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Helping Family Businesses
Prosper Across Generations®

Making Sibling Teams Work

Research tells us that more and more business owning families are considering succession to a team of siblings who would own the familys business together. Primogeniture, it seems, is far less popular than it once was.

While sibling team ownership (and leadership) can work, it is risky. Our experience suggests that about half who try break up. For a family, those are high stakes. Before concluding that sibling ownership is best, please consider the following as pre-conditions.

  • Redemption and exit plan finalized. A system which permits someone to exit and sell their shares including the pricing and terms should be in place. (Some families deliberately make exit impossible. If so, the arrangement should be legally binding and all should morally pledge to uphold it for the reasons it was chosen.)
  • An independent, outside Board. The best forum for debate and the best possible insurance policy, independent outsiders should be a well established part of the company's governing structure.
  • Siblings code of conduct. The team should explicitly agree and commit to writing how it will make decisions, resolve conflict, treat each other, deal with the press and outside world, conduct business affairs openly and ethically, and relate to each other.
  • Proven success at conflict resolution. All team members must trust that serious problems can be overcome without the intervention of parents.
  • Experience with open disclosure. Each knows and accepts past and present salary and perks arrangements. All should know about any parental support and gifting.
  • Method for future compensation. A process should be in place to set future salaries, bonuses and dividends and to audit perks and financial relationships with the business and each other.
  • Completed, known estate plans. These arrangements assure security for spouses and children and should be finalized and shared with each other.
  • Participation agreement. All understand who can work in the business and who can own stock, including consideration for spouses, children, stepchildren, other relatives, etc.
  • Familiarity and comfort with outside directors and key advisors. All members of the sibling team should have good personal relationships with the directors, lawyers, accountants and other important consultants.
  • Consensus on future of key non-family executives. All need to respect the others who make the business successful.
  • Shared sense of purpose. The duties and burdens of ownership are acceptable when business continuity has significant meaning for every team member.

Too often families become excited with the prospect of siblings working together in ownership or leadership. We recommend that the cherished dream of one's children working together be considered provisional until the preceding pre-conditions are met. Giving that task to the sibling team themselves is a good test of eventual feasibility. It is also a great way to strengthen the team.

 

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