One of the more frustrating experiences for self made entrepreneurs occurs when their children or grandchildren do not appear to appreciate all of the effort, energy, passion, and commitment that it took to build the family’s wealth. The same frustration appears when a second or third generation leader faces a shareholder group with little or no appreciation for all of the effort that it takes to produce a good return and a strong company. The term “entitled” describes individuals who express demands for benefits which are incongruous with their contributions, and demonstrate little respect for those responsible for the material success in the first place.
Entitlement is an attitude we ascribe to owners or family members who appear to believe that they have rights to the fruits of production which extend beyond their contribution to that same production. This definition differentiates an attitude of entitlement from normal expectations for a return on an investment. For example, if a shareholder has one million dollars worth of stock in a company, he or she should expect that that stock will earn a return over time. These shareholders expect management to run the company in a way that produces financial benefits. A typical investor would expect there to be ups and downs in any investment and therefore should not be surprised if the performance of the company rises or falls with market conditions and economic forces. However, an investor would exhibit an attitude of entitlement when he or she demands returns without thoughtful consideration of the environment in which the business operates.
Sometimes an attitude of entitlement grows so entrenched that shareholders believe inappropriately that they have the right to use company resources without permission or to direct company employees even though they have no direct management responsibility in the organization. At its worst, an attitude of entitlement can appear through common statements such as “you owe me” when talking to management or to senior generation stock holders.
What Do We Do About Attitudes of Entitlement?
An attitude of entitlement may arise from several different sources. We review below a number of scenarios associated with attitudes of entitlement, and we discuss strategies that may be implemented in these various situations.
Appropriate Entitlement
If you perceive an attitude of entitlement in your family, you may be observing what we call “appropriate entitlement”. One of the first steps is to rule out the possibility that shareholders are trying to gain access to information about their investment that is rightfully theirs. We frequently hear of CEO’s who experience shareholder requests as behaviors of entitlement, when in reality shareholders are being purposefully kept in the dark about corporate performance and have little say in any matter of the family enterprise. This can go so far as shareholder groups who have no voice in establishing the board of directors which will oversee management, even though shareholders have that legal right. Regular shareholder meetings with adequate time to review financial performance as well as explanations for capital allocation decisions will produce more informed and educated shareholders who will have a greater appreciation for all that management does on their behalf. A management team resistant to providing accurate information may lead shareholders to assume that inappropriate actions are taking place; and distrust due to lack of transparency may create an equal and opposite reaction of shareholders wanting more information.
If information flow is adequate and shareholders are well educated about the nature of their investment, a focus on capital allocation may be required to help shareholders gain realistic expectations. We know of firms that have never paid out a distribution to shareholders despite years of successful earnings. These patterns often develop because the management leaders want to grow the business aggressively through reinvestment, and taking dollars out of the company is viewed as an impediment to growth. Unless a shareholder group has agreed that keeping dollars in the company is an ownership goal, it is likely that many shareholders will appropriately view their ownership as an investment and expect a return. Setting ownership expectations as a group is a critical step to managing owners’ expectations. Once these expectations are articulated, management should have the authority to operate within the parameters defined by owners.
Entitlement Due to Role Confusion
Sometimes shareholders behave in an entitled manner because they do not understand or have not been educated to understand the proper roles that they are to fulfill in the family enterprise. Nowhere is this more pronounced than when a child or grandchild of the founder begins as an entry level employee and proceeds to inform upper level non-family employees about their “proper” roles and goals. This is a common mistake made by shareholders who observe senior family members as they make requests of employees, and mistakenly believe that the senior leaders are acting in their roles as owners when they manage employees. They fail to realize that the senior family leaders have earned respect over the years through hard work, initiative, and by integrating wisdom into their decision making. In other words, entry level family employees imitate the behaviors that they have observed in other family members who have earned this function in the business. This often ends with disastrous results, in that non-family employees actually hold the entry level family member in a state of greater disrespect because of these behaviors. Shareholders who do not work in a company have been known to come to a corporate location and demand to use company resources or to advise employees in how to behave. Such role confusion can often be clarified by conducting a shareholder forum in which the boundaries of appropriate and inappropriate shareholder behavior are clearly explained by family leaders. Another important topic to address is clarifying the roles of owners, management and board.
Entitlement Due to Family Perceptions of Fairness
Another scenario, in which inappropriate entitlement may be manifested, occurs when family members make demands that are based on perceptions of fairness or family equality. This may occur when parents emphasize absolute equal treatment of children in the family and the demand for equality then gets superimposed onto the business. When this happens, family members of a generation, such as those in a sibling group, may demand equality in compensation and other material benefits, whether or not they are involved in the business. These demands based on fairness, can progress to the point where efforts by a parent to help out any one child are met with demands by other children to be “compensated” for the help provided to the one.
This equal treatment of family members stems from a noble source: It is the desire of parents to love all of their children equally. When the emotional basis of love gets infused with family business ownership or employment, however, the concept of equality becomes twisted. A shareholder who does not work in the business may view as logical the demand to be paid the same as a CEO sibling because the children in this family have always been taught to view all rewards stemming from parents’ work as being equally distributed among the children. The reality is that human beings are not equal in all of their abilities, nor are they equal in the roles that they play. An employee is rewarded because of his or her role as an employee, not because he or she is a family member. When this confusion occurs in families, it can create challenging dynamics as family members try to understand the rational basis that another family member has for making demands of equal compensation.
It is critical for the family to differentiate areas of life where equality among family members is to be pursued (for example love, appreciation, helping family members in need, inheritance) and areas where equality will not be pursued, such as compensation in the business. If employment in the business is open to all who are qualified and meet requirement expectations, then the family may have equality in opportunity, even though the actual compensation will be different for each family employee, depending on their positions of responsibility in the business. We have found it especially helpful for families to explore how the concept of equality came into being within their family, to discover the strengths and weaknesses of trying to make all actions “fair” all the time, and to agree on a new system of addressing fairness issues going forward as family, as employers, and as business owners.
Entitlement Due to Role Dissatisfaction
The final scenario which we will discuss concerns shareholders who are locked into an ownership position because of an inheritance received from a previous generation. A shareholder who views him or herself as stuck in an investment may develop an underlying bitterness about the lack of adult freedom to choose who to be in business with. We have seen situations where what has appeared to the family as behaviors of entitlement are actually pleas to exit ownership and to allow the freedom to choose that exit. This scenario should be addressed through a candid discussion with the shareholder who is dissatisfied with that role. This candid discussion, preferably with a neutral party (such as an outside advisor or an owner who is not involved in the business) can reveal the internal desire for “emancipation” which is masquerading as disgruntled demands.
We find that exploring the above options will often produce new understandings and behaviors of greater appreciation among shareholders.
The opposite of inappropriate entitlement is gratitude. A person who demonstrates an attitude of gratitude appreciates that which has been given and understands the underlying qualities of the gift received. The above approaches to entitlement can help a family experience a greater sense of gratitude. Of course shareholders should have expectations. But expectations should be overt, shared and commensurate with one’s contribution.