Doing what’s fair
Dear Corporate Shrink,
We are retiring after having owned two restaurants for over thirty years. My wife insists we give one each to our two sons. Our older son is irresponsible and I know he will run the business into the ground. Should we just sell the two restaurants?
Dear Doing what's fair,
Unfortunately, family situations like yours keep seven out of eight family businesses from making it to the third generation. You have worked long and hard; it would be a shame to see your legacy disappear. Consider a couple of other possibilities.
Maybe your responsible younger son is willing to assume ownership of both restaurants but split the profits of the second restaurant with his brother. This may satisfy your wife if she’s worried your older son can’t make it without a family subsidy. Some may say you are rewarding poor behavior by giving him a handout. I think the goal is to try to maintain family integrity while preserving the business. Consider the payments dividends owed your older son for being part of the business family all these years. Of course, your younger son has to be willing to work to support his older brother. It would be best if he simply saw it as part of the price for having the second restaurant.
Another option is to give your responsible younger son one of the restaurants and sell the other one, which he can purchase at a fair price or it can be sold to someone outside the family. The question is what to do with the proceeds of the sale. I assume your wife would lobby for your older son getting all of it. If you are afraid he would squander a lump amount from the sale, place the money into a trust that would generate scheduled payments to him.
Of course, you can simply give each a restaurant. However, you have to be prepared to deal with the emotional and financial pain caused by a business collapse. Chances are the business will die a slow death. Will your wife insist you try to rescue your son if he’s failing? Are you willing to go through that?
It would be ideal if he were willing to work hard, and to learn and be mentored by you and his younger brother. You sound certain that he won’t do well. I assume that there’s a long history of behaviors that support your judgment. Would he be willing to engage in therapy and/or executive coaching? Maybe there could be a trial period of at least nine months with clear milestones to be accomplished. He could work for someone outside the family during that time. If he demonstrates diligence and dependability, the second restaurant can be his.
There may be other possible scenarios that can be discussed. Reaching a consensus as to the best approach will take some work. It may be impossible for you and your family to agree without the help of a professional facilitator.
The best way to prevent the development of a serious problem like this is through early succession planning. Unfortunately, most business families tend to put off dealing with such issues.