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University of Massachusetts Amherst

Family Business Center

Sponsors Play "Stump the Panel"

by Shel Horowitz

At the Family Business center's March '03 gathering, a key player from each of the Center's sponsors discussed approaches to two of the hard cases that come up in a family business.

Ron Weiss (of Bulkley, Richardson and Gelinas, LLP), Kris Houghton (Meyers Brothers), Dave Hobert (Sovereign Bank), Charlie Epstein (MassMutual, Rick Giombetti (Giombetti Associates), and Scott Farland (Momentum Group) joined forces to enlighten attenders. Each brought a unique slant to the issues on the table.

The first case involved Chip, son of a hard-driving entrepreneur who has just unexpectedly died while confronting an IRS auditor. Chip has worked in the business, but unlike his authoritarian dad, he's a people person, driven more by strategic questions than by pure entrepreneurship.

Giombetti, coming from an HR consultant's viewpoint, asked if Chip in fact wanted to run the business. If the answer is yes, "surround yourself with good people, have a meeting with the management team to express your operating style." If not, read Marcus Buckingham's book, Strength Finders to help identify a good outside candidate.

The marketing consultant's perspective was similar: Farland suggested, "get the issues out on the table quickly." While employees will be fearful of change, Chip's more personable style will win them over.

The accountant, the insurance advisor, and the lawyer want to get the facts straight first. Houghton immediately noticed the IRS auditor: "What was he addressing? How deeply rooted are those issues?" Epstein wanted to know, "was there key man insurance in place on the father? Having that money paid tax-free provides liquidity to make choices. The law makes you insure the building, the cars, but usually you don't insure your most important asset."

And Weiss asked, "who owns the business? The odds are, if Chip's mother is alive, he doesn't own the business. If he doesn't own, he needs to find out how much leverage he has."

The second case involved passing on the business to the next generation. Two brothers had been equal partners for 20 years.But one had only one child in the business, while the other partner had two. How will the assets be distributed?

Weiss said the parent of one child wouldn't want to divide the business in thirds, because it puts his son at a disadvantage. ButEpstein noted that a 50-25-25 split would also be awkward. He also pointed out that income and stock ownership could be separated. Houghton saw a real-life case where the business stock was divided in thirds, and one of the heirs sold - creating "a taxable event." And the equal division also raises expectations that power, status, job titles and salary will have to match.

Giombetti said the situation was set up for failure. " This scenario predisposes us toward anger, frustration - somebody's going to be unhappy. To separate business issues and emotional issues requires maturity. Take the emotion out; make good solid business decisions."

Which led Epstein to provide the closing wisdom: "These boys will have 30 years to compensate based on performance. You want to empower all three to be successful going forward, but you don't want to penalize the one for his inheritance."

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