0:02 Who are you? And where are you going? What do you want? [Music] Hello and welcome to People Making Money. I'm your host, Kevin Bemmel, and I'm here every Wednesday at 10:00 a.m. Pacific time to talk about job hunting, starting and running a business, and building wealth, the whole financial side of of life. And uh I'm I'm probably smiling a little bit more broadly uh
0:37 today than than normal. And that's because I quite literally just got finished uh appearing on uh the show of a new friend of mine uh a young fellow by the name of Daryl Jackson uh who is based in I believe it's Massachusett uh Pikesville, Maryland. Uh Dar Darren just launched his show today. I was his inaugural guest. I'm very pleased to have been asked by Daryl to help him launch his show and uh it's called um
1:14 Jordan's Crossings uh for of course Daryl Jordan and uh and and it was you you know like like any new show and those of you who have been around the way to Wow shows from uh the beginning there's always technical glitches and you know you work through them and Daryl did and and he we we got the show going and we had a we had a really uh wonderful conversation. So, uh I I I recommend to you check out uh um uh I'm sorry, I said Jordan, Daryl Jackson, Jackson's Crossing. So, go on LinkedIn
1:50 and check out uh what what Daryl is doing uh at Jackson's Crossing. And uh I I I think you will find you know a young man with a lot of experience and a lot of knowledge and a lot of enthusiasm for for what for for his work and and his uh desire to uh help other people. So um uh so you know I I had to jump off his show and and and come onto my own but but uh you know Darl if if you happen to catch this show uh thanks so much for having me as a guest. It was really a pleasure
2:26 speaking with you. It was it ended up being kind of a far-ranging discussion. We started out talking about trusts and estates, which is the area in which both Darl and I have our primary practice, but we ended up talking about um media and and some of the old and new uh personalities uh in the entertainment business and uh so really just a a wonderful conversation. So today um our topic is the business paradox. So uh if if you if you are in business or are considering getting into business uh
3:04 with your with family members uh so you'll have a sense of that about which I'm I'm speaking and I I I will preface this by saying that I come at this topic from personal experience. So, when I had my real estate services company uh here in Los Angeles before I joined the Navy, at one time I had my mother working for me and my father working for me and my older sister working for me and my younger
3:40 sister working for me. In fact, that was the entirety of my immediate family. Now, you may say, "Well, that's not particularly unusual." Well, it was a little bit unusual because at that point both my parents had been divorced for over 10 years. I think 15 maybe close to 20 years at that point. Uh and and you know to their credit uh they worked very well together. Uh you know both of them working for their their son's company. Uh and uh uh so but but uh it it you
4:15 know uh it it wasn't without conflict uh to be honest. And while we did our best to get along professionally, it's it's a very hard situation when there's there's family history, there's emotions, there's, you know, uh things that you remember from, you know, in my case and my sisters from when we were children that you know are now coming to the four, all these kind of things. So there is an additional layer
4:52 of challenge that comes when a business it has multiple family members in it that are certainly different if not actually unique from a business where it's not family members involved. And so I wanted to talk about those today. Uh because I think you know there are you know f first of all for for those of you know who are regular watchers of the show so I think you know that I am a big believer in in people starting and
5:28 running their own businesses. Uh nothing wrong with working for another company. Uh however uh to have your own business to be sort of the master of your own professional and financial fate to to a a much larger degree than when one is an employee I I I think is is an important uh opportunity for for people who are serious about professional success to consider and it's a you know beyond the the financial
6:04 and professional sphere. It gives us an opportunity for personal growth that is different and I think broader than that which we can experience as an employee. So uh and and so the idea of starting a business with family members I I I think is very attractive. uh hopefully we have the kind of relationships with our family members that we want them to be a part of our success. That was part of the motivation I had in bringing my family members into
6:41 my business. So, you know, I felt I also felt an a responsibility uh to see to it that they had the ability to, you know, support themselves. Not not my parents. they they were actually kind kind of came out of retirement to to work with me. Uh but um for my sisters uh you know I felt like uh you know I had gained a certain level of success and so uh having them work for me um meant that I could in a way sort of give them give them something that you know
7:16 give them some security of employment if you will that maybe they otherwise wouldn't have had at least at that time in their life. So there's lots of I think good reasons to go into business with your family members. Uh a but there are there are challenges and problems that that come with that. And so I'm going to be focusing on on those challenges because I know for myself when I brought my family members into the business, I was only looking at the upside of having of
7:53 working with my family members. I didn't I did not consider the downside or the challenges that I would face. And I I I think if I had considered that, I wouldn't have changed what I did. But I would have handled things differently and perhaps more successfully um if if I had had the the information that that I'm going to convey to you on this show. So I I came up with I believe it's seven eight eight uh uh issues uh
8:28 to to discuss with you on this subject. And I'm just going to jump right into them. So u the the sort of unspoken challenges, right, of running a family-owned business. Number one, there are blurred boundaries between personal and professional relationships. Uh it it is it is unavoidable. As much as we would try to bifurcate those relationships and say while we're in the office or in the workplace, this is a purely professional relationship.
9:04 All issues of family and personal matters are left outside the door when we come into work. As a practical matter, that doesn't happen. Personal issues encroach on professional issues. They they just do. We none of us can so uh separate the parts of ourselves so effectively uh that that we can leave the personal issues behind. Well, I and I shouldn't
9:39 say none of us. I I suppose there are people out there who can do it. Uh but but I would argue that that's not a healthy thing that that people could so make a separation and and would think that it's a good idea to interact with their family members with no regard for the familial relationships. I I don't think that's a wise way of handling matters in a family in a family-owned familyun business. So inevitably the family dynamics will
10:16 spill over and I think the recognition of that uh is important so that one so that the various family members can be prepared for when that happens and can deal with the the blurred boundaries between personal and professional relationships as effectively as possible. Okay, rather than trying to create this absolute barrier between the two which probably is not going to work, better to understand that there will be
10:51 these sort of crossovers at least from time to time and have a sense a plan for how such cross how such crossovers will be handled. So for example, uh you know, family members may disagree about business strategy or the the launching of a new product or a new service. And and and just like anytime there is a disagreement in a business, the resolution of that conflict can sometimes be difficult. All the more so
11:26 when the resolution of that conflict or the attempts to resolve it bring up sort of old familial issues, you know, so you you know, you can imagine between siblings. Well, you know, you always got your way when we were kids, right? Can you imagine? I mean, look, I could I could imagine someone saying that uh, you know, in in in a business situation where they're just so frustrated about a discussion over business strategy and and and they feel like once again, now
12:01 I'm an adult, but but I still don't get my way, right? Very very frustrating. And so dealing with that upfront, I think, is important. Having these kinds of discussions upfront is important. Being clear about where decision-making authority lies is critically important to successfully navigating those kinds of problems. Now, you know, again, using myself as an example, so I had two sisters, an older and a younger sister. I'm in the middle, but I'm the only boy,
12:37 okay? The only boy in the Jewish family, right? So, you know, I if if you've ever heard this term, I was the Jewish American prince. Okay. Uh now, my sisters were Jewish American princesses, but there were two of them, right? And so, somehow um and I never felt this as a kid growing up, but my sister generally felt that somehow, you know, my parents were easier on me than they were on them. And we've talked about it o over the years. And I mean intellectually I can understand what they're saying to me but
13:13 I don't feel it because I don't feel like I was I lived some sort of you know easy life relative to my sisters quite to the contrary I think sometimes I'm not think I know sometimes my dad was much tougher on me than he was on my sisters and he said so he told me at times like you're the boy if something happens between you and your sisters it's your fault right So, so these are the kinds of things though that can come out in a business discussion that becomes heated and and and they need to
13:48 be dealt with uh candidly uh professionally, right? But the idea that somehow these aren't going on at least in the background, it would be foolish of family members working in the same business to think that these things aren't going on in the background. And so in the end, it's it's a better plan to sort of, you know, identify the elephant in the room, so to speak, and deal with them upfront. Now, that doesn't mean that they need to be dealt with w with the nonfamilial,
14:26 you know, members of the company present. It may be that there needs to be a closedd dooror meeting with just the family members to deal with these issues and not put them on display among the other people working there. That may be the best strategy. uh on the other hand you know one has to be careful too that the non-family members of a company don't feel that somehow they're being excluded and the family members just get together and they make all the decisions and that's that's you know how things get worked out. So again these are
15:02 complex issues and there needs to be a lot of thought a lot of carefully considered communication and I think cander between the family members and between the non-family members. There needs to be cander with but not the kind of cander where it's used as a club to beat somebody up but the kind of cander of you know um there are some familial issues here and I you know like if I were in a meeting where with with family members and non-family members and things started to get heated
15:39 and my my instinct was this is not coming from a business place this is coming from a family place my inclination especally especially if I were, you know, kind of leading the meeting would be to say, "Hey, I think there's some family issues going on here. I I I if I can just have the, you know, the, you know, this person, this person, this person, other words, the family members stay for a few minutes. Everybody else, why don't you uh take a break for 15 or 20 minutes? Um, we need to deal with these family issues and then we can come back to the substance of this meeting." That's the kind of
16:14 cander I'm talking about. And then the family members can talk through whatever the problem is or whatever sort of emotional uh strings are being tugged and then and then you know the meeting can reconvene and it can continue on in a more productive way. Okay. So the blurred boundaries between personal and professional relationships that's definitely uh a challenge in family-owned businesses but it's it should be dealt with upfront. So that's number one. Uh number two, uh succession planning paralysis and legacy pressure. So I I I mentioned that
16:52 I was just on uh Daryl Jackson's show before coming on my own and Daryl was telling a story about how his greatgrandfather was a lawyer and his grandfather took over the legal business uh from, you know, from his from Daryl's great-grandfather. And although his mother was not a lawyer, the expectation was that he would be third generation lawyer. And and Terrell used I I mean, I laughed out loud. One of the funniest lines I've ever heard, he said, "Instead
17:27 of being third generation lawyer, I was first generation disappointment." Right? And I I I mean, it's I get it, right? Uh there's there's a lot of pressure. family members, parents, grandparents sometimes put a lot of pressure on younger generations. You've got to take over the family business or you've got to join the family business or you have to make the family business your life the way it was mine. Those kinds of things uh you know, it's a level of pressure that you don't have among non-family
18:02 members. And so dealing with the succession planning and the pre and the pressure to keep a legacy going can be very different can be very difficult. The flip side of that is that sometimes family business owners delay succession planning um because uh it forces everybody to deal with the mortality or the you know potential mortality of u hopefully a beloved family member and and and the idea of relinquishing
18:37 control of of one's life work even to younger generations can be a daunting prospect. for family members. Um an admission that you know younger generations are coming to the four and older generations are reaching the time when they need to step off the stage so to speak. So I think that's that's you know that's one problem. the the sort of emotional weight that is put on family members to be a part of a business or the the emotional weight that's put on a family
19:12 member when that family member is excluded from the business whereas all the other family members get to be a part of it. That that's an that's that's a sort of a reverse legacy pressure like you can't be a part of the legacy of this family firm. think of how that can redound on on people on family members and what what that could do to the dynamics of of family members. Right? So these these are these are all part of uh
19:49 succession planning and and creating a legacy and it can be very difficult for the family members to deal with this on their own and they may be very well advised to bring in what amounts to a neutral third party someone who's not a member of the family who can uh facilitate candid discuss discussions among the family members and mediate some of these issues so that a proper succession plan can be developed and put in place. one that is uh as as free as
20:29 possible from the pressures of legacy so that a family member isn't pulled into a business when they really don't want to be a part of it or they're they're it's not appropriate for for whatever reason for them to be a part of it. and so that people aren't potentially excluded who might want to and really can make a substantial contribution to that business. So succession planning paralysis and legacy pressures, that's another aspect of the unspoken
21:06 challenges of of running a family business. Okay. Number three, compensation dilemmas over compensation and equity. So, you know, determining what is proper compensation for family members uh can become complicated when when when issues such as uh a particular family member's contribution to the business, another family member's needs are taken into account, um what the ownership
21:43 stakes are, what the family hierarchy is. So my business that I mentioned at the beginning of the show where I had started the business and then brought my parents into the business that was that was that's kind of unusual, right? Usually parents bring their children into a into the a family business, not vice versa. And so it's why I salute my parents because the hierarchy was kind of set on its head. You know, my dad was the, you know, he was the father of the family, right? Uh, and yet he he really
22:19 loved working with me in my business and was part of it was because I think I was able to create a role for him doing what he really loved to do. My dad loved working with tools. He loved fixing things. He was the quintessal engineer. Although in his engineering career, uh, he he was you most of his career he was involved in quality assurance. So he wasn't really involved in the building of the various devices, satellites, etc. um that that the firms he worked for uh created. So then to have an
22:55 opportunity to with with his toolbox to go out to these buildings, all the buildings were his own sort of personal, you know, Tinker Toy sets in that respect. And and meeting with the tenants and talking with them. Um I I I realized my dad was a much more uh personable and likable guy than I ever knew as a kid growing up, right? So I learned new aspects of really both my parents through having them work for me. Um and fortunately there was no issue of this reversed family hierarchy. But but you can imagine that there could be um
23:30 it doesn't in fact it doesn't take really any imagination to realize that there can be there there could be uh you know and uh look I mean I had other people working for me at the same time as family members and the fact of the matter is my family members got treated better. Now, in retrospect, that probably wasn't the best way for me to handle things, but I felt an obligation to my family members that I didn't feel to my non-family members. And so, you know, they got paid better. And uh you
24:07 know, if if they didn't if they didn't show up, I just sort of, okay, they didn't show up. You know, they obviously had something important to do. uh you know they had more flexibility in that respect uh than my you know non-family members did uh and and so you know these can these the dilemmas that this creates uh can can be can be a problem. Now I I was fortunate uh you know the non-family members that that I you know with whom I worked um they understood the dynamic and they were you know at at the times
24:42 when they felt that um the unequal treatment was uh not acceptable they they came to me and said so and I and I I salute them for again their cander uh they didn't do it with ranker they just said hey come on man you know I'm making a contribution here and and uh I think it needs to be recognized you know with with with with equal uh you know appropriateness. So, um, you know, among the family members though, uh, you know, sometimes you'll have a family member who really just doesn't have the
25:18 abilities, the skills, the knowledge, the experience, and yet, you know, they're paid the same amount as a family member who is much more skilled, experienced, and knowledgeable, right? So, it is is that the right way to handle things? Well, I mean parents may, you know, the parents if if if they were the founders of the business, they may feel compelled to treat all their children equally with respect to compensation and and equity in the business. But the the children might resent the fact that, you know, one of them is making a far lesser contribution
25:53 to the business and yet is getting getting the same compensation package. That won't seem fair to them. uh and so how do you deal with with these these issues right again within the context of the family so when we have non-family members in the business I I think it's much easier to be objective about compensation and potential equity etc based on what the person brings to the business the value they bring to the business but it gets
26:29 cloudy when family members ers are involved and so uh that's that's where conflict can arise among the family members and uh between the family members and the non-family members. So whether it's profit distributions, whether it's time off, whether it's job titles, authority, every single aspect of the employment rep uh the employment situation is potentially on trial. I use that word
27:06 advisedly. um by or you know is is on review uh by family members uh with through the lens of what of the experience they've had with family life, you know, over over the prior years. Okay, let's let's take a break. When life brings unexpected changes, managing inherited property shouldn't add to your stress. Magnum Properties specializes in probate
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28:16 host Kevin Bemel and I'm talking about the challenges, especially the unspoken challenges of running a family-owned business. I talked about three before the break. the blurred boundaries between personal and professional relationships, the the the challenges of succession planning and and and legacy preservation, and then the dilemmas surrounding compensation and equity. So, another challenge of running a family-owned business is that sometimes it can be difficult to attract
28:51 and retain top non-family talent. Now, I've mentioned some of the potential conflicts that can arise between the family and the non-family members in a company. They all play into this. So, there are people who they just won't consider working for a a a familyrun business because they recognize that they're always going to be an outsider in some way. Okay. And so um you know that that can translate in
29:27 many different ways. First of all, it can mean that there's limited opportunity for advancement, i.e. they're never going to be the one running the firm because the the most senior person in the company is always going to be a family member. It's going to pass from generation to generation. So that can be a stumbling block for someone who who part of their professional plan is to, you know, be the person at the the top of the management structure. Uh it can also be that they know they're just never going to be able to get certain key positions
30:03 even though it's not the top position or that uh you know that and and and that regardless of merit you know family members are going to you know have these roles. So that's number one. I think number two, you know, there's a there is a concern that maintenance of the family may take precedence over other decisions that may be better for the firm, right? So the you know upside potential of the business may be limited by the desire of
30:41 the family to keep its members working in the firm and especially if the knowledge, skills and experience of those family members isn't top-notch and therefore the firm isn't won't be as successful as it might otherwise be. Okay. So, you know, for a non-family member going in, that can be a deterrent to their wanting to be um part of that firm, right? So, uh you know, as a result, the the business may suffer from
31:20 a lack of perspective. So family members may have a much more homogeneous perspective than than would be the case for a business that isn't familyun. And so you have people bringing their their various views uh you know to bear on a particular issue or problem. And so all of these things can potentially the success of a business and they would cause non-family members to potentially think twice or more about joining a
31:55 family firm. So that's that's another challenge that I think has to be dealt with. uh and and by the way the family may have made a conscious decision that it is more important to take care of the family than to for example maximize the the financial potential of the firm. So I think that if if if a if a business like that is looking to recruit non-family members that has to be explained upfront, right? and and so that people know the non-family members
32:30 know going in where the limitations are and presumably they will self- select. So so non-family member potential employees who desire uh maximizing economic potential over all things. So then that's not the right situation for them. But there are other non-family members who will be perfectly fine with that. Their life isn't about maximizing squeezing every last dollar out of a business. They're looking for something else. They're looking perhaps to be part of a family environment so
33:06 that although they're not literally a family member, they want to be part of a business that is as concerned about the people who work there as they are about doing well economically. Okay? and and as long as the non-family member feels like they will be treated well, maybe that's all that's important to them. So, so that so that's that's another issue. Okay. Number five, uh emotional decisionmaking over strategic thinking. So, you know,
33:42 sometimes, as I was saying um just a moment ago, businesses will make decisions based on what's best for the family. as opposed to what might maximize the ex e economic potential of the business maybe out of a sense of financial loyalty or emotional attachment. So I I'll I'll give you an example of this from you know corporate America. So when uh Walt Disney died in 1966,
34:17 I believe it was, uh his his brother Roy was was still alive. He was still a part of the business. Uh but the but Walt Disney's son-in-law, um I'm going up on his name, uh Miller. I believe it was I say Dan Miller. Uh anyway, Miller, he came in as the what we would call CEO of Walt Disney Productions and he basically ran Walt Disney Productions by always asking what would
34:52 Walt do? Okay, this is like it sounds like you know Christians saying what would Jesus do, right? So, not that Walt Disney was, you know, a deity, but uh but what would Walt do? So, the emotional attachment that uh Miller had to his father-in-law and to the Disney family really ended up stinying the growth of Walt Disney Productions to the point
35:28 where the company in many ways lost its way as it headed into the 70s. Okay. And it's what led to the takeover of Walt Disney Productions and the creation of what is now called the Walt Disney Company. Now, at when that happened, Miller was pushed out and non-family members really took over running the company. So, by then, uh, Roy Disney, Walt's brother, had died. his son was kind of involved
36:05 and he did stay involved with the the Walt Disney Company in its new form, but not with anything like the amount of control over its destiny that Walt Disney and Roy Disney had had or that that Miller had had. So this the the kind of emotional decisionmaking that Walt Disney's son-in-law did really had a s significantly negative impact on that
36:40 company and and it is one of the challenges of a family-owned business. Now you might say, "Well, wait a minute. Walt Disney Productions, it was a publicly traded company." Yes, it was. Uh but the family had a great the Disney family had a great deal of control over the company despite it being publicly traded. And so you know looking at a a closely held business i.e. that is a business that is not publicly traded all the more so because there weren't there there typically would not be a board of
37:15 directors or I should say an independent board of directors. there wouldn't be outside shareholders who can sort of hold the family members feet to the fire when it came to the overall running of the business. So this emotional decisionmaking over strategic thinking can have a dilitterious impact on a familyowned and run business and it's something that needs to be balanced. I I I I don't want to say it's something that needs to be avoided because I don't think it's it's
37:52 possible to avoid it 100%. Uh but it it needs to be carefully and periodically examined. So So for example, if a familyrun business has a poor performing member of the firm who's a family member, maybe that person does need to be fired. Now, that's a tough thing for a family to do, especially if it if that family values familial loyalty, right? But keeping on an employee that who is not performing properly,
38:29 it may not just be not maximizing the economic potential of the business, but it can really be detracting from the long-term viability of the business depending on what position that family member holds. Right? So there needs to be a proper balance between strategic thinking and emotional decisionmaking. Now before I leave this issue, I do want to say that while we might like to think that non-family
39:04 uh owned and run businesses don't engage in emotional decisionmaking. Clearly that is not the case. Human beings are inherently emotional and emotions oftentimes will impact the decisions we make whether they're business decisions or personal decisions. So it's not that non-family businesses don't face this issue. It's just it's it's not as big a problem um because there aren't famil familial ties within the business. And
39:39 so if someone if if one particular person is recommending a course of action that seems to be overly emotionally laden, the other member the other people who are involved in making that decision have the ability essentially to say, "Hey, I I I I don't think that's the right direction for us to go. I don't think that it will maximize the potential of the business, etc., etc." And although the person suggesting the more emotionally uh fraught uh course of action might get their feelings hurt,
40:16 you know, somewhat. Well, okay, but you know, at at that point, you know, that that's kind of their problem, right? Um whereas it that's a more difficult thing to say when family members are involved because there are the familial relationships to maintain. Okay. So number five, emotional decisionmaking over strategic thinking. Number six, uh communications breakdowns and and and conflict. So, uh sometimes
40:52 uh if the family is going through a rough patch in their in their family lives, there might be a desire to put off or postpone or completely avoid certain important business conversations or decisions. Right now this is different than an emotional decisionmaking. This is where the decisions are being like say postponed or just avoided allto together. And so again this can have a
41:27 materially negative impact on the business. and and this this sort of breakdown in communication uh really becomes can become I should say almost an existential issue for for that business. Now it's it's it's can be very difficult to handle because if they're for example, let's say the business is owned by a husband and wife and they're getting a divorce and so the
42:04 acrimony over the divorce colors everything that's happening in the business. And um if you've ever gone through a divorce, you know that sometimes you hit moments of divorce fatigue where you just feel like you you just can't deal with the issues right now. Now imagine feeling that, but you're running a business with your, you know, soontobe exspouse and there are important business decisions that need to be considered and made. uh but every time you talk about them,
42:40 you know, acrimonious decisions or acrimonious events from the marriage are brought into the mix. And so at some point, you just kind of throw your hands up and say, "I I'm just not going to talk about these things anymore." Right? Well, now you've got a communication breakdown and and now the business is challenged to function really at all. And so these can be the most difficult aspects of a familyowned and run business uh with which to deal because
43:15 there doesn't seem to be a way to resolve them. And again, this is a time when potentially bringing in a neutral third party who can mediate some of these things, who can set ground rules for business meetings and business communications and can be there so that if one of the spouses starts saying something egregious that's not relevant to the topic under discussion, the the third party can say, "I'm sorry, I'm going to stop you here. That's off topic." uh if we need to take a break for five minutes for people to you know
43:52 relax for a for that time and then come back refocused on the issues at hand. Uh we'll do that. Um uh if we don't need to do that time then let's get back to the focus discussion that needs to be made. Now one one spouse is not going to be generally speaking going to be able to say something like that successfully to the other one. It will take that neutral third party to be able to enforce the ground rules. By the way, even worse, expecting a child to do that between his his parents,
44:27 you know, putting that child, and I'm talking about an adult child, of course, but even putting an adult child into that role could could be very bad situation and could be as likely to draw the child into the conflict, the family conflict, the divorce, in a negative way as it is to facilitate working through these communications breakdowns. So, I think all of these things need to be considered and and and they need to be worked through. We all I think we all want to
45:02 believe that we're mature people. We're sensible people and and hopefully most if not all of us are. Uh but by the same token, we get tired, we get aggravated. uh you know and and and and and sometimes we we lose our tempers and in a business context that of course is not appropriate, but it is the reality of human existence. And so we may need to set up structures within the business to
45:37 make sure that that the that that the communications and the decisions that need to be made are made and are not made subject to this communication breakdown or the avoidance of of decision- making because of an outside not an outside but because of a a family problem that has arisen. Okay, so that's number six, communication breakdown and and conflict avoidance. Number seven, uh pressure to employ unprepared or uninterested family members. So
46:13 um I' I've alluded to this uh previously where I talked about the unequal abilities, knowledge, experience of family members and how that can impact compensation or the perspect or the perception of compensation among family members and non-family members. All the more so if if a family member is invited into the business uh before that family member was perceived to be able to handle uh the position that the family member is given
46:48 uh or some a family member who's just not interested in being part of the the business is brought in essentially against his will. So, if you if you uh if you've heard of a company called News Corp, the the the name of that company is not as well known as the businesses it either owned or used to own. So, News Corp owns, among other things, the Wall Street Journal, right? The uh the the newspaper here in the United States with the highest circulation. Uh it used to own uh 20th Century Fox Studios. It sold
47:23 it, I think, a year or two ago to Disney. Uh it owns Fox News and Fox Sports. Uh so uh the the um original owner of News Corp um oh gosh, I'm going up on his name now. U going to have to look it up here real quickly. Uh, Rupert Murdoch, sorry, I I had to look
47:59 up his name. So, Rupert Murdoch, who founded and and and ran News Corp for many uh for decades, right? At one point he decided to bring his son into the company and there was uh there was consternation over that decision. Uh and there were some non-family member executives who left the company because they felt that the son was was not uh was not prepared to take over the
48:34 role that Rupert Murdoch gave him. And and so they felt slighted on the one hand and they felt that company performance was being sacrificed on the altar of you know familial uh loyalty if you will. Um and and they didn't like that. And now there was also some discussions about did he really want to be part of the family business. Right? And and by the way, this is this is common in the media business where what used to be called the entertainment business here in Los Angeles. You see
49:10 the same thing in in in Paramount where Sher Redstone uh was brought into the company by Sumner Redstone who they they they had a company called National Amusements that bought Paramount Studios. And you saw it even earlier uh where uh um um Louis B. mayor uh brought in people to work at MGM because it was his son-in-law or this and that. So these kinds of family dynamics have played out on in the sort of corporate side of the entertainment business for decades and decades and decades. Okay.
49:47 And there there needs to therefore be a realistic assessment of the abilities of a family member who is being brought into a company whether it's a huge you know media conglomerate or whether it's a small familyrun business especially if there are non-family members working there and especially if the business is partly owned by non-family members. they they may not have a controlling interest, but if they have an ownership interest that that will be affected by
50:22 an unprepared or for that matter an uninterested family member being brought into the business. And again, it may be something that requires a neutral third party sort of vetting it. Uh the uninterested family member may feel very guilty and reluctant to express a lack of interest in the family business. And it would it might be something they just would not say to their let's say their parents if it was parents trying to bring them in. Whereas they might be more willing to talk to a non-family a
50:57 neutral third party who's brought in specifically to work on some of these decisions and and give advice on some of these decisions. And it can be easier for to use the example of parents. It could be easier for the parents to hear from a third party, a neutral thirdparty consultant. You know, my recommendation is you don't bring your, you know, daughter into the business. My assessment is that she's really torn between loyalty to you as her parents and her interest in other professional
51:34 endeavors. And I think it would be detrimental to your familial and personal relationships to insist she come on board. I think you'd be better advised, let her explore other professional endeavors and see where that leads her. Maybe down the road she'll conclude that she does want to become part of the family business. Okay. Now, it may be that may be easier to for the parents to hear coming from a third party. On the other hand, hopefully or maybe the daughter, I'm
52:09 using a daughter in this case, has the ability to um lovingly explain this to her parents in a way that they will hear it. Right? So, nonetheless, this is one another issue that that uh that that needs to be dealt with appropriately so that the business can continue to operate uh properly. Okay. And then finally, number eight, exit strategy limitations and liquidity constraints. So often
52:44 times when it's a familyowned business, there are limited uh options when owners want to exit. Uh because for example, selling to non-family members could dilute the family ownership of the business and it could go from being a majority family-owned business to a non-majority family-owned business, right? And and that can be problematic for future generations. So if there are multiple family member owners of a business and one of them wants out, their only option may be to sell their
53:19 share to the other family members, right? And and that that may mean that in it will be difficult for that person to realize the full value of their ownership and that can cause conflict as well. Right? So imagine working in a business, a familyrun business for I 20 years, 30 years, right? And you want to retire now. The other family members don't. You, you know, all of your wealth or most of your wealth is concentrated in your ownership of the business. You now want access to that in order to fund
53:54 your retirement. What are you going to do? How is that going to be handled? So just as in any other type of business that has co-owners and that is closely held, meaning it's not publicly traded. So there needs to be a proper succession plan put in place that specifies how owners can essentially exit a business, what will happen to whom they can sell, how will the terms of that sale be determined. All of that needs to be worked out and best case worked out long
54:33 before anybody wants to exit the business at the point where someone wants to exit the business and these issues haven't been resolved. So, it will almost for sure become more likely to work them out because now there is pressure for it to be worked out one way or the other. And when people are under pressure, they are they oftentimes don't think as clearly as they would when there isn't that kind of pressure. Okay? And so their objectivity could get clouded and then that can lead to conflict and you
55:09 know down the road you go. So uh for example there they're you know in a proper succession plan there should be a mechanism for valuing the business and that mechanism probably shouldn't be you know what mom and dad think it's worth right there needs to again there needs to be a third-party valuation of the business and there needs to be an appropriate way of paying for that third-party analysis. Okay. Now maybe if someone is exiting the business then
55:44 they have to pay for that analysis. They're the one that wants to leave and so that they're the one creating the necessity for the valuation of the business and so it wouldn't be right to force the other business owners to pay for that valuation because they're not leaving. they don't want to leave and and and you know if they had their brothers they would still have the family member a part of it but that family member wants to exit. That could be one way of of deciding just that one little issue in the succession plan. Okay. But you may decide as as a a
56:19 measure of u you know family harmony that the family members or the business itself will pay for the valuation. everybody will you know essentially all the owners will share in that cost is what it really comes down to and and and that's the better way to go. So all of these issues even down to the details should be worked out in a proper uh succession plan so that at the time somebody wants to liquidate or liquidate their ownership or or exit the business,
56:56 there is a way that it can be done and it can be accomplished with the least amount of pressure on familial relationships with in a way that gives the business the best opportunity to continue operating uh a as free from uh interference. Interference is not exactly the right word, but free from uh the downside of of the of a of of an owner leading. So uh that's that's the final uh issue I wanted to raise on the uh the the challenges of uh familyowned
57:34 and run business exit strategy limitations and liquidity constraints. So if you are in a family uh owned business or considering being in a family-owned business, I encourage you to think about these issues to deal with them upfront. If you're if you're starting a familyrun business, that's the best time to deal with all of these to put mechanisms in place that can avoid or at least shortcut what could be the types of conflicts that arise out of these
58:10 challenges. And so that way from the get-go, you're you're both honoring the familial relationships while also setting the business on as firm a foundation as you possibly can. So I thank you very much for joining me today, especially my live viewers. Always a treat to to know you're uh you're watching. If you have questions, comments, criticisms, uh links to the to social media will be in the show notes. I invite them as always. If you know of someone who you think might benefit from
58:46 watching or listening to this show, please tell them about it. I would really appreciate having the opportunity to earn them as a viewer, listener or andor as a subscriber uh to my YouTube channel. And that only leaves me to thank you again for joining me. Wishing you a wonderful rest of the day and week. This is my last broadcast for this week and signing off as I always do. Marie darling, you are my bell. Courage at all times, my