My name is Mark Goodfield. Welcome to The Blunt Bean Counter ™, a blog that shares my thoughts on income taxes, finance and the psychology of money. I am a Chartered Professional Accountant and a partner with a National Accounting Firm in Toronto. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. The views and opinions expressed in this blog are written solely in my personal capacity and cannot be attributed to the accounting firm with which I am affiliated. My posts are blunt, opinionated and even have a twist of humor/sarcasm. You've been warned.

Monday, February 13, 2012

Sibling Rivalry-Parents Beware, it is not only a Childhood Issue

This past summer, while driving to a golf course 30 minutes outside of Toronto, my friend and I played a game of high school geography. After playing the game for a few minutes, he asked me if I had heard what had happened to Tiny and his younger brother Tim. I said no, and my friend then related this tragic story.

As part of a family business succession plan, Tiny and Tim were given control of Papahasdough Co. This succession plan was well-founded as both Tiny and Tim had worked in the business for years and were ready to take the business to a new level. Although the brothers were given equal shares of Papahasdough Co., Tiny assumed the role as CEO and Tim was named CFO. However, Tiny, as he had all his life, acted as Tim’s older brother/boss and not his equal. Tim, who had resented Tiny since childhood for acting superior, rebelled. The brothers had a severe falling out and lawsuits followed. The story gets far uglier, but I’ll spare you the gory details.

In this sad saga, sibling rivalry moved from childhood to adulthood. One may think this uncommon; however, according to a 2004 article by Offra Gerstein Ph.D, titled How to deal with Adult Sibling Rivalry, sibling rivalry can significantly impact relationships between adult siblings.

Dr. Gerstein states that “the need to restore one’s worth in one’s eyes may take the form of life long competition. If I “win” and my brother “loses”, then I may prove that my parents were wrong in favoring him. This may not be a conscious thought but the action may reflect this motivation.”

Jane Mersky Leder in her article titled Adult Sibling Rivalry says “Western culture has an obsession with sibling rivalry that began with the story of Cain and Abel and was elaborated by Freud, who labelled and dwelt on the competition between siblings for parental love and attention. It's colored our perception of sibship ever since.”

Sibling rivalry can manifest itself in many ways during adulthood, both financially (the distribution of family assets) and psychologically (perceived favouritism). However, in this blog, I am just going to deal with how sibling rivalry can affect the succession of a family business. The issues of business succession are varied and complex even for families without sibling rivalry baggage.

Family succession issues include: Which child does the parent give the voting shares to? Who is named CEO? If the children do not have the same commitment to the business, should they be given equal shares or equal salaries? These issues are intensified when there is sibling rivalry and I would suggest the parents are ultimately responsible for recognizing that this issue can be divisive and toxic, as in the case of Tiny and Tim.

Even where parents are in a no-win situation, at a minimum they must consider options to mitigate potential issues. Alternatives may include selling the business or giving the shares to one child and equalizing the other child through cash or other means.

A 2001 paper by the National Center for Employee Ownership presented by their research council states “sibling rivalry can pose another obstacle to smooth succession in cases where the retiring owner is transferring company leadership to more than one child. While some rivalries are inevitable, these must be managed so as not to impair business judgement or prevent collaboration from taking place. A wide variety of approaches – such as enlisting one of the retired owner’s trusted advisors or a very senior non-family manager as a mediator – can prove successful in preventing rivalry from becoming destructive.”

Phil Thompson in his paper Succession Planning and the Family Business states that “without careful planning and parenting, including outside counselling, sibling rivalry can wreck a succession plan. Unfortunately, sibling rivalry often stays buried until after the parent is dead. Deal with sibling rivalry right at the beginning, and build a plan that will not fall apart over this issue. Problems can arise either when more than one sibling is involved in the business or when only one of your children is involved. The decision you make with the business can affect how other family assets are considered, including houses and cottages."

Many parent(s) work their entire lives to build a family business with the hope of passing it on to their children. It is very sad that childhood sibling rivalries can be carried into adulthood and it is incumbent upon the parent(s) to recognize this issue and plan to mitigate any potential fallout.

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2 comments:

  1. It is catastrophically bad planning to ever give equal shares to two people. Whether involving siblings and a succession, or friends launching a new venture, a good plan will give someone a tie breaker vote (one of the partners, the surviving spouse, a third party, etc.)

    This doesn't eliminate all risk, but it does neutralize some of the risk.

    And no matter how great things appear to be, any succession plan/new venture must have some semblance of an "unwind" plan ready to go (shotgun clause, internal auction, buy out clause, ...)

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  2. Anon, as you would seem to know, for succession plans, there is often already a special voting class of share in place for the parent that may be given to one of the children subject to the parent and tax issues. For the other situations, great advice.

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