Sibling Partnerships: How Limited is Your Family Limited Partnership?
Ellen Frankenberg, Ph.D.
Family Limited Partnerships are a hot topic for family business owners right now. Far-sighted entrepreneurs are huddling with bright estate planners, devising sophisticated strategies to outsmart the tax man, maintain lifetime control of their assets, yet still bequeath generous fortunes to the family they love: a solution to many issues in one neat package. But as these partnerships are developed, who is preparing these sons and daughters to receive their inheritance as partners?
What are the odds that Jack (who saved enough money cutting grass to buy his first truck on his 16th birthday) and Joe (who has already squandered by age 29 the $237,000 he made as a day trader) will be able to make amicable decisions together about money?
Many successful parents choose a FLP, precisely because they know all too well the latent animosities and personal diversities of their offspring. "A sibling partnership is almost an oxymoron", says Julie Thomas, Vice President of Priority Dispatch, a Cincinnati-based delivery company. Although some siblings, like Julie and her brother Jeff, now Chief Operating Officer, have developed ways to work together successfully, the path ahead for sibling partners threads through an emotional minefield.
One of the problems of getting along with siblings (usually the longest relationship of life) is that no one gets to choose how many there will be, their genders, their ages, or their ideosyncracies. And since genes are scrambled with each subsequent birth, to insure biological diversity within the family, there are no two - even identical twins - exactly alike. Birth order alone establishes such a powerful pecking order that it affects personality throughout life: the eldest will probably continue to be highly responsible, and a little anxious with things beyond their control; the youngest usually takes more risks, going places where older sibs have never gone.
Whose magic will make sibling partnerships work?
What magic will make Family Limited Partnerships - or any sibling partnership in a family enterprise - work successfully? If one sibling (the eldest, an accountant/MBA) becomes General Partner, with sole power to make decisions about his/her sibs' access to their "fair share" of their inheritance, the estate planners must believe that he/she possesses the wisdom of Solomon, the grit of Edmund Hillary, and the wry humor of Will Rogers.
Sometimes, because of the tradition of confidentiality that surrounds estate planning, only
the trusted attorney and the parents know the plan before the will is read. In what other situation do the deceased, who can no longer change their minds, determine who shall be partners with each other, or who (as General Partner in a FLP) shall make decisions for other adults of sound mind, without the prior consent of the partners?
Selecting a General Partner for a FLP may be even more challenging than selecting the next president of the family firm, because each sib, even the independent ones who chose not to work in the company, will be affected by each decision about each distribution.
If all the siblings are designated as equal partners, their communication, conflict resolution and consensus building skills need to be Herculean. It only takes one disgruntled heir to initiate a lawsuit, which can destroy a family, if not the assets the parents worked so hard to give them.
What does it take for brothers and sisters to work together effectively?
Diversity within a family and differing talents within a family business can be terrific assets. But differences will lead, sooner or later, to conflict between any normal adults, especially when the stakes are high. Perhaps, since conflict is predictable, future sibling partners need to learn, before the will is read, how to disagree creatively, how to fight fair with each other.
A 1997 article entitled "How Management Teams Can Have a Good Fight", published in Harvard Business Review by Kathleen M. Eisenhardt, Jean L. Kahwajy, and L.J. Bourgeois III, reports that conflict is an essential part of healthy business decision-making. The outcomes of their 10year research project with top U.S. management teams should be good news for emerging sibling partnerships. Fighting can be a source of energy within a partnership. Here are some suggestions from that article, adapted for family firms, for using that energy successfully.
Focus the debate on sufficient, up-to-date facts.
Whether the debate is about which investment advisor to select, or whether to accept a buy-out offer for the company, decision makers do best with more information, not less. Each partner needs to be committed to learn as much as possible about the facts and implications of each choice, without getting lost in pointless debate based on opinions about "how the world is". The old rivalries, the gender differences, the birth order prerogatives can be by-passed, if the participants have clear data to compare and contrast, until the choice becomes evident on its own merits, and not only because of the personal clout of the one who first proposed it.
Develop several alternatives to enrich the discussion.
Teams that manage conflict constructively consider lots of options. Sibling partners may, for instance, during a financial squeeze, look squarely at developing strategic partnerships, refinancing with another lender, developing new marketing strategies, refining core products, cutting costs, hiring non-family management, or as a final option, selling the company.
As members of the team generate lots of alternatives (even those they never would have said out loud when Grandpa was alive) and digest the facts supporting each option, they will no longer feel like they have only two choices, "my way or the highway".
The role of "devil's advocate" can be rotated, so that each sib takes a turn highlighting the dark side of each scenario. If nothing else, taking turns being oppositional means that those who usually say "no" to everything will have to find a new gig. With this kind of open discussion, individuals don't have to win or lose. They can search for an innovative solution together, which may integrate several options that the majority can support, for example, refinance and develop new marketing strategies: win-win.
Create common goals.
Parents may assume that their sons and daughters share common goals, but their differences may, in fact, be greater than their similarities. Adult experience has made them more diverse since they left home. The spouses they have chosen, and their children, have more day to day influence than parents or sibs. The culture in the USA has been through several revolutions since their parents came of age. Assuming that every sib shares the same family dream is a blueprint for disaster.
Setting up a relaxed time and a comfortable place for siblings to rediscover each other, and define the goals they do share, is an indispensable basis for building an effective partnership. There is just too much emotional residue left over as a result of birth order alone for siblings to work together objectively, unless they can agree to dump their lifelong pecking order, and recognize new adult identities. I might even discover that my little brother no longer aggravates me; he's learned a lot since I left home when he was 13.
If sibs can work together to articulate a common dream, perhaps with the help of a professional facilitator, they may grow closer than they ever were in that long ago backyard.
The laughter in family gatherings has a special warmth when brothers and sisters tell outrageous stories about the gags they played on each other, and the pranks they didn't tell their parents until the youngest sib was 29. Healthy sib partners haven't forgotten how to laugh together, with each one taking turns at the punch line. Everyone may have already heard the story 43 times, but it's the re-telling, with grander and grander embellishments, that makes it fun. The sibs all know that no one else in the world can really visualize these same episodes; the things that make them laugh together are part of what binds them into a unique kinship.
Humor is strikingly absent in teams which are marked by high interpersonal conflict. A good joke dilutes hierarchy, and puts the group in touch with the human ideosyncracies they share. Within their unique history, humor can bring sibs back into the circle of childhood laughter once again, when everything was possible, and innovation really was the game of the day.
Balance the Power Structure.
Because most siblings grew up comparing and contrasting the treatment each received from their parents, they quickly focus on what is "fair". They are more likely to go along with the final decision, even if it's not their first choice, if they believe they were heard, that the process was fair. Not only Eisenhardt, Kahwajy and Bourgeois, but also some classic social-psychology studies indicate interpersonal conflict is lowest when there is a strong leader, but each team member retains some power, especially within some well-defined niche.
This means that each sib claims a share of responsibility and authority for what needs to be done. Each does homework, comes to meetings prepared, can challenge the designated leader, listen to all points of view, accept the final decision and work for its implementation.
Another way to balance power is to recognize that contemporary business leaders are not elected for a lifetime; that privilege belongs only to the pope and federal judges. Leaders within a sibling partnership can be designated for a specific term of office - 4 or 5 or 10 years - to quicken again the energy at the top and all around the table too.
Seek Consensus with Qualification.
Most family business owners prefer to reach decisions by consensus, according to a recent Arthur Anderson survey, because they really do want to see the whole family celebrating the 4th of July picnic together. But consensus is tough to reach, so some entrepreneurs put off making any decision at all, especially those that involve family. A partnership mired in endless procrastination is unacceptable.
A manageable process includes four steps:
- agree in advance who will break the tie and the deadline by which the decision will be made. (Some families rotate the tie breaker role, offering each one a turn; others agree to accept the decision of a designated leader.)
- listen and challenge each viewpoint,
- take a straw vote to see if consensus is possible,
- if consensus isn't possible, the tie-breaker, having listened to all viewpoints, within a reasonable time frame, makes the decision.
Signing the papers in a lawyer's office is only the beginning of a successful Family Limited Partnership. Like everything else entrepreneurs do well, great sibling partnerships require preparation, hard work, commitment and, always, a sense of humor. Success will belong to those brothers and sisters who learned long ago how to take turns, play by the rules, tell the truth, listen to each other and even shake hands after a good fight.