreme Court decisionin Dickman v. Commissioner of the Internal Revenue Service held that when no interest wascharged on a loan between family members, the IRS had a right to collect gift tax on the amount ofinterest that should have been charged. The decision threw cold water on the tax dodge of loaninglarge amounts of money to family members in lower tax brackets, who could then turn around and investit.

Now the IRS requires you to use a federally set, variable rate of interest (your accountant canprovide this), or have the difference be considered a gift. If the total gift for a year is stillunder $10,000 no tax will be owed by the family member. But any interest forgiveness must now befactored into your tax picture, since the IRS could anticipate that you are owed interest income andrequire you to pay taxes on it.

“It's great to be a good guy with an interest-free or low-interest loan, but you have to consider theconsequences,” says Mark Kozol, director of tax at Kennedy & Lehan in Quincy, Massachusetts. Don'thesitate to consult with your accountant or tax planner when confronted with these decisions.

Paying for education or health care remains the most favorable way to give money to children orgrandchildren. You can provide any amount of money for education or medical care without taxes. And ifyou loan money for education, without interest, there will be no gift problem so long as therecipients don't have significant investment income flowing to them while in school.

WHEN TO PUT IT IN WRITING

While some experts favor some sort of note or formal agreement even for intra-family loans, othersargue that not all loans need to be put in writing. While Bruce McGrath generally does like to have adocument of some sort, he won't bother with “for the $400 for the car that broke,” when he expects toget repaid within a few weeks. Such short-term, personal loans among family members probably don'trequire much formality, as long as you know the borrower to be trustworthy. If not, and you want themoney back, even a small loan should be written down.

A written agreement can protect both borrowers and lenders. Judy Barber recalls a couple who lentmoney to their daughter to finish graduate school. In their agreement, the daughter was to startpaying back the loan one year after graduation. “Then, four months before graduation, the parentscalled and told the daughter money was tight and they'd like her to start paying now,” Barber recalls.The daughter, who couldn't afford to start the payments, was able to point to the terms of herpromissory note and her parents looked elsewhere for some cash.

Another couple borrowed $8,000 from the wife's mother to use as down payment on a house, with nowritten agreement or repayment schedule. The mother referred to it as her “retirement money.” But whenthe mother's business turned sour four years later, she called in the loan, giving her daughter andson-in-law just a couple of months to come up with it all. No one was happy about it, but a writtenagreement could have avoided such a conclusion.

The most important reason for a written agreement, however, is to protect the lender. It maximizes thechances that the money will be repaid and spells out the terms of the loan so that both sides knowwhat is expected of them.

“If you want the money to be repaid then you must all sign a note and the borrower should probablyalso put up some collateral,” says Mike Cohn, president of The Cohn Financial Group in Phoenix. “Evenif there's no interest stated in the loan, treat it like a legally binding document.”

The agreement should contain a specific repayment schedule, even if payments are not to begin rightaway. And, if circumstances change and you decide the borrower doesn't need to pay you back, Cohnsays, “you can always rip it up later and say you forgive the loan.”

Bruce McGrath reminds us, after all, that money may not always be the most important issue whenproviding a loan for a family member. “The ultimate measure of whether a loan or gift has beensuccessful is the effect it has on our family,” he says. “By that measure, they've all been good.”

Stephen J. Simurda, a business writer in Northampton, MA, is a frequent contributor toFamily Business.

Fred Silvestri's window manufacturing operation in Battle Creek, Michigan, has grown steadily over the last 10 years. Fred knows his oldest son, Stan, company vice-president, will eventually take over day-to-day operations. But neither Fred's daughter, Susan, an elementary school teacher, nor his other son, Carl, a building contractor, are employed in the business, and they have no desire to join full time.

Fred has already had several meetings with his lawyers to discuss the eventual transfer of the family business to his three grown children. However, in addition to an estate plan, Fred would like to provide current income to the family members not employed by the firm, using techniques that will also improve the business.

Like many owners, Fred, our fictitious founder, has family members who lead active lives yet are not active in the business—either because there is no room for them, they do not have the right skills, or they have other interests. Nonetheless, they need not be limited to the role of passive benefactors of the business.

There are several creative techniques owners like Fred can use to transfer current benefits and improve the business. These include transferring ownership of real estate used by the business, consulting arrangements, establishing a feeder business, and setting up a venture fund. The first two require little ongoing management and entail only moderate risk. The others require more investigation and ongoing oversight, and involve greater risk.

Real estate

Often family businesses lease real estate from third parties. A basic technique owners like Fred can consider is to establish a separate entity to own real estate and lease it back to the family business. This is a frequently available but often unused opportunity.

In this arrangement, nonactive family members such as Susan and Carl can own the new real estate entity. This technique is most applicable to businesses that currently occupy leased space, or will require more space for expansion. It is well suited to light manufacturing and assembly companies that use simple buildings, and those that use traditional office space. Of course, the real estate can house other tenants that would pay rent as well.

The key is to generate the financing needed to purchase the real estate. The company can buy the real estate and transfer ownership to Susan and Carl. Or the company can be a guarantor of a bank loan to Susan and Carl, who could then purchase the real estate themselves. A lender may require personal guarantees from Fred if the building is a single-purpose facility with the business as sole tenant. Susan and Carl also could be given a loan directly by the business, or by senior family members.

The rent paid to the real estate entity can provide a steady cash flow to the nonactive family members. There is also another benefit: the conversion of a family business expense—rent—to family equity in the real estate as the mortgage is reduced. Furthermore, although real estate values have fluctuated over the last few years, appreciation of property value and rents is likely over the long term.

Of course, before real estate is acquired, a comparative analysis should be made of the after-tax effect of ownership versus leasing. Consideration should also be given to issues such as future space requirements and the opportunity cost when capital is devoted to real estate ownership instead of investment in the business.

The choice of entities that could own the real estate and lease it to the business include nominee trusts, which are mere titleholders controlled by the beneficiaries, to grantor trusts or limited partnerships, which have centralized management that controls the distribution of cash flow and disposition of the property. Legal and accounting advisors should be consulted on these issues. Depending on the circumstances, the acquisition and leasing of real estate may be a one-time event or the foundation of a separate ongoing family business.

Consulting arrangements

Consulting arrangements can be used to generate income for family members who are not on the payroll but have the skills and experience to make a contribution. Their work can be limited to one-time projects or brief but ongoing interactions.

Typically, consulting falls into traditional financial and management categories. However, if owners think creatively and widely, they can usually find a way to match company needs with the skills of nonactive family members.

For example, with her teaching background, Fred's daughter, Susan, could probably perform employee training. Fred's son, Carl, who has a contracting background, could be retained to perform plant and property repairs and maintenance. There are many other common business tasks that can be accomplished on a consulting basis, but often aren't, such as interior decorating, plant refurbishing, equipment installations, landscaping, brochure design, manual writing, software creation, publicity, promotion, and advertising.

Consulting arrangements can be extremely flexible. The consultations can be conducted by telephone or in person. A formal engagement letter, which sets forth such terms as compensation, a timeline for the work, and performance standards, is the basic mechanism for implementing a consulting arrangement, and helping to establish it as a legitimate business expense.

Feeder business

Another way to create part-time work for inactive relatives and add value to the family firm is to organize a separate business that will sell goods or services currently purchased from third parties to the primary business. This technique is particularly appropriate for manufacturing firms, which consume many raw materials and parts, but it can also apply to any company that uses a large quantity of a given item, such as paper, solvents, packaging materials, even general cleaning supplies.

In the beginning, it is best to set up the feeder business as a distributor or broker which simply supplies an item purchased in large quantities by the family business. Consideration must be given to the resources, abilities, and goals of the family.

Because involvement in a manufacturing operation is a major undertaking, it is simpler to structure the feeder unit as a sales or distribution business. Family members may start up the new business or may choose instead to make an equity investment in an existing business. The feeder business can benefit the primary business by supplying products at lower prices than are currently being paid, while providing compensation and/or dividends and capital gains to the nonactive family members.

If the feeder business is small, the nonactive family members might need to spend only a modest amount of time a week running it. The primary business could provide clerical support and other basic services. The nonactive family members could fund the feeder business themselves, or with a loan from the family or primary business. A family limited partnership could be formed to own it, too.

With the family business as its initial customer, the feeder business should quickly become profitable. In time it could begin to sell to other clients. Eventually, it could become a significant source of revenue. At this stage, it could be re-formed as a joint venture with the primary family business, or professional managers can be hired, so the nonactive family members do not have to devote too much time to operations as the feeder business grows.

As with consulting arrangements, some creative thinking can greatly expand the possibilities for new businesses that take advantage of the special skills, interests, and personalities of family members who may not fit in the primary business. For example, if Fred's window business uses a lot of wood frames, Carl, the contractor, could start a mill business that hews the raw wood that Fred would buy. Or Carl could run a business that assembles frame segments or entire frames. If Fred employs enough shift workers in his factory, Susan, the elementary school teacher, could start an on-site day care center. The day care center could also accept children from the rest of the community.

A critical step in implementing a feeder business is the preparation of a business plan as soon as a potential opportunity is identified. The business plan forces critical analysis of the benefits and risks of the opportunity, and brings order and discipline to the process of structuring the new entity. Properly utilized, this exercise tests the new venture against the harsh realities of the marketplace. Determining whether the new business makes sense is also an important tool in resolving potential family issues, such as the roles the different family members might play and the allocation of the benefits of the venture.

Venture funds

Business owners who have confidence, experience, ready cash, and a stomach for high risk can form a venture fund that over time invests in a portfolio of companies. In the long run, a venture fund can substantially enhance family wealth, and create many employment and ownership opportunities for family members not active in the primary business.

Owners should not consider a venture fund unless they are adept at evaluating the operating as well as investment aspects of another business. Also, this technique is only suggested when a family company has substantial capital and can devote a portion to high-risk, high-return opportunities.

A venture fund is most worthwhile when a family business can acquire temporarily depressed or undercapitalized businesses in which they have exhibited a particular expertise. For example, Fred could take a major interest—or take over—a framing operation, a glass cutting shop, or a window contracting business. All of these could provide Carl with work in addition to ownership. Ultimately, the enhanced businesses can be sold or taken public.

Family members who have no way of actively participating in such businesses, such as Susan, can still become investors and thereby share in the potential for substantial appreciation. Of course, the traditional concerns of any venture involvement must be considered, such as control, strength of management, and an exit mechanism to provide liquidity of the investment. Unless Fred, or the other family members, take a majority interest, they will not have much control. An alternative is for Fred or the family members to get the word out that they are willing to become investors in others' ventures. There are many venture capitalists who are interested in joint investments.

Joel I. Cherwin is a business attorney with the Boston law firm of Cherwin & Glickman, where he advises family businesses.

Business owners tend to pussyfoot when faced with the necessity of firing a family member. They want to be loved, they agonize. They just don't like to fire anybody, let alone a relative: “If I fire cousin Charlie, Aunt Emily will never speak to me again.” And the more successful the business, the longer they'll keep the nonperforming family member on the payroll. “Oh hell,” they say, “the business can afford it.”

But businesses can't afford to keep around incompetent relatives whose lack of productivity undermines morale. Moreso, they can't afford to carry disruptive family members who do not support the overall goals of the company, and instead undermine the plans of the competent, motivated family and nonfamily managers.

In such cases, the CEO has no choice but to dismiss the family employee. The decision can be heartrending when a parent must ask a child to leave, which sometimes occurs. One second-generation business owner I know who has three sons faces just such an anguishing decision. Son A is highly motivated and shows great promise as a leader; Son B works hard but has only average ability; Son C lacks talent and, worse, thinks he knows more than Son A, who manages the company. The father wants the three brothers to get along and run the business together. Son A says he will not take over the business unless his father gets Son C out of his hair. The father refuses, and Son A quits.

Now the father has only Son B, with average talent, and the antagonistic Son C to succeed him in the business. I applaud Son A for opting out under the circumstances. Dad has to have the guts to fire Son C if he wants to get Son A back and salvage the family company. His only other choice is to sell the business.

Aging entrepreneurs often don't get around to fixing these kinds of problems before they leave a business, because they never imagine leaving. This can lead to another situation that occurs frequently: the owner, once he does retire, dumps the problem of older, nonperforming relatives in the lap of the successor.

Uncle George, who was given a job in maintenance at the end of World War II, may not have shown up for work sober for years. His brother, the owner, is thinking of retiring. If the owner's son is willing to carry Uncle George after Dad retires, everyone may stay happy for a while, but it won't last. Or the son may say to his father: “He's your brother, not mine. Pay him off. Do what you have to do, but I don't want him around here.”

The son is right. If Dad wants to maintain Uncle George as his personal charity, he should ask the company for a raise, and provide for Uncle George's comfortable retirement out of his own pocket. If Dad doesn't do it, the son will then have to fire Uncle George and any other family hangers-on, after which he will surely be branded as “that nasty kid.”

To fire or not to fire a family member becomes an even more troublesome issue in later generations, when more relatives work in the company and feel as “entitled” as those in their age group who have emerged as leaders. Here the problem is siblings and cousins or nephews who have unrealistic expectations and feel envious and frustrated. Often it is the jealous, demanding significant stockholder who causes real havoc.

Two brothers I know didn't enjoy working together. The less capable brother was only a minor irritant until he began to publicly challenge the brother who was in charge on some issues and refused to do the work assigned him, telling his brother, in effect, to take a leap into the ocean. Such family members are not only unwilling to respect the productive achievers in the business, they seem to feel exempt from higher authority, protected by family—that is, they think they are “fireproof.”

“Family” should not be a Yalu River behind which incompetent family employees can safely lob grenades at the management. Nor can the business be a halfway house for relatives who, for whatever reason, are in need of rehabilitation.

The best way to avoid having to fire incompetents, of course, is not to hire them in the first place. But business owners are not clairvoyant; family job applicants who appear motivated and promising at first may prove otherwise. It is possible, too, that a family member who fails in a specific job may burst into bloom when given a new assignment for which he or she is better suited. Jobs can be shuffled. Relatives who are disruptive can perhaps be reassigned to departments that remove them from the center of the action.

Usually when a CEO is thinking of firing a family member, however, the person has a history of repeated misbehavior or blatant incompetence. Then the question becomes how to do it.

The CEO must examine his own motives as well as the need and justification for terminating a family member. It is easier for the CEO to let someone go if his moral sensitivities have been offended in some way, if the person is guilty of dishonesty or disloyalty. It helps, too, if some written evidence is found of the family member's plots against the management. One way of assessing the rationale for the firing is to ask oneself: Would the person's behavior be grounds for dismissal in a public company?

To be sure that he is acting with a disinterested motive and not out of pique, the owner-manager should, of course, confer about the planned dismissal with other strong leaders in the company, with directors if he has an outside board, and with trusted advisors. As in a public corporation, moreover, the offender is entitled to be warned of the behavior that will not be tolerated in advance, and given opportunties to correct it.

When firing is inevitable, it has to be orchestrated to soften the blow on the person's immediate family and the rest of the family as well. The decision should not be a precipitous “Saturday night massacre.” The reasons for the step have to be clearly communicated to the family beforehand.

Ultimately, though, firing is a business decision not a family decision. The CEO has to take responsibility—the buck stops with him. The outside directors did not sign on to fire family members. Nor should a family council be convened; the outcome of that could be a first-class family fight with all sides dredging up old grievances and venting their spleens.

Firing a family member is never easy, and you can't expect that everyone will love you forever after. No matter how well you handle the situation, at some point you will hear the person's spouse refer to you as “an absolute snake.” Decent people usually make decent decisions. I have yet to hear a business owner who had to fire a family member say years later that the decision was not justified. I have heard a few say that if they had known what the emotional cost would be—in terms of broken family relationships—they probably would have sold the business instead.

That is sometimes the price for sticking to principle.

Léon Danco is the founder of the Center for Family Business in Cleveland and the author of four books on family business.

In my 30 years of advising family companies, the problems I have seen have multiplied with the number of people who have a stake in the firm. In the old days, when a business was growing like a baby bull and Dad was having trouble keeping it under control, the kids were impatient to take over and would fight among themselves. But everyone knew there would be only one successor — usually the oldest son. And even when "the kids" were in their 20s or 30s, their rivalries had not yet developed into lifelong hatreds, fueled by the in-laws. The problems were fixable, if caught in time.

For that same company, the problems today are probably far more complex and snarled in family politics. By now, the founder might have passed from the scene. In a last burst of generosity, Dad distributed sizable chunks of stock to his children and the grandchildren. There are now several families sharing in the goodies, many parents lobbying for jobs or perks for their kids, and no one to umpire their disagreements. The business's needs are tossed aside. Entitlement is rampant; greed is labeled "ambition," and deep-seated animosities are often given righteous justifications. Nowadays, more members of the younger generation have been led to expect a shot at being the leader — younger sons, daughters, sons-in-law, cousins. Their parents want to give them all "a piece of the action"; they fondly hope their offspring can work as a team.

Certainly, these developments have some positive aspects. The business has, after all, survived into a second and third generation. The pool of available talent is overflowing. And "teamwork" is a word that has many fans.

In all too many businesses, however, the proliferation of stakeholders has threatened to destroy the company. If America has become a society of entitlements, as many have said, nowhere is that sense of entitlement more focused — or more destructive — than in the family business.

In one company, the family managers needed money for continued growth, but the non-participating shareholders — who for years had been milking the company for income while contributing zilch to its success — would not hear of it. This business had a bunch of feisty, antagonistic, successor-generation shareholders who understood little about the business and felt they were getting cheated. Both family and nonfamily managers, who had kept the business afloat, asked themselves: What can be done?

This sense of entitlement begins early, when kids are taught they have some God-given right to benefit from the business without concern for what they contribute. The message heard from too many parents is not, "Work hard to be accepted." Instead, the kids hear: "Whatever you get out of the business is your right."

My prescriptions in these matters are well known. In choosing successors, the best guarantee that only the qualified will be considered is the existence of an operable board, with outsiders on it; in a meritocracy, someone has to be the judge.

Children who lack aptitude or commitment to the business should be encouraged to look for employment elsewhere. When siblings can't get along, when their rivalries persist into adulthood, you shouldn't bring them all into the business. You shouldn't give stock to children when they're juveniles just to save some tax money. Hostile spouses can be a powerfully divisive force; wait to see whom the children marry and whether or not their spouses can accommodate the needs of the family and the business.

Unfortunately, many owners do not confront these issues. They bring warring family members into the firm in hopes of teaching them to get along better. The business is expected to provide therapy rather taking care of the economic well-being of the family.

While it becomes clear that kids in some families will never work as a team, their parents still search for a solution that will keep everyone "happy." Some owners try to create separate areas within the business so that siblings can have their own turf and never have to come in contact with their brothers and sisters and cousins. Wounds continue to fester beneath this Band-Aid, however; sooner or later, the blood-letting resumes, usually four cars back from the flowers at the funeral.

Some other owners prefer to believe that conflict in their family doesn't exist. They can be brought to their senses and mobilized to act rationally only when given a blunt warning: When they are gone, their grieving widow will be left to deal with the problems they ignored.

One CEO I know employed his sister's husband in a most responsible job for years, even though the man was both increasingly incompetent and uncooperative. The sister did everything she could to prevent the husband from being fired or even reassigned, going as far as promising to leave her stock to her brother's children if he would continue to protect the man. When I asked this CEO whether he felt his sister really loved him, he said no, she didn't. What reason could he possibly have, then, for keeping the man? The brother saw the light, and eventually threw the husband out, but not before going through unbelievable anguish and letting the company drift.

While a founder is alive and in the business, he may be able to keep warring siblings apart, through threats and promises. And sometimes after the father is gone, the peace is kept "for mother's sake." When both parents pass on, however, no one is around to prevent war from breaking out.

Solutions that call for the sharing of power — equal multiple partnerships, co-presidencies, rotating presidencies — are mostly naive fantasies. It's all well and good for a big public company to have an Office of Chairman with five or six professional managers sharing the decision-making. If s a lot harder in family companies that are divided by deeply personal issues.

In my experience a family business can have only one leader, whose control is established by majority stock ownership, by a voting trust, or by board consensus. I have seen sibling "partnerships" work, but only when one sibling is fully acknowledged as best qualified to lead, and the others defer to that person on major decisions. In all cases, however, the leader's decisions should be subject to review by a board that includes outside directors.

Siblings who cannot cooperate should be asked to leave. When dissident shareholders become disruptive, the only solution is to get rid of them, to "prune the tree." In the long run, buying them out is the cheapest way to solve the problem. The longer the owner waits, the more costly — and rougher — the solutions are for all concerned.

Natural leaders bring out leadership in others. They understand that responsibilities go along with rights. They are strong and secure enough to patiently explain their actions and get others to buy in. To them, succession is not the golf club memberships or company cars, but the opportunity to work hard for the glory of the enterprise and the welfare of all.

Léon Danco is the founder of the Center for Family Business in Cleveland, and the author of four books on family business.

In-laws bear the brunt of countless jokes aimed at their alleged incompetence or tendency to interfere. Family business spouses, though, can often help, instead of hinder, the family business.

Because they were raised in a different family, spouses don't tend to get caught up in the emotional eccentricities most families develop. In-laws, of course, are the products of their own family schtick, but that doesn't seem to detract from their ability to spot emotional undercurrents more objectively than members of the family they married into.

It's not unusual for family business members to resist involvement of the spouses initially. They fear that in-laws will unnecessarily complicate the issues at hand and cause a furthur split. On the contrary, my experience has shown that when spouses do become involved family business problems are solved more quickly and efficiently.

Therefore one of my ground rules in working with family-owned businesses is that in-laws must be allowed to attend and participate in selected family business planning meetings. I'm not talking about inviting them to help run the business, but allowing them to sit in on discussions focused on the overlap between family and business.

The presence of spouses usually inspires the family members to be on better behavior; they are not so quick to act disrespectfully toward one another. Also, spouses are often the only people who, during heated arguments, can tap their husband or wife gently on the shoulder and say, "Honey, I don't think you are really hearing what your brother is saying.

Excluding in-laws outside the business can be downright dangerous. There is nothing worse than second-hand information, especially when it comes from someone emotionally involved in a conflict. When a family member comes home from the office and complains to her husband about what went on at the compensation meeting that day, her husband, reacting to a one-sided and somewhat distorted report of the event, will of course take his wife's side and fan the flame. He is likely to say, "My god, you let your brother get away with that?" Next day at the office, at his proddings, she will be doubly divisive.

The husband understandably takes his wife's side, because he loves her. But the belligerent advice he is bound to give her, in response to her distorted account, only ends up entrenching the entire family in resentment.

One widowed matriarch did not involve her new husband, Robert, in tense family business meetings with her two sons. She would come home from the office complaining bitterly about how her younger son, Dan, was trying to push out his older brother, Steve. From the start the new step-father developed a negative attitude and strained relationship with Dan.

When Robert finally sat down face-to-face with his new family in a formal meeting, he was able to assume an independent opinion, based on his own observations. Robert immediately recognized that Dan was not trying to grab power, he just wanted to be recognized by his mother for his contributions, and to be compensated more equitably.

Robert had a calming influence on his new wife, which enabled the entire family to sit down and redefine their jobs and devise a pay scheme that everyone agreed was fair.

Yes, spouses can also complicate family business discussions with their own issues and emotional hot-buttons. Sometimes, for instance, spouses don't get along with each other, and create new problems. That's all the more reason to involve them. After all, avoiding their feelings and concerns does not make them disappear.

For instance, two brothers who worked together used to be very close, as were their spouses — until one brother divorced. After he remarried, his new wife was seen as the "other" woman who had broken up the first marriage, even though the couple hadn't even met until a year after the divorce.

It got to the point where no one was talking to each other. Once everyone gathered in the same room, the new wife mentioned her sadness at the disintegration of the brothers' formerly close relationship. This brought out tears and nods from everyone, which began to unravel everyones' resentments.

Or take the case of Betsy, the wife of a diabetic manager in a family business that lacked a succession plan. She worried for years about what would happen to her and her children, if anything happened to her husband. Her concern about their financial future created much unnecessary stress on her marriage and on her relationship with his family.

Her husband was an intensely silent and uncommunicative type who would offer only cryptic assurances that the matter would be taken care of. Not able to confront his mortality, though, he never "found time" to mention to his father and brothers in the business the impact his death would have on his family if no formal succession plan were put in place.

Without a forum in which to raise her concerns, Betsy's anxiety reached a critical point. When she finally attended a family business meeting, she was able to express the concerns her husband had never raised on her behalf directly. Once they realized her worries, the family was able to consider a succession plan that everyone was comfortable with.

Including spouses requires an investment of time and energy. But one way or another their concerns will surface. It's always a case of pay me now or pay me later. If it's later, you will usually wind up paying with interest, which will generally compound at the same rate at which family disharmony grows.

When spouses do participate, they always bring the positive benefit of their unique perspective. In the event they also bring issues or concerns to the meetings, it's still more efficient to deal with them directly and up front. Solving family business issues requires the cooperation and positive involvement of everyone affected, and spouses are a valuable source of good will for family-owned business problem solving.

Tom Hubler is founder of Hubler Family Business Consultants, and the Center for the Empowerment of Family Business, both in Minneapolis.

Making room for in-laws

There are pragmatic reasons for including in-lawsin family business planning meetings...

• They provide a dose of objectivity.
• They tend to keep the family on its best behavior.
• They can help their spouses clearly understand emotionally charged messages.

... and dangers in not doing so.

• Information about decisions that affect them may be distorted.
• Their own concerns and issues may never get resolved without the family business forum.

When I give a talk to family business owners in Mexico, I almost never find a company in the fourth generation. The tales of famous split-ups in family companies make constant cocktail party conversation, especially in the great commercial centers such as Monterrey.

There is much that American families can learn from the strengths of families running Mexican businesses. The Mexican family culture has less divisive individualism and more teamwork. Familymembers look after one another's interests, nurture the young, and respect the old. In one seminar, a young woman stood up and movingly acknowledged the contribution of the older generation in her company. In 15 years of giving seminars in the United States, I have never heard such a genuine tribute.

But Mexican family business has entered a new era. The move toward free trade with the United States has made it imperative that all Mexican companies become more professional and make huge investments in new technology. There is an urgent search for better ways to meet the competition.

Because rapid changes are called for, the patriarch's knowledge and experience is in danger of becoming irrelevant. Increasingly, Mexican families are looking for checks and balances. They are turning to outside boards of directors for professional guidance. Some companies are hiring from a new cadre of professional managers that has begun to emerge. At the same time, the companies have begun to realize that the business cannot continue to be the ultimate welfare state for the family.

To make the transition from a family-first to a business-first philosophy, however, requires a delicate balancing act.

Succession in a Mexican family business has always been gradual and evolutionary. The old leader doesn't leave and hand over the business all at once. There is no equivalent of retiring to Florida. His presence is always a factor to be reckoned with. Decisions have to be checked with him; his reactions to issues must be anticipated. As he grows older and less competent, the next generation starts to tell him half truths and even hide their decisions from him.

A successful transition to the next generation is dependent on the ability of the patriarch to turn over power wisely and carefully — to give his successor enough power, but not too much. If he moves too slowly, the younger generation may get frustrated and do something foolish. If he moves too quickly, he may appear to be surrendering his authority, leaving those children who are not working in the business without the protection they feel they need.

Traditionally, the patriarch designates his successor and insures an appropriate balance of power among the next generation. The oldest son has priority in the succession and is given increasing responsibility. But the old man follows his progress carefully and sees to it that the younger children are taken care of and not cheated by the older ones. The next generation, for its part, is expected to work together, to support one another and get behind the leadership of the oldest son.

In the United States, the next generation typically expects to take over leadership of the family business by age 40; by this time, the sons and daughters are usually clamoring for more power and independence as well as a larger financial stake. In Mexico, where there is no such watermark age, these expressions of impatience would be shameful; they would reflect badly on the patriarch's leadership and suggest selfishness in his children.

However, Mexican sons and daughters have now begun to make some of the same demands. Interestingly, the most radical challenge is coming from the young women who want to run the business, or at least have some say in it, and who face considerable resistance from both the patriarch and their very-much-threatened brothers. Reflecting wistfully on the influence of "modern ideas" on his company, one patriarch recently told me: "This new wave of individualism will kill our family businesses."

In the system of patriarchal management, the role of the oldest son is complex and politically difficult. He must gain power without advertising it. He must learn to get what he wants and still have the old man approve. He must adopt new ideas without going too far. He must modernize but hide the risk. He must discipline the younger children without dominating them. If he abuses his power, he may create resentments that will lead to trouble once the patriarch is gone.

In this family-first culture, it is sometimes hard to get an objective opinion on how key decisions are made. There are a few trusted advisors in a Mexican family business, the gente de confianza, who have proven their loyalty over the years and, in effect, joined the family system. To the children, they are known as tio — uncle. They are the glue that binds the family and represent a support system for the patriarch. They carry out the family's dirty work. They make things work, but at the same time, they are formidable barriers to change.

When the children are capable and the system is working well, family members make decisions for the business quickly and efficiently, and get the old man's fast approval. The aging patriarch may save the business from many mistakes, but as one commentator put it to me, "The problem with Mexican patriarchs is that they try to run their businesses with their hearts and not their heads."

To professionalize a business within this tightly knit culture is exceedingly difficult. It requires a true sharing of power with talented managers who may be driven by their own need for achievement and financial reward. Cost controls, previously overseen by the gente de confianza, who were mainly concerned with the family's interests, must be replaced by formal and more open methods of data collection and financial review. Inevitably, the company has to become less secretive, less private; information has to be shared throughout the company.

Many patriarchs will complain, with some justification, that they can't find qualified professional managers to whom they can turn over the business. The fact is that the tenacious hold of the patriarchal system up to now has hindered the development of such a corps of managers. But that is changing as the larger and more sophisticated companies develop management talent. In addition, the country is now in the second decade of a surge in management education, led by some of the great Mexican universities such as the Monterrey Institute of Technology.

What can we in the United States learn from the Mexican experience? By comparing our own experience with theirs, we can appreciate the amount of intergenerational conflict in our culture. The Mexican family works, and overall, it enriches family business. The next generation of family members, for the most part, function better as a team and are generally more successful in maintaining family loyalty than our young people. Since they have a responsibility to the family as a whole, they must make the business grow. So by and large, they have a good track record as entrepreneurs.

There is a more pointed lesson in the Mexican experience, though: Without a balanced approach designed to protect the business from the ravages of family incompetence, conflict, and greed, family businesses — no matter where they are — won't make it.

—F.B.

Pity the daughter-in-law. Her life is bound up with the family business, but she is not part of it. She feels all of the upheavals and tensions, and is often called on to bandage the psychic wounds of the participants, but may have little or no say about how to change matters.

Consider Judy and Florence, for instance, who have married into a powerful business family. Work is always discussed at family gatherings after dinner, when the men in the company go off into a separate room, leaving their wives to make small talk. This is particularly galling to Judy, a lawyer who is accustomed to discussing important issues with her colleagues every day.

Unlike her sister-in-law, Florence is not sophisticated about business. Though she asks questions about the company at family gatherings, and sometimes offers her opinions, Florence tries very hard not to show her anger. She feels her husband works too hard, spending long hours at the plant needlessly because of his father's old-fashioned ideas about the work ethic. The brief time he spends with the children is taken up with constant complaints about business problems.

The frustrations experienced by Judy and Florence are the most frequent I've encountered in my consulting practice. Another common one occurs when two brothers are rivals for the father's approval in the business. That struggle inevitably sweeps the spouses into the family drama and may even alienate them from each other. If each wife takes her husband's side the conflict may be further aggravated by egging him on to realize his ambitions, even if it means sinking the company.

Soured relationships are a real challenge to reverse. One basic mechanism that has proved useful is some kind of family forum that permits spouses outside the business to express their point of view openly (see "Calling the Family to Order," FB, February 1990). But daughters-in-law can also help themselves by thinking about their own attitudes. Here's a distillation of the advice I frequently give:

• You may feel like an outsider because in some respects you always will be. Be prepared to accept that role.

   

   

• Consciously or unconsciously, your husband's family will try to capture your loyalty away from your own family. Try to balance your loyalty between families.

   

   

• Unless you have real skills to contribute, don't expect to be offered a job in the business just because you are a daughter-in-law. If you do go to work in the family business, other employees may be nice to you just because you are family. Don't count on making real friends among them.

   

   

• It is possible that some family members will always suspect you of having married for money and you must come to terms with that.

   

   

• Relate to your husband's family outside the business. Avoid getting embroiled in business disputes if you can, and don't try to mediate them. Be a friend to other members of the family, but try not to take sides.

   

   

• Avoid fighting your husband's battles. Try not to let his anger become your anger.

   

   

• Don't restrict family access to your children just because there is a dispute about the business. Caution your husband about airing his complaints in front of the children, so they will not become alienated from other members of the family.

   

   

• Make rules about when business may be discussed at home. Make business discussion strictly taboo for certain occasions.

   

   

• The community will identify you with your husband's family and their business. The community will assume you know detailed information about the business and that you approve of what the business does and what it stands for. Be aware that you are in the public eye.

   

   

• The longer your husband stays in the business, the fewer alternatives he will have for other careers. Be prepared to deal with his "mid-life crisis" as he feels his options slipping away.

   

   

• Remember that family trust and family loyalty make family businesses formidable competitors. These attributes set them above and apart from other enterprises. Large helpings of trust and loyalty also make great families.

   

And if you are a son-in-law, most of this also applies to you.

Gerald Le Van is an attorney, lecturer, and president of the Family Business Foundation, a consulting firm in Baton Rouge.