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When kids feel 'entitled' to the family business

Senior generations may be unable to "let go" of family businesses, but younger generations are showing they have the inability to "take hold."
/ Source: Business Week

Not too long ago, a golfing buddy and I were talking about family members in business together. He pointed out that he knows a lot of members of the younger generation who are waiters. "Waiters?" I asked. "Yes," he replied. "They're waiting for their parents to die."

In my column last month, I wrote about senior generations unable to "let go." But as I also mentioned, this story has a flip side. And that's the younger generation's ability to "take hold."

'Generation E'?
At a recent family meeting with a mother and 33-year-old son who worked together in a struggling business, I asked the son about his commitment. "I really like this business," he replied. "I make a good salary. I've got a nice office, two nice cars, and lots of freedom to spend time with my kids." I scanned Mom's face for some revealing body language, but none manifested itself. Her flat expression told me that her son's answer didn't surprise her at all. "Is this what it's all about?" I thought. "Is this 'Generation E'?"

The "E" of course, stands for "entitlement." And it may well be of epidemic proportions.

There's the classic tale of the son who, upon college graduation, is handed a portion of the family's business. Dad says, "I'd like you to start out in the warehouse. You know, learn the business from the ground up." The son replies, "That's awfully messy work." "Perhaps you'd like to work in sales," Dad continues. The son responds that he really doesn't enjoy traveling, and cold calls are hard to make. Dad then asks his son if he would like a position in the accounting department. The son replies that numbers simply aren't his strong suit. "How about something in information systems?" Dad forges on, and the son replies that he really isn't into computers.

"So," Dad persists, "what is it you'd like?" And the son answers, "I guess I'd like you to buy me out."

Good intentions
How did we get here? What's the source of this entitlement? Although this certainly isn't the situation in all business families, I've seen it in far too many, and its roots appear deep. My sense tells me that lots of the parents — children of Depression-era parents — had to work extremely hard to achieve financial independence and success. Their parents instilled in them a work ethic that involved long hours, hands-on management, and intense attention to detail.

In turn, these children pledged to make life easier for their sons and daughters: cars when they turn 16, fully paid college tuition with no loans, and even a piece of the family business with a job that's often all too cushy.

Families prone to this situation do have some options. For one, the family can insist on "entry criteria," a set of conditions younger-generation members must meet before they can come aboard. These typically include gaining some work experience outside the business first — a great opportunity for the children to prove themselves, make mistakes in someone else's backyard, and ensure that they are bringing something to the party.

Inflated salaries
Outside work experience boosts self-esteem and also has a deeper practical value. After all, taking into account that barely 1 out of 3 family businesses will survive through a second generation and not even 1 out of 10 will make it through a third generation, doesn't it make sense for younger-generation members to know that they can make it on their own if they have to?

Another option is to keep compensation and perks in line with fair market value. More than a decade ago, I met a 29-year-old who worked in sales in his family's business. He "earned" $750,000 a year, and actually thought he merited it. Although he possessed true talent and contributed significantly to the company's growth and profitability, he didn't understand, and was never told, that his dad was actually giving him a gift way out of line with what he would have earned sans nepotism.

A colleague and I have worked with several families in which the senior generation demonstrated concern about the next generation's commitment and ability. He established a covenant of sorts -- a set of performance criteria similar to a typical bank loan agreement. It gives the seniors some assurance and protection and sets goals the children must meet before they receive additional responsibility and ownership. For the younger-generation family members, it fosters much-needed accountability.

Setting limits
Hard work, oftentimes long hours, and an intense personal commitment are still basics in the formula for a successful business. And in a family enterprise, senior-generation family members waiting for their children to "take hold" are often unwittingly inhibited from "letting go," trapped by their own history and desire to "do" for their children.

For parents, setting limits makes sense -- no matter what the age of the kids.