An old saying goes: “Families are equal; Businesses are equitable.” If you run a family business, however, the ideas of fair and equal may not always match up.
After decades of experience working with Australia’s family businesses, we’ve seen first-hand how challenging this issue can be. It takes careful planning and a deft touch to navigate successfully – not an easy balancing act.
Desire for Equality Creates Unrealistic Expectations
Generally speaking, equality is much easier to understand and strive for. Most parents love their children equally and want to see all of them develop successful
In a family business setting, however, equal family treatment can lead to unrealistic expectations among children about income, titles, distributions, and other perks from the business. Moreover, some things simply can’t be divided equally – every child can’t be CEO at the same time, for example.
At Insights, we believe equality is an outstanding ideal for the family unit, but family businesses should strive to make things equitable when possible. Unfortunately, this isn’t always simple.
The Challenge of Equitability
Every business struggles with equitability. This is because every employee and manager has a different personal interpretation of what fairness means to them. It’s a major subjective and psychological hurdle.
There are practical considerations, too. Certain children may devote more time and effort to the family business than others. Some children may prove more capable of handling an inheritance than others. If you divide the business among them equally, the results might seem quite inequitable.
Business owners must also consider estate and succession planning. Do active and inactive children each receive voting rights and an equity interest in the business? Should one child be encouraged to buy out the others? Does the oldest child automatically take over once the owner steps down? How do you ensure you aren’t trapped by traditional thinking along gender lines?
Work Together and Communicate
Communication is key. Family business owners need to come together, work together, and set clear expectations and consequences as it relates to equitable distributions and the family estate. We highly recommend leveraging a formal Family Constitution for these purposes.