Another reason that family businesses fail is that family members may have unresolved conflicts they are not even aware of. In Part I of this analysis of family business dynamics by Harry Levinson originally appearing in the Harvard Business Review. We look at where some of these conflicts come from and how they can affect the family business.
The job of operating a family-owned company is often grievously complicated by friction arising from rivalries involving a father and his son, brothers, or other family members who hold positions in the business, or at least derive income from it. Unless the principals face up to their feelings of hostility, the author says, the business will suffer and may even die. He offers some advice on how relatives can learn to live with their peculiar situation. But he concludes that the only real solution is to move toward professional management.
In U.S. business, the most successful executives are often men who have built their own companies. Ironically, their very success frequently brings to them and members of their families personal problems of an intensity rarely encountered by professional managers. And these problems make family businesses possibly the most difficult to operate.1
It is obvious common sense that when managerial decisions are influenced by feelings about and responsibilities toward relatives in the business, when nepotism exerts a negative influence, and when a company is run more to honor a family tradition than for its own needs and purposes, there is likely to be trouble.
However, the problems of family businesses go considerably deeper than these issues. In this article I shall examine some of the more difficult underlying psychological elements in operating these businesses and suggest some ways of coping with them.
They Start with the Founder
The difficulties of the family business begin with the founder. Usually he is an entrepreneur for whom the business has at least three important meanings:
(1) The entrepreneur characteristically has unresolved conflicts with his father, research evidence indicates. He is therefore uncomfortable when being supervised, and starts his own business both to outdo his father and to escape the authority and rivalry of more powerful figures.
(2) An entrepreneur’s business is simultaneously his “baby” and his “mistress.” Those who work with him and for him are characteristically his instruments in the process of shaping the organization.
If any among them aspires to be other than a device for the founder—that is, if he wants to acquire power himself—he is soon likely to find himself on the outside looking in. This is the reason why so many organizations decline when their founders age or die.
(3) For the entrepreneur, the business is essentially an extension of himself, a medium for his personal gratification and achievement above all. And if he is concerned about what happens to his business after he passes on, that concern usually takes the form of thinking of the kind of monument he will leave behind.
The fundamental psychological conflict in family businesses is rivalry, compounded by feelings of guilt, when more than one family member is involved. The rivalry may be felt by the founder—even though no relatives are in the business—when he unconsciously senses (justifiably or not) that subordinates are threatening to remove him from his center of power. Consider this actual case:
An entrepreneur, whose organization makes scientific equipment and bears his name, has built a sizable enterprise in international markets. He has said that he wants his company to be noted all over the world for contributing to society.
He has attracted many young men with the promise of rapid promotions, but he guarantees their failure by giving them assignments and then turning them loose without adequate organizational support. He intrudes into the young men’s decision making, but he counterbalances this behavior with paternalistic devices. (His company has more benefits than any other I have known.)
This technique makes his subordinates angry at him for what he has done, then angry at themselves for being hostile to such a kind man. Ultimately, it makes them feel utterly inadequate. He can get people to take responsibility and move up into executive positions, but his behavior has made certain that he will never have a rival.
The conflicts created by rivalries among family members—between fathers and sons, among brothers, and between executives and other relatives have a chronically abrasive effect on the principals Those family members in the business must face to the impact that these relationships exert must learn to deal with them, not only for their emotional health but for the welfare of the business
I shall consider in turn the father-son rivalry, the brother-brother rivalry, and other family relationships.
As I have indicated, for the founder the business is an instrument, an extension of himself. So he has great difficulty giving up his baby, his mistress, his instrument, his source of social power, or whatever else the business may mean to him. Characteristically, he has great difficulty delegating authority and he also refuses to retire despite repeated promises to do so.
This behavior has certain implications for father-son relationships. While he consciously wishes to pass his business on to his son and also wants him to attain his place in the sun, unconsciously the father feels that to yield the business would be to lose his masculinity.
At the same time, and also unconsciously, he needs to continue to demonstrate his own competence. That is, he must constantly reassure himself that he alone is competent to make “his” organization succeed. Unconsciously the father does not want his son to win, take away his combination baby and mistress, and displace him from his summit position.
These conflicting emotions cause the father to behave inexplicably in a contradictory manner, leading those close to him to think that while on the one hand he wants the business to succeed, on the other hand he is determined to make it fail.
The son’s feelings of rivalry are a reflection of his father’s. The son naturally seeks increasing responsibility commensurate with his growing maturity, and the freedom to act responsibly on his own. But he is frustrated by his father’s intrusions, his broken promises of retirement, and his self-aggrandizement.
The son resents being kept in an infantile role—always the little boy in his father’s eyes—with the accompanying contempt, condescension, and lack of confidence that in such a situation frequently characterize the father’s attitude. He resents, too, remaining dependent on his father for his income level and, as often, for title, office, promotion, and the other usual perquisites of an executive. The father’s erratic and unpredictable behavior in these matters makes this dependency more unpalatable.
I have observed a number of such men who, even as company presidents, are still being victimized by their fathers who remain chairmen of the board and chief executive officers.
‘Why Don’t You Let Me Grow Up?’
Characteristically, fathers and sons, particularly the latter, are terribly torn by these conflicts; the father looks on the son as ungrateful and unappreciative, and the son feels both hostile to his father and guilty for his hostility.
The father bears the feeling that the son never will be man enough to run the business, but he tries to hide that feeling from his son. The son yearns for his chance to run it and waits impatiently but still loyally in the wings—often for years beyond the age when others in nonfamily organizations normally take executive responsibility—for his place on the stage.
If the pressures become so severe for him that he thinks of leaving, he feels disloyal but at the same time fears losing the opportunity that would be his if he could only wait a little longer. He defers his anticipated gratification and pleasure, but, with each postponement, his anger, disappointment, frustration, and tension mount. Here is a typical situation I know of:
Matthew Anderson, a man who founded a reclaimed-metals business, has two sons. John, the elder, is his logical successor, but Anderson has given him
Matthew Anderson, a man who founded a reclaimed-metals business, has two sons. John, the elder, is his logical successor, but Anderson has given him little freedom to act independently, pointing out that, despite limited education, he (the father) has built the business and intuitively knows more about how to make it successful.
Though he has told John that he wants him to be a partner, he treats John more like a flunky than an executive, let alone a successor. He pays the elder son a small salary, always with the excuse that he should not expect more because someday he will inherit the business. He grants minimal raises sporadically, never recognizing John’s need to support his family in a style fitting his position in the company.
When John once protested and demanded both more responsibility and more income, his father gave Henry, the second son, a vice presidential title and a higher income. When Henry asked for greater freedom and responsibility, Anderson turned back to John and made him president (in name only). The father, as chairman of the board and chief executive officer, continued to second-guess John, excluded Henry from conferences (which of course increased John’s feelings of guilt), and told John that Henry was “no good” and could not run the business.
Later, when John sought to develop new aspects of the business to avoid the fluctuations of the metals market, his father vetoed these ideas, saying, “This is what we know, and this is what we are going to do.” He failed to see the possible destructive effects of market cycles on fixed overhead costs and the potential inroads of plastics and other cheaper materials on the reclaimed-metals business.
The upshot was that profits declined and the business became more vulnerable to both domestic and foreign (particularly Japanese) competition. When John argued with his father about this, he got the response: “What do you know? You’re still green. I went through the Depression.” Once again Anderson turned to Henry—making the black sheep white, and vice versa.
Angered, John decided to quit the business, but his mother said, “You can’t leave your father; he needs you.” Anderson accused him of being ungrateful, but he also offered to retire, as he had promised to do several times before.
Despite his pain, John could not free himself from his father. (Only an ingrate would desert his father, he told himself.) Also John knew that if he departed, he could not go into competition with his father, because that would destroy him. But John shrank from entering an unfamiliar business.
Nevertheless, from time to time John has explored other opportunities while remaining in the business. But each time his father has undercut him. For instance, John once wanted to borrow money for a venture, but Anderson told the bankers that his son was not responsible.
Now, when John is middle-aged, he and his father are still battling. In effect John is asking, “Why don’t you let me grow up?” and his father is answering, “I’m the only man around here. You must stay here and be my boy.”
‘He’s Destroying the Business’
The son also has intense rivalry feelings, of course. These, too, can result in fierce competition with his father and hostile rejection of him, or abject dependence on him. Sometimes the competition can lead to a manipulative alignment with the mother against him. Consider this actual case:
Bill Margate, a recent business school graduate, knew that he would go into his father’s electronic components business. But he decided that first he should get experience elsewhere, so he spent four years with a large manufacturing company. From his education and experience, he became aware of how unsophisticated his father was about running the business and set about showing the senior Margate how a business should be professionally managed.
Margate can do no right in Bill’s eyes, at least not according to the books which he has read but which his father has never heard of. Bill frequently criticizes his father, showing him how ignorant he is. When Margate calls his son “green,” Bill retorts, “I’ve forgotten more about managing a business than you’ll ever know.”
Bill’s mother is also involved in the business; she has been at her husband’s side for many years, though their relationship is less than the best. Mrs. Margate dotes on her son and complains to him about her husband, and she encourages Bill in his attacks on his father. When Bill undertook several ventures that floundered, she excused the failures as being caused by his father’s interference.
But whenever the father-son battle reaches a peak, Mrs. Margate shifts allegiance and stands behind her husband. So the senior Margate has an ally when the chips are down, at the price of a constant beating until he gets to that point.
The struggle for the business has remained a stand-off. But as the elder Margate has grown older, his son’s attacks have begun to tell on him. Bill has urged him to take long Florida vacations, but Margate refuses because he fears what would happen when his back is turned. For the same reason, he does not permit Bill to sign checks for the company.
Now Margate has become senile, and Bill’s criticism of him continues, even in public. “He’s destroying the business,” Bill will say.
However, Bill cannot act appropriately to remove his father (even though he is now incompetent) because of his guilt feelings about his incessant attacks. That would destroy his father, literally, and he cannot bring himself to do it.
‘The Old Man Really Built It’
The problem for the son becomes especially acute when and if he does take over. Often the father has become obsolete in his managerial conceptions. The organization may have grown beyond one man’s capacity to control it effectively. That man may have been a star whose imagination, creativity, or drive are almost impossible to duplicate. He may also have been a charismatic figure with whom employees and even the public identified.
Whatever the combination of factors, the son is likely to have to take over an organization with many weaknesses hidden behind the powerful facade of the departed leader. For these reasons many businesses, at the end of their founders’ tenure, fall apart, are pirated, or are merged into another organization.
The Ford Motor Company, at the demise of Henry Ford, was a case in point; a completely new management had to be brought in. Henry Ford II was faced with the uncomfortable task of having to regenerate a company that appeared to have the potential for continued success, but which, according to some, could easily have gone bankrupt.
While the son is acting to repair the organizational weaknesses left by his father, he is subject to the criticism of those persons who, envious of his position, are waiting for him to stumble. They “know” that he is not as good as his father. If he does less well than his father, regardless of whether there are unfavorable economic conditions or other causes, he is subject to the charge of having thrown away an opportunity that others could have capitalized on.
The scion cannot win. If he takes over a successful enterprise, and even if he makes it much more successful than anyone could have imagined, nevertheless the onlookers stimulate his feelings of inadequacy. They say, “What did you expect? After all, look what he started with.” To illustrate:
Tom Schlesinger, the president of a restaurant chain, inherited the business after his father had built a profitable regional network of outlets with a widely known name—a model for the industry.
Tom has expanded it into nearly a national operation. He has done this with astute methods of finance that allow great flexibility, and with effective control methods that maintain meal quality and at the same time minimize waste. By any standards he has made an important contribution to the business.
But those who remember his father cannot see what Tom has done because the aura of his father still remains. They tend to minimize Tom’s contribution with such observations as, “Well, you know, the old man really built that business.”
Tom cannot change the attitude of those who knew his father, and he feels it is important to keep lauding his father’s accomplishments in order to present a solid family image to employees, customers, and the community. But he is frustrated because he has no way of getting the world to see how well he has done.
In Part II of this article, appearing here next week, Levinson goes on to examine sibling rivalries in family business, and to draw some conclusions.