CHAPTER 1
Early Lessons
The Fire
I learned at the age of seven what happens when you almost loseeverything.
It was January 6, 1959. My family lived in a small town in PictouCounty, Nova Scotia. We owned the general store that was, for themost part, the central meeting place for the town of Ardness. I hadseven brothers and sisters at the time; Mom ran the store, while myDad ran a lumber company. The store sold just about everythingfrom soup to nails. It was the heart and soul of the community.Everyone would stop to chew the fat, while sitting on benchesaround the counter. Mom would have a pot of tea on the stove andfresh biscuits to pass around.
Our house was just across the street. It was a fairly modern newhome with a big veranda and beautiful yard overlooking farm fieldsright through to the Northumberland Strait. Sitting on the verandain the summer you could almost see the lobster fishermen pullingtraps up into their boats.
But on that cold fateful day in January something happened thattaught us a lesson we will never forget. Around two in the afternoonan electrical fire broke out in the stairwell, and quickly spread tothe rest of the house. My teenage sister, Joan, happened to be homefrom school that day. She spotted the fire and went into action. Sheraced through the house and got everyone out, including my Momand two babies. Coming home from school, as I approached ourhome, I saw my sister with the babies and my Mom without anycoats on the coldest day of the year rushing towards the store whichwas just across the street from our family home. I could also seetwo men on the roof and thick black smoke streaming out of theupstairs windows.
First Important Lesson: You can always replace yourstuff, but you can never replace your family
Over the rest of the day, we watched the fire completely consumeour house and everything we owned, including family pictures,and most distressing to me at seven years old, all of my toys,especially my hydraulic truck. It is not possible for me to adequatelycommunicate how I felt at the time, but surprisingly, I found thewhole experience quite interesting. It was fascinating to watch allof our possessions go up in smoke, with kind of a dispassionatedetachment. Looking back I realize that I felt this way becausewe did not lose our most important possession, which was ourfamily. That's the lesson I learned, that you can lose every materialpossession you own, but if you have your family, it doesn't reallymatter. That's what my Dad said as he was doing a head count:"You can always replace your stuff, but you can never replace yourfamily."
In the months and years following the great fire, our familyweathered many other ups and downs. We actually ended up livingin the store, and never rebuilt the family house across the street.
In this way, our family and family business (which had been in myfather's family since the late 19th century) became virtually one andthe same. We were living right inside our business twenty-four/seven.
Second Lesson: Pre-mature death of the owner triggerstough decisions for the family and the business
In March 1970, my Dad had a heart attack and died right there inthe store while telling one of his famous stories to his friends. MyMom took over running the place and we helped her out. My Dad'slumber operations, including a saw mill and woodlands, which hadsupported the family for over half a century, were unfortunatelyliquidated at fire sale prices. Suddenly the store was responsiblefor generating all the money needed to support the family of ninekids, five of whom were still living at home. Just recently, as I writethis book, my Mom passed away peacefully at the age of 91. Sheleft behind nine grateful children and many fond memories for usto cherish. Sadly, though, the store, which had been in my father'sfamily since the 1890's, is no longer in operation. My Mom closed itin 1993.
The Importance of being in time and in tune
Fortunately, through all of this, my siblings and I have stucktogether. Although we all have different personalities and oftendisagree, there is a strong bond between us. We know that no matterwhat happens, on a basic level, we are all on the same page when itcomes to family values especially when it comes to discussing issuessuch as money and family business. I call this being in time and intune with each other.
I was able to experience the positive benefits of a FamilyAgreement when I acted as Executor of my Mom's estate whichwas distributed equally just a few years ago to nine siblings withoutany disagreement or conflict. The primary reason was that myMom realized that death could come at any moment just like whathappened to my Father and you must have your affairs in order andhave those intentions communicated as a regular course of businessat least once a year. This was a Family Agreement in action thatprovided certainty and guidance for many years to the family asto what will happen when the ultimate transfer of whatever wealthremains at death to all the beneficiaries.
These seminal experiences of my youth have an important impacton my work as a professional advisor to business owners andtheir families. I can relate to their struggles and aspirations fortheir companies and their families. I also know first-hand that theso-called dileneation between the business and the family is anartificial boundary. They are usually one and the same. That's whyplanning the future of a family business, including succession andestate issues, must address important relationship concerns andnot just focus solely on the financial and legal agreements. Withoutincorporating this human element into the discussion, seriousproblems can disrupt the harmony of the family, and ultimately thefate of the business.
I've also observed that many entrepreneurs do not adequatelyprepare their family for the ownership transfer at death and donot take time to figure out who will own and control (not just run)their business after they die. That's because they don't talk aboutdeath, and they don't really think they are ever going to die. Manyof them when asked will say that they care what happens to theirbusiness after they are gone, but their actions or inaction speaksdifferently and some owners simply believe that magically thingswill somehow work out. They don't realize that this attitude is goingto really hurt their family, not just financially, but could destroy thefamily relationships that took a whole lifetime to build.
The Metronome Method®
If you want your family to stick together and carry on the successof your business, you need everyone to be in time and in tune. I usethis phrase because I am also a musician. Music was very importantin our family. We had a huge upright grand piano in our house, andsomeone was always playing it. Kids would come into the store, andhead for the piano. My Dad could often be heard bashfully playingsweet waltzes on the fiddle near the piano. The wooden portableradio in the store was also always on, playing Scottish music for thelocal fisherman and farmers who were hanging around the store.
These days, I play the piano, tenor saxophone and accordion. I'mnot a professional, but I enjoy playing with family and friends.Recently, I had an insight that there is a connection betweenmy musical interests and my advisory work. For a long time, I'vecontended that the families are more successful if they are intime and in tune with each other. I realized that everyone needssomething to keep generating good vibes or rythms. For musicians,this is accomplished by using a metronome. This device sets thetempo for a piece of music so that the musicians can stay in time.For practicing musicians, whether they are in a symphony orchestra,rock or jazz band, the metronome is an essential tool. It sets therhythm and keeps everyone playing together at the same tempo. Asin music, this coordination is very important in a family that ownsa successful business. This kind of business is more than bricks andmortar. It is also about passion, feelings, and hopes and dreams.There is a lot of baggage and unspoken resentments that may goway back to childhood. They need a metronome too.
That's why I developed The Metronome Method®. It is a quick andfun way to secure the future of your family and your business.I emphasize quick because you don't want this kind of processdragging out over many years. It is essential to interact positivelywith your family and clear up any issues that are festering and thiscan even be a fun way to do it. The great part of this process is thatit helps pull everything together once and for all so you can enjoyyour life and prosper while running your business.
Taking the musical analogy further, the process helps you and yourfamily stay on the same page of music.
We figure out:
1. What song you want to sing and have sung by others afteryou are gone
2. Write the sheet music
3. Turn on the metronome
4. Practice the song together with all the key members of theband.
After a few rehearsals, you and your family will be ready toperform on your own. Experience shows that this performancewill be replayed over and over for many years, even if you changeconductors.
Central to this model is what I call The Family Accord(r). This is animportant family agreement that is the missing piece in traditionalsuccession and estate planning for family owned businesses. Itdescribes and outlines the steps of what happens to your businessand family when you are not there. This vision is the missing piecethat provides the framework for everything else. It is the sheetmusic that each family member will sing from no matter who holdsthe baton.
This book was written as a professional approach to this subject. Ineach chapter, I will give you direction on what to do, and exampleson how other families have done it. Think of it as a music schoolfor your family succession and estate planning. You will take a fewlessons, practice a few things, and learn how to make great music onyour own. I will simply act as the metronome to keep you in tuneand in time. Enjoy!
CHAPTER 2
The Rothchilds andthe Vanderbilts
Consider the Rothschilds and the Vanderbilts, two famous businessfamilies from history. If you go back to the 1800s, both of thesefamilies were titans of industry, one in Europe and one in America.The Rothchilds were Europe's bankers, and the Vanderbilts were theAmerican transportation family, owning railroads and steamships.While they were both amongst the world's wealthiest families atthe time, the long-term fate of these families could not be moredifferent.
In 1973, the Vanderbilts had their first family reunion. Youwould have thought it would be a swanky affair, but in fact it wasreported by Arthur Vanderbilt II "When 120 of the Commodore'sdescendants gathered at Vanderbilt University in 1973 for thefirst time, there was not a millionaire among them". This was nota particularly close family. They had only gotten together once inalmost 100 years.
Across the ocean, the Rothschild story is a dramatic contrast. Theycontinue to grow and flourish today as one of the world's wealthiestfamilies. They have also stuck together through thick and thin.
How these two families dealt with inter-generational succession andthe transfer of their money will be discussed in more detail later inthis book. The important thing to realize at this point is that yourbusiness and your family are at cross-road like the Vanderbilts andthe Rothchilds were at in the 1800s. You have to ask yourself, howdo you want things to really work out?
CHAPTER 3
IT'S NOT ALL ABOUT THE NUMBERS
You can't expect your family to play in time and in tune if you don'tinvite them to the practice sessions.
This is very common with small to medium-sized family-ownedbusinesses. The owner/founder typically makes all the decisions,and the family is left out of the equation. This can result in a lot ofacrimony in the family, and the demise of the company. There arehundreds of examples of this outcome.
The owner/founder often thinks they have done all the rightthings. They've met with their accountants, their lawyers, their lifeinsurance person, and sometimes many other financial advisors.
They've put together a plan to deal with the tax and legal issuesinvolved in succession and estate planning. This gives them a falsesense of comfort, an illusion that everything has been covered. Butthat's not usually the case.
Charlie's Story
Let's consider Charlie. He's 60 years old and has been operating hismanufacturing firm for 30 years. He started it with $100 that heborrowed from his father. Now his company is worth $10 million.His son Tom is a key person in the business, and his daughterLisa is going to university and works part-time in junior roles. Hehas another younger son, John, from his first marriage. John is acarpenter who builds cabinets.
Although Charlie knows he is the key person in the business, he hasforgotten that he is running a family business, and that his familyneeds to be part of his planning. Charlie became acutely aware ofthis reality two years ago when he contemplated selling his business.Charlie met with his CA and had a valuation done of the business.That's when he learned that the company might fetch up to $10million. Charlie was excited by this news, and began to dream ofretiring to Florida with his wife Susan. He started to put the wheelsin motion and entertained offers from potential buyers. He did allthis without consulting his kids. He didn't even tell Susan.
Charlie realized later that he had made a huge mistake. Through thegrapevine, his son Tom, who was the most senior employee in thecompany, heard about the impending sale. Outraged, Tom phonedhis sister Lisa, and was shocked when she said "all businesses can besold at any time without notice to anyone, including family." Lisa,for her part, wondered why Tom was so surprised.
Later that night, Charlie has a big blowout with Susan who was alsoangry that she had not been informed either. He was in the doghouse for weeks.
Although Charlie's family had never been close, and hadexperienced some problems during the divorce and his subsequentmarriage to Susan, they had always been cordial with each other. Butnow things went off the rails. It seemed like everyone was arguingwith everyone else about the company, its assets, and what wouldhappen if Charlie were to sell it, or if he were to die prematurely. Itgot so bad, that Charlie and Susan took off for Florida for Christmasbecause nobody wanted to come over for dinner.
Charlie had been making the sale of his business all about numbers.His CA, his lawyers, and other advisors, had done very little todissuade Charlie of this idea. Although the accountant and otheradvisors had mentioned family dynamics, it was done in a cursorymanner with little emphasis on doing anything substantive about it.They gave Charlie the notion that the family dynamics were "soft"issues and by implication less important issues and the money wasthe key to everything. It is like a fitness coach who gets you to dopush-ups and cardio everyday and mentions off-hand that youshould also watch your diet, but doesn't offer any further expertiseor help on eating better.
Charlie put his plans to sell his business on hold indefinitely. Hisrelationship with Tom is cordial, but a little frosty. His daughterLisa no longer works at the company because she said it's not funanymore. Two of the key employees quit and went to work forthe competition, and to top if off, his accountant told him thathis business valuation has dropped by two or three million. Nowthe bank, which has a covenant on some of the company's assets,has called Charlie in for a meeting. Moreover, his son John, thecabinet-maker put a call through his lawyer, who sent Charlie aletter demanding to see the financial statements for the company.
Charlie's story, which is a composite of many families we haveall read about or encountered over the years, is very common.Obviously, if Charlie were to do it all again, he would take adifferent route. He would bring the family into the discussion, andwork towards a shared vision for what happens to the business andall of the assets when he is no longer owning and operating thecompany.
The Immortality Trap
Another typical problem with human beings is that we logicallyknow that we are going to die, but emotionally we really don'tthink it is going to happen to us any time soon. I call this afflictionthe Immortality Trap. As a result, we don't do enough to prepareour family for our inevitable demise. It goes without saying thathaving an up-date will and adequate life insurance are minimumrequirements to ensure our affairs are in order for the owner ofa family business. However, if you are the owner and founderof the family enterprise, more advanced planning is requiredwhich focuses not just on the numbers but the important familyrelationships. This lack of planning can create chaos for the family,the business, the employees, and everyone else in the communitywho depends on that business.
