How a Mediator Can Help Your Family Business

Chris,

I am in business with my Dad. There are a few business things I'd like to discuss with him, but whenever we try to talk it always gets tense. We don't actually argue, but we never can reach any conclusions. I have ideas that would help the business, but I don't want his feelings hurt. My ideas are always taken as a criticism of him rather than me contributing. What can you as a mediator do for us?

5 Things a Mediator Can Do for Your Family Business

Why Is It So Awkward?

Before we get too deep, let's talk about the title of Mediator. If that term causes a bit of discomfort, I agree with you. Mediator sounds last resort, serious, and legal. It's the last step before lawyer, right? NO! A Meditator can help resolve issues to avoid court, but a good Mediator acts as a Moderator to conduct and guide productive discussions.

As Moderator to many family businesses, I have helped with succession planning, compensation planning, and resolving of key questions around the operation of the enterprise. It can be difficult for an adult offspring to talk with Dad about a raise. That will take you back to awkward conversations about your allowance. Imagine Dad's feelings talking with you about how much money he needs for retirement.

These are tough talks. In fact, these talks are more awkward than "the talk" you're supposed to get when you approach (or reach) puberty! A Mediator should help make those talks easier. [Note: Please don't call me for help with the puberty talk. That's way outside my lane.]

The Family Business Mediator is there to help with the discussion. It's my job to keep the tension down and to provide business expertise that can help resolve problems. That's the difference between a business Mediator and a Therapist. The Mediator will help with controlling feelings and tensions rooted in family history, plus, they will provide business guidance. With the focus on the business, family business mediation is a much quicker process than therapy.

In short, the Mediator, in the role of Moderator, helps family members set aside the personal issues and to reach agreement on the business matters. Now let's look at what a family business Mediator can do for your Family Business.

#1 Open or Improve Communication

Talking about most things is difficult in a family business. It's hard to talk with parents about money. It's hard to talk about making changes to the business. It's hard to talk about when the next generation is ready to run the business.

I worked with a family that had a very successful bakery. About 10 years ago, Dad took out a big loan to modernize some old equipment and to update the customer experience. They made it through Covid and just recently paid off the improvement loan. Dad is now 75 and the son-in-law, who works 60 hour weeks, is ready to take over running the business. He's ready. He's as devoted to the business as his wife, the eldest daughter and only off-spring interested in taking over the bakery. The son-in-law has shown his business sense by persuading Dad to introduce low sugar and zero gluten items to the offerings. Dad resisted these ideas for years. "Very few people go to a bakery for gluten free cookies!" Well, those new items now account for about 20% of the bakery's profit.

No doubt, the son-in-law is ready, but Dad's point is tough to overcome. Dad says, "we just paid off the loan and the business has never done better. I can't leave when the business is doing so well after I took the risk on the loan and just paid it off." That's understandable, but would the timing be better if the business was struggling?

I helped the two families communicate and we reached a perfect agreement for everyone. Dad and Mom would get an annuitized payment for life. They could work in the business as much or as little as they wish and would be paid for their time and expertise. Son-in-law signed a waiver saying that if he ever divorced, ownership of the bakery would stay with his wife and he would be paid for his interest using a formula agreed upon by all parties.

Just getting the communication going without tension made it possible to preserve relationships and reach a very positive agreement.

#2 Create an Environment Conducive to Agreement

Generally, people have a very hard time talking at work. I discourage that because there are distractions and the walls have ears. If there is tension around the conversations, employees can sense it. That hurts morale. But it's even more difficult trying to talk outside the business when everyone is family! Kids crying, dinner burning, the dog needs to get down, etc.

I create the environment by getting family members into a Zoom meeting, each from the privacy of their home. I call the meeting so the focus is on me, the mediator, not Dad for not listening to your great ideas. When a meeting has a designated time, and is conducted professionally, work gets done and issues get solved. People are far less argumentative when a third party is present.

#3 Inform and Draft Governance Agreements

I have never seen a family business that had a good Partnership Agreement. While it might be agreed in principle that all the partners have a voice in the management of the business, it seldom works that way in practice. Usually, the senior partner, Dad or Grandma or Mom, have the final say. And their grip tends to be so tight that other family partners rarely bring anything up. The comment I hear most often is, "it's going to be his way until he has a heart acck and I take over." How sad is that?

As your Mediator, I will help you talk through issues and provide you examples of "best practices". Agreements are always up to the participants, nothing is forced. Then, if you'd like Agreements can be drafted to codify your arrangements. This not only creates a record of what was decided, it also brings a little taste of formality that invariably contributes to the health of the firm. Get it in writing!

#4 Help with Succession Planning

I wish I could do this exclusively. Every family business needs to plan succession yet few ever do it. Many businesses close or sell for a fraction of their worth. Why? People simply don't plan for succession in advance. When it's time to retire, the older generation either wants too much or insist on retaining control despite being paid a continuing salary. Or, the worst case, they will make a deal that favors one of the kids. I worked with a family business where Dad gave 50% to one of his sons (oldest) and the other 2 sons got 20% each. Dad kept 10% for himself. That was a recipe for disaster. The 2 sons ganged up on the oldest brother. There was constant fighting over money.

The Father told me that his oldest worked to longest in the business and showed the most interest in taking it over. Great, but that was 10 years ago. The other sons had no opportunity to be majority owner. And, 10 years ago, the youngest son was only 15.

Dad just handed things over the way he thought best without so much as a discussion.

In another case, Dad refused to even talk about his son taking over the business. "I'll do it when I'm ready." Well, Dad hit 76 and was still not ready. His son, age 46, left the business to start a new company with a buddy from college. The family business went under after Dad's health (and judgment) declined. Dad retired without getting anything for his 50 years of business. The son's business failed after numerous conflicts between partners.

Succession planning is very important. A blueprint should be created at least 10 years before the senior generation will retire. These are very difficult conversations to have without a mediator. My job is to bring ideas and absorb the stress to preserve family harmony.

#5 A Mediator [Moderator] Will Balance the Power

Talking with someone who was running the business before you were born is hard. Trying to establish yourself as an equal partner is super hard. That's why so many talks turn into arguments. Having a Mediator helps balance the scales. It's my job to make sure everyone is heard and treated with respect. Parents have a role to play when raising kids. It's hard for them to surrender that role when junior is 40 years old and working in the business they started with a loan from their parents! As Mediator in a family business, I balance the power so everyone has their say. And guess what? It's not always the kids who feel powerless. The senior partners often tell me things like, "He's always telling me how different things are today and that I'm out of touch. But, basic business principles don't change. Like it's stupid to take fat bonuses and then take a loan to fund operations. I'm never comfortable carrying a lot of debt."

A Mediator will balance the power that is inherent to the relationship in a family business.

Summary

In summary, a Mediator can do a lot to help your family business. You don't have to be in conflict to benefit from the business expertise a good Mediator can bring to the table. From helping you open up communication to conducting the awkward talks about succession to just balancing the power between partners, a Mediator can be very helpful at a fraction of the price of multiple therapists, lawyers, or ....scotch!

If you want help with your family business, call me today to arrange a free, confidential consultation. You won't regret it.

Chris Reich, Family Business Mediator
Phone: (530) 467-5690
Text (650) 823-2803

"A Mediator can do a lot to help your family business. You don't have to be in conflict to benefit from the business expertise a good Mediator can bring to the table."