A Management Psychologist Looks at Family Firm Failure

By John K. Allen, Ed.D.

• "My husband and sons just don't get along in the business. They're at each other's throats all the time!"
• "Both my kids want to be the boss and neither one would work for the other. What happens when I'm not around to referee?"
• "I don't think that any of my managers could run this business. My kids want no part of it. Yet, I can't sell it because, let's face it, I'm the whole show."

Family firms fail for predictable reasons. While family firms are subject to all the market, technical, and economic challenges of non-family firms, the family firm faces an additional set of complicating factors. A typical cause of failure is the difficulty the owner and the owner's spouse have in emotionally detaching themselves from the business to make objective decisions. The family firm is an extension of the owner and spouse's identities - their life's work. The owner's family may also be dependent upon the firm for its financial security and standard of living. Actions which might disrupt the social, financial, or personal equilibrium of the owner or the owner's family are often avoided.

The owner may unconsciously compete with or strive to control others in the business to avoid the necessity for change. A failure to train and develop other managers or potential successors insures that the business will remain dependent upon the owner. "No one could possibly do it as well", the owner thinks. These feelings are usually more unconscious than conscious. Feelings of rivalry or competition can be heightened during periods of increased personal stress such as when the owner contemplates or discusses leadership or ownership transition. The owner has difficulty "letting go" in a psychological sense.

It is not just the owner and spouse who restrict constructive change in the family business. Children, non-family managers, and others who are external to the firm can restrict constructive change as well. Most children in family firms overtly express the desire for more control and autonomy but may unconsciously avoid change because of self-doubts or mixed feelings about competing with and potentially displacing a parent. These feelings of ambivalence can lead the child to send mixed messages to the parent about his or her readiness to assume leadership. The parent concludes that the child "isn't ready yet."

Rivalry between generations or between siblings is another source of family firm failure. The child's feelings of rivalry towards a parent or sibling may lead to unproductive competition, poor business judgment, or disruptive conduct on the job. Feelings of guilt, which often accompany these rivalries, can immobilize the firm.

The family-like atmosphere of many family firms provides ample opportunity for non-family managers or employees to express unresolved conflicts from their own families of origin through their relationships with their "surrogate family" on the job. These conflicts may complicate or exacerbate difficulties within the owner's extended family. Non-family managers may also have an unconscious vested interest in perpetuating the power structure of the firm upon which their own security, income, and status may depend. The firm's outside suppliers, advisors, and customers may also have a stake in perpetuating the status quo.

These forces of conservatism in the family have a positive side. Conservatism leads to the maintenance of valuable traditions, stable leadership, and consistent direction. However, conservatism can also restrict constructive changes required by the firm's financial health. The psychological glue, which binds a family together, can work against adaptation for survival. This family business glue adds a complicating emotional dimension to almost every business decision.

Given the complex system of emotional bonds that interact with business decision-making in the family firm, conflict is often the by-product of change efforts. Conflict is normal. It is not a signal of the imminent dissolution of the family or the family firm. Most families have conflict, and most family businesses have conflict. Conflict is often a sign of positive growth requiring adjustment in the way individuals think, feel, or relate to others. Unfortunately, the family's reaction to conflict is often to overreact or to suppress strong feelings associated with conflict. This can work against effectively managing the healthy expression of the tensions associated with change. Many of the tragic consequences of disagreement in family firms occur when long standing conflicts are submerged resulting in deep seated resentment, anger, and despair over whether meaningful change can ever occur.

Conflicts in the family business are best addressed by encouraging communication between conflicting parties. Concerns about openly expressing strong negative feelings can work against establishing a constructive dialogue. A third party mediator who is trusted and respected by the protagonists is often required to facilitate these discussions. Conflict stems from feelings and emotions and therefore cannot be managed through purely rational problem solving discussions. Only after the expression and acknowledgement of the emotional component of a conflict situation are family members ready to begin to discuss ways to manage the problem component. Conflict is normal and natural in family firms and it is easy to become stuck. It is only through willingness to listen, understand, and communicate with one another that the family and the business can become unstuck in order to move ahead.

©2007 West Falmouth Associates. All rights reserved.

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