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The Partnership charter

The Partnership Charter by David Gage Millions of people co-own closely held companies, family businesses, and business partnerships, but establishing them and keeping them together is never easy. Here, finally, is the guide they have been waiting for.... Read More

Therapy for the Family Business

The New York Times

by Julia Lawlor
The New York Times, Money & Business
November 22, 1998

After 25 years of running their own business, Jack and Alyce Schmidt had a vision. When they retired, their three children would take over and work together happily, each getting equal pay.

Today, the kids are struggling to make the dream come true. In 1991, the Schmidts moved to Florida and handed over Spacesaver Systems, Inc., a $7 million storage-management company in Kensington, Md., to David Craig, 36, Alyce’s son from a previous marriage, and Amy Hamilton, 35, and Carla Adam, 37, Jack’s daughters from his previous marriage.

But long-latent tensions among the three began bubbling to the surface, and this year they sought help when they found they could not resolve disagreements over pay. Ms. Adam, who had joined Spacesaver only three years ago and is now a sales representative, was earning considerably less than Craig, the company president, and Ms. Hamilton, an executive vice president, and she thought raises should be given more often.

“When our parents were here, they called the shots,” Craig said. “Now they’ve said, ‘You guys figure it out.’ And we’re not sure how to do it.”

Instead of hiring a consultant or going to a lawyer to draw up a traditional partnership agreement, though, the three chose a path that lies somewhere between consulting and therapy: a “partnership charter” pioneered by David Gage, a clinical psychologist and founder of BMC Associates in Washington.

According to Gage, a partnership charter is aimed at driving hidden angers and resentments into the open before they can damage or even destroy a business. It is essentially a new way to address an old problem: staving off the sorts of disputes over money and power that have been the undoing of many family enterprises.

Half of the owners of family firms in the United States expect their businesses to be jointly owned and managed someday by at least two of their children, Gage said. Yet the chances of that happening are slim, according to Joe Astrachan, editor in chief of Family Business Review. Seventy percent of family businesses are sold or liquidated before reaching the second generation, he said.

“People often spend a lot of energy avoiding issues because they imagine they won’t be able to handle the intense feelings,” Gage said. “They talk about money, but not in the depth they need to. They say they’ll be equal partners, get equal pay, work full time. But what does full time really mean? Partners often run into problems because someone feels it’s not fair that he’s putting in more hours or bringing in more business than the other person.”

First, Gage gives a personality test to wrangling family members or other partners, to get clues on how they can best pool their talents and avoid tasks for which they are ill-suited. Ms. Hamilton and Ms. Adam were surprised to find that their scores were similar in one area—”dominance,” or overcoming opposition to accomplish results—because Ms. Hamilton had always appeared to be bolder.

“Carla is much more reserved and quiet than I am,” Ms. Hamilton said. “People tell us we’re like night and day. She may feel strongly about something, but she keeps it bottled up.”

Now that they are aware of Ms. Adam’s strong drive to succeed, both Ms. Hamilton and Craig are more willing to let her try more responsible roles in the company.

The test also showed that Ms. Hamilton scored high in persuasiveness and Craig in traits like conscientiousness. That helped to explain why the two worked so well together.

Step 2 was for Gage and Martin to meet with each of their three clients separately, to talk about hopes and frustrations, and then to put all three in the same room to air problems. The exercise brought all sorts of issues to the surface that the three had been loath to discuss: how, years ago, Ms. Hamilton had felt anxious about her own future, when it was clear that her stepbrother was being groomed to be president; how Craig had a tendency to avoid conflict; and how Ms. Adam felt like a fifth wheel in her stepbrother’s and sister’s smooth machine.

“Amy and David had been working in the business together for so long, they were pretty close,” Gage said. “Carla had a hard time breaking into that. They’re just figuring out now how to be a three-person partnership.”

The three are now drawing up their partnership charter and hope by the end of the year to decide their roles and compensation. “It’s remarkable how far we’ve gotten,” Ms. Hamilton said. “We decided whatever comes out of this, we’ll agree to go with it.”

From the personality test, for example, they said they learned that Ms. Hamilton did not need a lot of details in order to make a decision. So the charter will probably spell out that anyone presenting an issue to her should do so with broad-brush strokes rather than exhaustive specifics.

The Schmidts’ children went to Gage before problems had a chance to do real damage, but other clients find him after learning some hard lessons.

Michael Hubert, for example, sought help after the breakup of his partnership with his father and brother in a dispute over the direction of their construction company in Gaithersburg, Md.

To avoid repeating that fiasco, Hubert said, he and his new partner have spelled out their expectations for each other and the business and their plans for dealing with disagreements or the desire of either to leave.

“I wanted a partner because the burden isn’t all on me; it spreads the risk,” said Hubert, who is 39. “The last time I wasn’t prepared. I want to make sure I’m never in that situation again.”

Sadly, the painful experience he endured is all too common. “Family businesses don’t want to admit they’re having these problems,” said Nina Paul, executive director of the Family Business Forum at American University in Washington. “The reality is, they all do.”

Catalysts for Conflict

Seven common sources of dissension in family businesses:

  • The founder/owner’s slowness in ceding control
  • A family member’s failure to consult with others on important decisions
  • Inadequate response by the founder/owner on important decisions
  • Use of company funds to compensate inactive family members
  • Wide gaps in pay levels for active family members
  • Hired managers’ resentment of family members
  • A lack of management direction because of the founder/owner’s prolonged illness or heavy travel schedule

Source: Sherrod Morehead and Peter Calfee, Family Business Advisory Partners, Inc., Cleveland