reprinted from
The Litchfield County Times
Friday, January 10, 1997
Putting Family Businesses on the Couch
by Charles Hix
From 1986 to 1988, clinical psychologist Michael L. Stern, now a Newtown resident, ran a private outpatient substance-abuse program in Westchester County dealing mainly with the abuse of cocaine. After the first year, he was amazed at the enrollment. "I had a whole contingent of sons of owners of family businesses," he disclosed. "I thought "Hmmm, something unique is going on.'" He began to focus on the issues and dynamics of closely held businesses. "I was seeing a toxic effect in the developmental process."
Dr. Stern, 48, who earned a Ph.D. from the University of Washington in 1978, has remained engrossed in what he termed "the fledgling field" of counseling individuals who work together in family-owned enterprises. "I am not a business expert or an expert on family business practices," he emphasized. "I am an expert at facilitating communication to maximize abilities."
Also a principal in Omni Health Associates, a mental-health services provider with offices in Brookfield, Dr. Stern shared sobering statistics pertaining to family-held undertakings. Nearly 90 percent of all businesses in the United States are family types, accounting for 60 percent of the gross national product, yet 70 percent of the businesses don't make a successful transition to the second generation, and 85 percent don't survive until the third generation. He attributed this high mortality rate more to miscommunication than to lack of guts or savvy. To remedy this shortcoming, the psychologist assists family co-workers in opening discussions on such thorny matters as fundamental values and vision, just compensation, nepotism, retirement security, sibling and generational rivalry, power-sharing and succession. He noted, "Only 50 percent of family businesses have estate planning. Only 25 percent have formal succession plans."
For historic and demographic reasons, many family businesses are in jeopardy now. "Most were started post-World War II," Dr. Stern pointed out. Consequently, with the aging of America, numerous closely held businesses are approaching the perilous point of leadership transition.
The psychologist tended to address this and related matters in terms of personal family dynamics.
For instance, in explicating his anecdotal discovery that many offspring of business founders have abused drugs. Dr. Stern conjectured that those progeny suffered from lack of self-esteem and individuation. Some were placed in positions in the business hierarchy beyond their abilities, or had not yet had an opportunity to develop their abilities for such responsibilities. Others were paid disproportionately high salaries for little work, undermining their intrinsic sense of worth.
They also tended to be distanced from their non-family peers in the business. Meanwhile, the business founder, generally the father, was typically a dominant individual, often a workaholic, not focused on the needs of the children. Thus, the "privileged" offspring turned to cocaine "as a way of medicating their pain," he deduced.
Following his tenure leading the rehab center, Dr. Stern says, his preoccupation with the psychological dynamics of family businesses waxed and waned for several years as he communicated from time to time with other more traditional business advisers - attorneys, accountants, insurance providers - about their experiences with closely held companies. He began networking with fellow professionals who attended forums and seminars at the Center for Family Business at the University of New Haven. He also familiarized himself with the workings of the Family Firm Institute, a multidisciplinary organization based in Boston, and learned about the so-called Family Business Assessment Tool, a trademarked program developed by another psychologist, Dean Fowler of Wisconsin.
The "tool" is a comprehensive questionnaire filled out by family members, whether active or inactive in the business, plus non-family key executives, and outside advisers. Completed forms are evaluated, resulting in a detailed report containing graphs, bar charts and recommendations. At the final step, a consultant or consulting team reviews the report with principal figures to implement strategies. Simply stated, the Assessment Tool pinpoints performance areas and discussion issues that must be faced to promote the healthy survival of the business.
"Dean mailed me information. We met. I did some training with him," Dr. Stern recalled. "Dean identified 21 key success factors."
According to material generated by Dean Fowler Associates, these factors include, among many others: common or shared family values; the ability to discuss sensitive issues; family members' relating as adults with one another; fairness to tax exposure...
Fully 91 questions are posed in the preliminary survey, with two answers per query. Respondents rate both the level of "discussibility" (from very easy to very difficult) and "performance" (to what degree the subject has, or hasn't, been addressed or implemented) on such considerations as: "To what degree is the salary and incentive system of the business tied to the real contribution (sweat equity) and performance of family members active in the business?"
The assessment report tabulates the findings in terms of the 21 key success factors. In turn, those topics determine the focus for discussions designed to improve business success and family harmony.
Dr. Stern conceded he has utilized that tool only "on a limited number of occasions." However, he emphasized it has been "recently developed." Citing the questionnaire as "a useful feedback tool," he called it a "structured criteria that collects data in an organized way that you can play back." He noted that the machine-scored report "serves as a road map for problem areas" by uncovering potential areas of discord that haven't been properly confronted.
"I'm a sailor," Dr. Stern elaborated. "When planning a trip, I need aids - a global positioning system, a compass, a depth meter indicator - tools that help me navigate safely. In a family business, there are fundamental tools as well."
All closely held businesses share fundamental "transition" points, he noted, from bringing in new family members to succession planning.
To flesh out his point, Dr. Stern employed the hypothetical example of a family grocery business founded by a father currently at retirement age. "Papa wants to go to Florida. Most of his assets are in the store, and he wants to take profits out of the business. Junior is now running the business, and like any business owner, he wants to retain earnings and grow the business."
Significantly, the psychologist did not offer a solution to that apparent conflict. Instead, he noted, "The resolution? Hopefully, it has been dealt with beforehand." In other words, if the father and son had been communicating and planning successfully, that situation could have been anticipated, avoiding crisis.
Dr. Stern conjectured that, strictly from a financial viewpoint, perhaps a specialist in negotiating buyout agreements might prove the proper adviser to firm up the details of the transfer transaction. However, in characterizing his own capacity, the facilitator reiterated, "My role is to set up the forum for the discussion of the issue," not to advise the father or son on what specific course to take. "They make the decisions," he said. "They know the grocery business better than I do. To settle interpersonal problems that serve as a roadblock to reaching the decision, I help them discuss the undiscussable."
Although the inclination is to attempt to prolong the viability of a family business, in some instances the expedient course is to dissolve it, Dr. Stern allowed. He related pertinent details about a troubled father-son partnership. "Papa was an authoritarian, which was fine at 40. Papa was brilliant, a "rage-to-riches" story. The business was publicly traded, 30 million sales. At 60, Papa was chairman of the board, Junior was president. Papa had difficulty relinquishing authority and undermined Junior's authority." Unable to resolve the matter, "They sold the business, and Junior formed a new business," on his own, with the profits.
Dr. Stern himself has had atypical experiences in family-business situations. "I worked my way through college running a bicycle shop," he said. While he was an undergraduate at California State College Long Beach, his father, a 50-year-old mechanical engineer, left the military-industrial complex. "I found a bicycle shop for my father. I trained him. It was a reversal of roles," Dr. Stern said. "A more usual issue in family business is, you raise children, provide support and nourishment. The goal is to launch the children (as autonomous adults). That (locating a new business for the father) put me in the adult role. It was a wonderful transition."
Nearly two decades later, in 1986, after working four years part time in Danbury with his now-retired father-in-law, psychologist Alex Tolor, Dr. Stern decided to launch an independent practice. He characterized the parting as amicable - "the evolution of growing up, being on my own, having a bigger office."
