The Hidden Cost of Family Conflict: How Unresolved Tension Erodes Business Value with Phelps Wood

Phelps Wood (00:00):

When families grow, it starts to become more about how do you keep the family together? My father failed in one way, which was succession planning.

Jonathan Goldhill (00:09):

We’re having a conversation about stuff that really points to why businesses don’t make it to the third, the fourth, fifth, sixth, seventh, eighth generation, right?

Phelps Wood (00:17):

If you kill the golden goose business, if you kill the golden goose that’s laying the golden eggs, then you’re gonna create different problems in the family. The benefit of owning a family business is to be able to do some things that would not make sense necessarily for a regular business. I promise you, everybody has an idea of what succession looks like for them. I think it’s much deeper and it’s kind of an operating plan of how we are going to make decisions about this business or these shared assets that we own together?

Jonathan Goldhill (00:48):

Welcome to Disruptive Successor, a show for next generation leaders in family businesses and entrepreneurs who wanna disrupt the status quo and take their existing business to a whole new level. We all know that what got us here isn’t going to get us there. This show will provide inspiration, advice, and resources to help you create massive impact.

Jonathan Goldhill (01:18):

This podcast is sponsored by myself, Jonathan Goldhill, and my company, The Goldhill Group, where we provide coaching for growing companies. I’m Jonathan Goldhill, and my purpose is simple: To guide entrepreneurial leaders in family businesses towards more freedom and fulfillment. I want entrepreneurs to get clarity around the changes that will make them and their businesses more successful so they can experience the same freedom I’ve enjoyed in my life. Our proven practices challenge business owners to think differently about their business and how they’re running it, and quite literally become game changers in our clients’ companies. Learn more at thegoldhillgroup.com website where you can schedule your free strategy session.

Jonathan Goldhill (02:11):

Welcome to another episode of The Disruptive Successor Show. I’m your host, Jonathan Goldhill, and today we’re examining something that almost every family business experiences, but few know how to measure, and that’s the cost of unresolved conflict. Family disagreements are often treated as personal matters, something the family should resolve privately. But when those differences remain unresolved, the consequences don’t stay within the family. They affect employees, employee retention, decision-making, business strategy, succession, and ultimately the value of the enterprise. Joining me again is returning guest Phelps Wood, now a senior consultant at Continuity Family Business Consulting. He appeared on episode 87 of The Disruptive Successor Show, where he shared his personal real-world experiences and lessons learned while navigating succession in his family business. Phelps draws on his experience running a family-owned natural resource firm and leading the ownership transition of his family’s business. Today, he helps enterprising families navigate the friction that arises as they and their businesses grow.

Jonathan Goldhill (03:30):

My guest holds an MBA from Northwestern’s Kellogg School of Management and is based in the San Francisco Bay Area. Phelps, welcome back to The Disruptive Successor Show. It’s great to have you back.

Phelps Wood (03:41):

Thanks, Jonathan. It’s nice to be back. Nice to see you again. All

Jonathan Goldhill (03:45):

Right. Well, let’s pick up from, gosh, four years ago, or three and a half years ago, episode 87, for listeners who may not have heard your first appearance. Tell us briefly about your family business experience and how it shaped the work that you do today.

Phelps Wood (04:03):

Sure. , my family. Well, I grew up in a family business, as you mentioned. It was a manufacturing business in Southern California that my father owned and ran. And I did not work in the business, , at least not as an adult. I’d worked in it as a kid, as a lot of fam – you know, a lot of people do, growing up in a business. But my father, I’d say he failed in one way, which was kind of really succession planning for that business. He had an estate plan, , but he was still working in the business every day up until the day before he died, , as were my two siblings. And without any kind of a plan for who was gonna run it and who would lead it afterward, , it turned out that we didn’t have the conversations that we really should have had about direction and how we would work together to move forward.

Jonathan Goldhill (04:52):

Wait, just put a pin in that right there, folks, because people be like, “Well, yeah, my father’s got, or my parents have an estate plan.” But an estate plan and a succession plan are so different. Do you wanna just, like, tell the listeners the distinction?

Phelps Wood (05:10):

Sure, sure. I mean, I look at it as, , an estate plan kinda tells you where the assets are gonna go, and, and a lot of it’s done for either tax purposes, , if you’re a quite wealthy family, or for, to avoid probate, , which is, , it just, it’s a whole other story. I’ve gone through that on a different bent, and that’s no fun. , But a succession plan i- i- I think is much deeper, and it’s kind of an operating plan of how we are going to make decisions about this business or these shared assets that we own together? Who is going to be in the room making those decisions? How do we work together to solve problems, to overcome differences that we have? There’s a lot of components that can go into a succession plan. Some people think of it as ownership succession, you know, who’s gonna be the owner?

Phelps Wood (06:03):

Also look at it as leadership succession, who’s gonna lead the business? Those are conversations that even if you haven’t figured out a specific kind of cut and dry plan for that, , at least having those conversations are important.

Jonathan Goldhill (06:20):

So every family’s got a conflict style, I would say, or, or lack thereof. What was the conflict style of your family, Phelps? , I think my,

Phelps Wood (06:30):

I think my dad was, and I think I may have mentioned this in the, in the prior one. My father was really kinda conflict averse. And I, I think. So one, I like to define conflict. , I like to. In my current work, we spend a lot of time working with families that initially come to us because they have troubles managing their differences. And I like to phrase it that way because the differences may be just a disagreement. You and I may be disagreeing about something. But if you’re really conflict averse, you may see that as conflict. I may just see that as a disagreement that, you know, is not really that severe. , So my father, I think, saw what you and I would call a traditional kind of business negotiation as conflictual, , at least between family members. So we buried a lot of stuff.

Phelps Wood (07:20):

Mm-Hmm. , we didn’t, didn’t talk about things. And that’s often something that I see in my work now. W – you know, I think the key words to look for is when somebody comes as, “Well, we’re kinda stuck. , We can’t make decisions.” We like to call that passive conflict. You know, they’re not actively knocking heads or yelling at each other, but they’re, they’re not able to move forward because they’re not able to surface things for fear of conflict. Passive conflicts kind of maybe fear of conflict.

Jonathan Goldhill (07:51):

Yeah.

Phelps Wood (07:51):

Did that answer your question?

Jonathan Goldhill (07:53):

Yeah. Yeah, definitely. I mean, I can think of my own life and somehow, , where I’ve been conflict avoidant at, at times or in certain situations. And that, that can cause a failure to move forward. And if everyone’s style is like that, then it’d be really difficult to move, move the family forward. So – Right. All right. So you obviously learned a lot in the last few years, and you joined Continuity, which is focused around conflict. So what have you learned since our last, since our podcast that has changed or deepened your understanding of family members?

Phelps Wood (08:29):

Well, I know I’m not here to, I know I’m not here to, to, to, to sell books, but, you know, but, but Doug Baumoel, who founded Continuity, and I know you had a conversation with him some episodes past, – Yes. Where he went into some depth, , really kind of br – he’s an engineer by background, so he, he, he tried to break down the components of conflict. , And so that’s, you know, part of our methodology and part of what we use. I mean, we don’t plug everything into a formula and come out with a number. Right. It doesn’t work quite that way. Right. But I think there’s really three components that we’re looking for when we’re talking with families when we’re onboarding them or initial engagements. And it’s really where are they with their goals? Do they have opposing goals?

Phelps Wood (09:14):

You know, is someone trying to row the boat to the left while somebody’s trying to row the boat to the right? That, that doesn’t, that doesn’t work. Do they have values that are incompatible? , I mean, examples would be, you know, we’re running a business and you’re very, you’re very averse to adding any debt onto the business. Right. I don’t have a problem with that. I wanna grow faster. I wanna use debt. We look at those as values. Those are. And so they’re, they’re, they’re incompatible. You can’t have. So how do you, how do you manage that? How do you come to some type of compromise? , And then the third piece is really what we would call historical impasses. I think, , you know, most people just call that baggage. – Right. You know, something, “You broke my toys when I was a kid.

Phelps Wood (10:01):

I still don’t like that about you,” or, “I was the older son and you felt that I was favored.” , those are little longer term pieces that have to be worked through, but you’ve gotta, again, you’ve gotta surface those issues, , to bring them up. Sometimes it can be more, you know, business related. So you were passed over for a job, , or you felt you were. You get paid more than I do, and I’m uptight about that. , It’s a lot of pieces that fold into it. But we’re trying to break down what the family is, it kinda how the family works and where people are to understand how we can address each of those components.

Jonathan Goldhill (10:45):

You know, what I love about the model and the whole notion that conflict affects enterprise value is that it, it, it pairs so well with Pat Lencioni’s philosophy around teamwork. And that teamwork is, like, the ultimate competitive advantage. And so when a family plays well together and works well together, they can really build a very powerful enterprise. And when they don’t, they can really destroy enterprise value. So we’re gonna get into, , how it gets, , destroyed in, in a few moments.

Phelps Wood (11:20):

Can I add one thing to what you just said? I think that’s exactly right. And, you know, the, the, the, the family businesses, the families that do that well, the families that are aligned in their vision for the business, you know, family businesses outperform non-family businesses financially over the long term. Yeah. And that patient capital, you know, what they call patient capital, those family members who are invested, both actually literally invested monetarily. But also invested emotionally in the business, even if they’re, even if they’re not owners, you know, family members who see this legacy as important to carry on, they’re just a tremendous asset. They’re probably an off balance sheet asset, but they’re a tremendous asset to the business. And so those are kind of the non-financial components that add to the financial piece for families who are running these businesses well and managing the relationships across their families well.

Jonathan Goldhill (12:22):

So I wanna get into the tangible costs of unresolved conflict, but I’m struggling with something first, which is, is conflict itself the problem? Or is the real problem the family’s inability to address and manage conflict? Maybe that’s just a conundrum.

Phelps Wood (12:40):

Yeah, I would argue, we would argue, I would argue continuity, that it’s, that it’s the inability to manage conflict. Yeah. Because conflict is inherent in a family business. You’ve got an interdependent situation where family members and the business are reliant on each other. I mean, if you back out of the business piece, conflict’s inherent in a family. Kids, you know, push against their parents too, to be able to grow and kind of learn how to develop. Parents kind of trade off that how much, you know, how much leash do we give our kid and how much, , do we reign them in? And so, you know, again, defining conflict, , as a spectrum, I see those as kind of closer, s – less kind of urgent to address. Those are kind of the typical co – you know, kind of – uh-huh.

Phelps Wood (13:32):

Disagreements, I guess, or differences that go on in a family. , But an inability to talk about those and address those is kind of what over time creates a bit of a cancer. And that can be very destructive.

Jonathan Goldhill (13:49):

So, I mean, does a family have to get into the emotional realm? Do they have to go through the historical impasse issues that you described or alluded to earlier to, to resolve these and to improve the performance of the business? Or can they, can they kind of skip over that? And like, I mean, how do they get to healthy conflict decision-making? It just, and just one more thought is, I mean, in, in most of the businesses that I’ve worked with, usually one sibling of the, , a- arises as the leader, this, the heir apparent, the CEO. And then the other one’s kind of like, “I’m not so sure this is, , this is what I wanna be doing because, , my, my brother or whatever wants to take on too much risk. I’m not, I wanna grow slower.” So, you know, I think this is a really challenging area for businesses.

Phelps Wood (14:45):

You know, and you brought up a lot of different, a couple different topics in there. I’ll take the last one first, which is, , just sometimes there doesn’t feel like there’s room for more than one person to be involved. And, and I think what the trap that some families fall into is they’re looking backward of how this was done before? And this is often a trap that the founders, you know, fall into. I had this experience. Right. You, this next generation will have to have that experience to be able to move this forward. And that’s kind of the, I think, you know, it’s one of your, one of, one of the quotes that you talk about is, “What got us here won’t get us there.” Right. And that’s important to know. Certainly somebody who grew a business from zero to $50 million is very different from the person that’s needed to grow that business from $50 million to $250 million.

Phelps Wood (15:40):

Probably very different from what you need to run the business today at $50 million that they just haven’t identified. So that’s one piece of it. You, you also mentioned, you know, there’s, there’s family members who maybe aren’t interested in kind of working in the business or the nuts and bolts of the business. And we deal with a lot of families, businesses that are quite large. , And there’s room in other areas that are ancillary that are important to the family. , Because when families grow, it starts to become more about how do you keep the family together? The business itself is operating. It may even have non-family members running it at times. But the important piece then is the owners of these businesses, the shareholders, which are family members. How do you keep them engaged? How do you keep those relationships tight when people are growing and moving all over the country or all over the world?

Phelps Wood (16:39):

And that’s a little bit of a different problem, and that’s where there’s some other components that may come in, whether it be, you know, philanthropic efforts that they can do together regardless of the business. I mean, even just the, you know, getting together annually in some type of retreat and having fun. – Right. It doesn’t have to be business focused. Those are all things that, that families that I’ve seen that are successful are spending time and effort to make sure that they happen.

Jonathan Goldhill (17:13):

Well, you know, my background is that, , I’m not, I’ve not worked in very large multi-generational families, but I’ve worked in some very large community-based organizations. And conflict can really slow down decision-making. Even the smallest conflict, because it might be a procedural or process conflict. It might be a personality conflict. There’s a power play. I can only imagine w – how it slows down in a large multi-generational family business where some family members are operating and some are not in the operating business. So could you describe maybe what that looks like inside of a leadership or ownership group at, at maybe a, one of your clients or a typical client? Sure.

Phelps Wood (18:01):

Sure. Well, so, , there’s a family that I’ve been working with for several years, and, and it’s very tightly owned. It’s actually, there’s four owners, even though it’s a third-generation family, and they have what I would call a work-to-own model. So you have to work in the business to be an owner. That’s why ownership is so concentrated. It’s not a bad model, but for a business this size, it’s a pretty big business, a thousand employees, probably over a half a billion dollar value business. It starts to present some different types of problems, especially from an estate planning standpoint. But what. So what we found, , with this family is they were going through some conflict, and exactly what you just mentioned is it slowed down decision-making. They own a bunch of different businesses. They’re all kind of, I’ll call it … They’re all kind of interrelated, and they’d acquired a lot of these, but they weren’t really able to integrate them well because they couldn’t make the decisions around how are we going to integrate them?

Phelps Wood (19:02):

Do we integrate them? That kinda stepped on toes of one of the family members who was running kind of a unit of the business. And to be honest, the family in the past had kinda siloed up because they’d had disagreements. And so brothers didn’t want to work for another brother. They wanted to run their own thing. And they were tremendously successful from a business standpoint, but they’re at a size now where they’ve gotta kinda change the way that that happens, and they’ve gotta be able to communicate and get aligned around a direction for it. , So those decisions were not happening because they were in, they were in such disagreement. And it, to be honest, was kind of an existential threat, for the business.

Jonathan Goldhill (19:51):

Sure. Sure. All right, let’s, let’s see if we can put some real numbers around the cost of conflict. I know that’s probably challenging, but, you know, what expenses, lost opportunities, you know, valuation factors would you examine? Do you have any data on that?

Phelps Wood (20:09):

Yeah. I mean, again, it’s gonna differ for every business. But I think one of the examples I like to use is just, it’s just the cost of replacing people who walk out the door. Sure. There’s, you know, there’s often. I mean, I tell you, your A-players. I mean, you wanna hire A-players, right? And your A-players will very quickly leave if they find that they’re not being supported or they’re not able to achieve, you know, what they wanna achieve within the organization. And often when, a non-family member shows up at a business and finds that either things are moving very slowly or they weren’t really told the whole story, , or they’re not able to achieve their goals within the business because of a lack of decision-making by family members or that, they’ll walk out the door. And, you know, they say that it costs 150% to 200% of that person’s yearly salary to replace them.

Phelps Wood (21:03):

So if you’ve got an employee – Exa –

Jonathan Goldhill (21:05):

And at the executive level we’re talking about,

Phelps Wood (21:09):

Correct? Yeah. Yeah, we’re talking at the executive level. It might cost more than that. I’ll give you an example – Right. Where it’s a lot more expensive than that, the executive level. But I mean, let’s use an example of somebody who’s a very, very good salesperson. By the way, salespeople are pretty – Right. Mobile, right? So – Right. When you lose a salesperson, you’re losing not only whatever, you know, it’s gonna cost to replace them, which is gonna be costly, but they’re not selling when they’re gone, which. And if they have relationships that are specific to them, , you run the risk of a different factor, which is – Sure. That they take those relationships with them, and maybe some of the internal difficulties at your business or the family difficulties at your business get communicated to those relationships, , which I think is a different cost and problem because it’s hard to win those back.

Jonathan Goldhill (21:58):

Yeah. So –

Phelps Wood (21:59):

Dollar-Wise, I mean, I walk you through a little bit of the, you mentioned C-level

Jonathan Goldhill (22:04):

Loss. Mm-Hmm.

Phelps Wood (22:05):

worked with a company where their CTO left. So that CTO was executive level, obviously, their chief technology officer, making, I think, close to $200,000 a year. So probably in the range of 300 to 400,000 in cost to replace that person. But more importantly, that CTO was in charge of integrating data, kind of data systems and ERP enterprise, you know, enterprise systems across this business. We’re gonna save three plus million dollars a year ongoing for this business. All of that three million drops to the bottom line if you get those things. Right. But as soon as he left, all that work stopped.

Jonathan Goldhill (22:55):

Got put on hold. Unbelievable. Yeah. So it’s, it’s, it’s hard to quantify these things, but the multiplication factor is pretty big. And, you know, it’s just an ex – that’s just one example. I think every example would be different. You know, so there’s a lot of warning signs that other advisors, wealth managers, business advisors, estate planners, they, I mean, they might get a, a, a hint of, but they miss the warning signs in these families that they’re, that there’s business conflict, that it’s kind of remained hidden beneath maybe politeness or avoidance or, a parent agreement or, well, you don’t need to talk to my son or daughter. You know, I’ll just be the only one making the decision here. I mean, you know, and one of the things that, again, Lencioni talks about is that artificial harmony. And, you know, in a business where you don’t really have conflict and you never argue.

Jonathan Goldhill (23:58):

That’s, is that healthier than arguing openly? I mean you can see the two extremes. – You know,

Phelps Wood (24:04):

You wanna get to a point where you can disagree agreeably, right? Right. You probably heard that, that term. And so, and you, and ideally, and that’s, I mean, that, I’ll be honest, that’s one of the areas where spending a lot of time with families is facilitating conversations. And so, conversations between family members can quickly drag in a lot of those components that I mentioned earlier, historical baggage or that. So, how can you help family members and non-family members communicate in a way that is productive, and kinda get to the, get to the facts, lower the emotional level of these, normalize the fact that people are going to disagree at times, or that, new ideas, you know, can be vetted without threat to people. It’s touchy depending on where people lie at the get-go, but it can, it can be done.

Phelps Wood (25:05):

It can be done. And you, you brought up some of the warning factors in – Yeah. That you walked through. I, I don’t know if you want me to expand on those, but –

Jonathan Goldhill (25:13):

Yeah, I mean, I’m just. I mean, one of the things that I see a lot and in, in personal relationships is what I call, or what psychologists call triangulations, which is where, you know, person A goes to talk to person B about the issue they’re having with person C. And that makes things worse between A and C. Yeah. So that’s a really unhealthy conflict. And I, I think also, Phelps, is that the older people are, the more hardened they are in their emotional behaviors. And so, the more difficult it is to change those people.

Phelps Wood (25:51):

Without a doubt. Without a doubt. And I, and I think, you know, the, the solutions to some of these things is, , in a family business is, is often, it’s not just one or the other. It’s not just structural change. I think that’s where some advisors, , kind of fall short, is to say, “Well, here’s some best practices. This is what you need to do. You need to implement a board. A board will make your decisions,” or, “You need to, you need to have this kind of process.” And those certainly can be helpful. In fact, we spend a lot of time, you know, working with families to initiate those things. But there’s not a blanket kind of prescription for everybody. And, and really, best practices, we often think that the best practices ha – for your business have yet to be written because your business and your family are unique.

Jonathan Goldhill (26:41):

Good point.

Phelps Wood (26:41):

But so there are some structural issues that you can address. And then there’s also some personal growth that may need to happen. That happens a little slower, generally, than structural issues. I mean, once people align around a structural change, you can generally make that happen quickly. Personal change takes more time. But a lot of the time, we’re just trying to get the boat pointed in the right direction.

Jonathan Goldhill (27:08):

So let’s just define what you mean by structural change, because I’m thinking, , we’re moving Johnny into the CTO seat, and he’s been in a CIO seat or CFO seat. I- is that an example of a type of structural change or we’re having meetings. We’re gonna now have a family business meeting once a month. We’re gonna have an ownership team meeting once a quarter, and we’re gonna have reports that come out in advance. I mean, so tell us more about what you think.

Phelps Wood (27:38):

Yeah, I think, I mean, I think those are, especially that latter part are, are, are effective. I mean, being able to, helping people understand that, okay, we’re gonna have an ownership meeting, so we’re all wearing our ownership hat today. Yeah. We’re gonna have a, we’re gonna have a business meeting that’s more operational. And so, and that’s gonna be restricted to the people who are busy making those decisions. It may or may not be the same people in the other room. More large scale, and the company that I mentioned had this work-to-own model. So we saw that work to own model as a structural, as something that exacerbated the friction between family members. All right? And I’ll give you, I’ll tell you why. And that is because if you have to work to own, if you no longer work at that business, so if you get laid off or fired, you no longer own.

Phelps Wood (28:26):

Or die, for that matter – Yeah. Right. Then, then you no longer get to own shares. And if you die, guess what happens? Well, the business buys out your shares. So it created a structural issue in two ways. One, by the way, the company already had a ton of debt on it from buying out family members who had exited in the past, some of their own accords, some because they were pushed out, pushed out. But it’s an existential threat for a family member. If I have to work in this business to be an owner and I get fired or I wanna leave because I wanna do something else, I give up my shares. And that means my kids won’t be owners. I don’t know what their path is into the business if they have one. That’s structurally a problem that exacerbates any type of friction that’s there because if you’re using that as a threat or you’re concerned about that, it’s a whole nother level.

Phelps Wood (29:23):

So that was something that we recommended. We really spent a lot of time talking about what changes would look like and really spent the last two years with this family changing that over time. And it has changed now. And in fact, we believe it enables them to continue to be this multi-generational business that will be owned by future generations. Some of those generations may decide that they want to exit ownership and there’s a pathway for, to do that. , But the hopes are that most of them want to stay in the business. Does that give you a A little bit of a idea

Jonathan Goldhill (30:02):

From a structural – Yeah, I’m trying to understand a little bit of that. I mean, I get the work to own. It seems like they should have continued to own once they already worked and earned ownership. But I’m kind of not clear on what the agreement or lack of agreement or disagreement looked like within that enterprise. And maybe more generally, you know, when does normal disagreement become a threat to business continuity?

Phelps Wood (30:26):

Well, I think they, I think that they, that family had kind of all three components that I mentioned. So there were some people with different goals, they had some differences, they had some incompatible values, and they had a lot of history. And plus, there’s another component that factors into this, n- not just in this family, but in other families, which is grief. I mean, these are, some of these families have lost family members, either parents that died young or family members who met tragic ends. You know, if a family isn’t good at talking about things, they probably haven’t spent a lot of time talking about those things. And people making decisions while they’re grieving is tough. And I speak from my own experience. I mean, when we spoke, you know, last my father had passed away, I think, three years before that.

Phelps Wood (31:20):

I had started working with my own family two years after his death. And, I think my brother and sister and I were all still affected by his passing. And, you know, it’s, you don’t make good decisions when you’re under stress. And grief is a level of stress that I think people underestimate. So there’s, there’s multi-factors in the example I was giving you.

Jonathan Goldhill (31:52):

So let’s, you know, the other thought is, and like this also comes up personally, is that what’s being argued about is not really what you’re arguing about. In other words, it’s not the real source of conflict. And how important is it in your model, in your work, to understand the root causes of the conflict?

Phelps Wood (32:16):

Yeah, it’s essential, right? It’s essential. That’s why, you know, we try to break it down into these components. I mean, I think, you know, the question is of what’s the problem behind the problem, right? Right. Right. And so we’re constantly kind of, kind of digging at that in a lot of different ways. I mean, one of the things that, you know, when, when we’re, you know, we often lead. We don’t like it when families vote because voting, unless everybody votes, unless it’s unanimous, you know, voting has losers. And if it’s the same loser over and over again, they start to harbor resentment. So we like to run what we call a consensus building process. And so it’s really, we’re trying to get everybody above the line, so to speak. And while we’re doing that, we’re trying to understand, you know, if you say, “I don’t want, you know, I don’t wanna put on debt.

Phelps Wood (33:04):

I don’t want debt on the company.” So that’s a position. You know, and my argument would be, “Okay, Jonathan, I understand that’s your position. What is the interest behind that position, right? And this is a common kind of mediation or, you know, negotiation technique. But, you know, really getting to that interest-based piece of what, what’s driving that, you know? And what, what is it? Sometimes it’s emotional. And, and sometimes it’s hard to get that out because you haven’t thought about it enough. And it has an emotional component, and it’s hard to put emotional pieces into words, but when you can get to the level where you say it’s just emotional, it concerns me, then we can start looking at solutions, right? Well, what would, what would make you feel better? Well, in what circumstances could you do that? You know, is there a way we can put some safeguards on that that would make you comfortable?

Phelps Wood (33:53):

Can we baby step into this? And we’re trying to work at it at every angle. I mean, to be honest, we, you know, you gotta find something that, you gotta find something that works. But did that address your question? Or I, I feel like.

Jonathan Goldhill (34:08):

It seems that these disputes, you know, the common ones might be around compensation of, , family members or business strategy, what direction, you know, do we go into a new market? Do we expand into this product? A- and along with business strategy, there’s financial strategies and operating strategies. And then job titles probably also come up. I

Phelps Wood (34:33):

Mean, look, I’ve seen, I’ve seen families that they, every family member in the business gets paid the same amount.

Jonathan Goldhill (34:39):

Yes.

Phelps Wood (34:40):

And, for some families, that works. And for some families, that doesn’t work. I’ve seen it where families get paid on merit and the position and market rates, et cetera. And that would seem to make sense. That works very well for some families. Doesn’t work for others. So, you know, it’s this question of, you know, in every, in a business, it’s, a business is a meritocracy. So ideally, you know, people who work hard and perform are the ones that rise to the top. In a family, you know, everybody’s treated equally. So if you come into a business with the family mentality of I’m gonna be treated equally, but you’re not performing, what. I mean, either way you go, you’re gonna create a problem. If you, if you pay that person the same as the CEO, the CEO’s gonna be ticked off.

Phelps Wood (35:33):

If you, don’t pay them and you pay them based on what they’re producing, they’re gonna look at the CEO who’s their brother and say, “Why don’t I get the same thing as Jonathan?”

Phelps Wood (35:46):

That’s a managea – that’s a, that’s. Then you start to get into kind of how do you manage expectations across that? And going back to your structure, so some of this is, you’ve gotta work at this over time, but we spent a lot of time drafting family employment policies for families. Mm-Hmm. And we’re doing that with the whole family, ideally, not just the ones that are in the business, but that family employment policy has gotta work for the family, but it certainly has to work for the business. If you kill the golden goose of the business, if you kill the golden goose that’s laying the golden eggs, you’re gonna create different problems in the family. But at the same time, we used to joke with my family that, you know, there were four siblings, there were the three of us in the business, not necessarily in that order.

Phelps Wood (36:36):

But I promise you that at the end of the day, if my dad had been given Sophie’s choice of, you know, shoot one of these, he would’ve. Well, I hope he would’ve kept the kids and, and shot the business, right?

Jonathan Goldhill (36:49):

Shot the business.

Phelps Wood (36:50):

But most, you know, most families wanna make sure that they continue as a family. And to be honest, those are the people that come to me now through Continuity. Right. Right. Our family, families who are, have gotten to a point, business-owning families have gotten to a point where they are concerned about losing their family.

Jonathan Goldhill (37:11):

Right. Right.

Phelps Wood (37:12):

I mean the business may be rolling along fine, actually. So, I mean, a lot of times, the business is doing fine.

Jonathan Goldhill (37:18):

Interesting. Yeah. One of my guests framed this up a while back and said, you know, here’s the question I always ask clients. First is, are you a family-first business or a business-first family? And it’s kind of an interesting choice that you have to make.

Phelps Wood (37:39):

So it’s interesting you bring that up. I’m working with a family that said that they shifted, you know, that in our conversations with them, they said, “Well, you know, we changed X amount of years ago from a family business to a business family.” And – Right. I would ask, “Well, what does that mean?” And I got a lot of different definitions from – Yeah. People. Sure. And, and what I, I’d make the argument to you that at some point, you’ve gotta do both. That you’ve gotta understand – I mean, you have to make sure that the business is running well and that it’s run like a business. But the benefit of owning a family business is to be able to do some things that would not make sense necessarily for a regular business. I’m not saying employ all your unemployable family members in it, that’s probably not a great idea.

Phelps Wood (38:32):

But hey, we’ve gotta make a distribution to help the family versus reinvesting this year. We want to be able to support these causes, or that are very dear to us in the community that may not have an, a financial return to us, but take care of stakeholders, whether they’re family members or others that are important to us. And, and those are decisions that families make with their wealth or with their business that also kind of bring family together.

Jonathan Goldhill (39:13):

Let’s talk about conflict during succession. So, right? Succession often brings dormant family tensions to the surface. Yeah. Because leadership, identity, ownership, and money, they all converge all at once. And so, you know, this is a conundrum, I think as a family approaches a leadership or ownership transition. You know, conflict shows up, I think, even more. Is that your experience?

Phelps Wood (39:43):

That is. That is. And I, I think, you know, it’s like anything where there’s uncertainty, there’s, there’s a lot of concern and, and stress around the uncertainty. And so for families who don’t have a clear path or, you know, because they can’t talk about what succession looks like, , everyone’s. I promise you, everybody has an idea of what succession looks like for them. Yeah. The chances that it’s aligned if they haven’t spoken about it is, is rare. And again, going back to that point of, if you’re waiting around for, if you’re waiting around for the, you know, the senior, kind of the senior generation to step down in their, in their late 70s, 80s, the chances are that, that they won’t step down, and that death will be the, the triggering event for the succession. And now you’ve got an unplanned succession, you’ve also got grief thrown in there.

Phelps Wood (40:41):

It’s not a great equation.

Jonathan Goldhill (40:45):

And these are not your clients, I take it, because they don’t come. If they’re coming based on the name alone of Continuity, like, family business.

Phelps Wood (40:54):

No, they are. I mean, some people, look, it’s never, it’s never too early to start planning for succession. It’s also never, never too late. , But the later you go, the l – the, the more your options constrict, I think. Right. , and that, that I would include that. I mean, I had a call earlier today around estate planning. I mean, that’s another component of it, if you got a really large business. Time is on your side. Time is your friend from an estate planning standpoint. But when you run out of time at the end there, you really limit your options from an estate planning standpoint to avoid, well, having to kind of give up either a fair amount of cash from a tax standpoint or even being able to keep the company and the family, if it’s that egregious.

Jonathan Goldhill (41:47):

Yeah. So, some quick takeaways that you might have for listeners, like, how can families create a healthy process for raising concerns and disagreeing with one another? Or, or do they just need to go right to the family business consultant or get a mediator or a therapist or some combination of professionals? I mean, what’s, –

Phelps Wood (42:07):

Yeah, I think it depends on what’s kind of what’s going on. I think each of those advisors has their different areas. I think one is getting advisors that are outside of your current advisors is often helpful. I mean, if you’re paying accountants or you’re paying lawyers, already, they’re either used to where you are or they don’t want to be fired by telling you some of the things that you may need to hear. I think that’s the benefit of hiring a third party. I mean, to be honest, one of our big benefits is telling people kind of the tough news, breaking the tough news in a gentle manner. , and that there is a path forward.

Phelps Wood (42:53):

I think, you know, we mentioned kind of me – you mentioned mediators or therapists. Like, we don’t do therapy. Therapy I think of as that, but although we will team up with therapists, if that’s the case, we do have some people that work at Continuity who have, you know, psychology background, so they’re bringing that, but we’re not actually engaging in therapy during our process. For some families who have deep-seated issues that they’ve gone through, or there might need to be some additional therapy outside of the work that we do. As far as mediators go, you know, we use a lot of mediation techniques, I would say, to make sure people are heard. But mediation generally functions well for disputes. Doesn’t function as well at what we’re working with, which is what we would call identity-based conflict.

Phelps Wood (43:48):

We mentioned kind of how you grow up, how you see yourself in the family and in the world. That needs a more nuanced kind of multi, kind of multi-skilled approach.

Jonathan Goldhill (44:02):

Not something they can do themselves, in other words, right? Or not easy. I mean,

Phelps Wood (44:06):

Look, self-help books have been successful for a reason. I think it works – Yeah. For some people. But, it’s not only about yourself, it’s about, about the other, you know, your. It’s a matrixed organization, right? I mean, how you relate to your parents, how you relate to your siblings or your cousins, that takes a lot more work and often you need a little bit of help doing that.

Jonathan Goldhill (44:29):

Look, I mean, you’re … we’re having a conversation about stuff that really points to why businesses don’t make it to the third, the fourth, fifth, sixth, seventh, eighth generation, right? I mean, and it’s not just conflict, right? There’s outside forces that are changing in the market, like, whether those be political or, you know, international or technological or whatever those types of things. And if you’re not adapting or adjusting to those, you know, the end is near in sight, for sure, right? But if you’re also postponing these conversations until the founder’s death or their health is so bad or you’re just not dealing with these conversations, this explains to me a lot why family businesses may be arguably the strongest of all businesses, but also have a difficulty of making it past a few generations. Just my thought.

Phelps Wood (45:25):

No, I think you’re right. And I think we’re always looking for, you know, I think Doug talked about this and pro – maybe with you is this kind of family factor, and we kind of define that as, a- a- as how, how willing are these families, , to, you know, colla – , really to collaborate, to forgive, , to commit to change. You know, that’s really important, and you’re trying to build those, you’re trying to build those skillsets in every generation, and they, those are, that’s the long game, really. And so, if you can play the long game in this area, then you can really set yourself up for success. And if you’re not, if, if you’re playing catch-up, then I think you really have to reach out to some people to help kind of accelerate that process.

Jonathan Goldhill (46:13):

All right. Let’s go into a lightning round, if you will. You know, I gave you some practical scenario questions. You, hopefully, maybe you can look at those. And let’s grab a few of them.

Phelps Wood (46:25):

Sure. Is there one that jumps out? I don’t, let me see what

Jonathan Goldhill (46:27):

I – , you know, I mean, the one that really interests me, I think, is scenario three, the underperforming family employee, right? A next generation family member is underperforming, but no one is willing to confront the issue. Like, what’s the cost of allowing that to continue?

Phelps Wood (46:44):

Oh, the cost of allowing that to continue is obviously underperformance and whatever that person’s role is. So, I mean, we talked earlier if they’re head of sales and you’re not selling anything, that’s kind of a problem. If you’re in an area, you know, if you’re in a regulated business or something that’s got a lot of risk and that person is running some division of that or some component of that, that’s a whole other level of problem. But I think there’s also a knock-on effect problem, right? Which is, all right, well, Phelps isn’t performing, and yet he’s getting paid X, Y, Z, or we have to pull his weight, or we have to cover for him. It starts to breed resentment, you know, across the family. It becomes probably even more difficult to kind of address. You know, I guess I’d back up, though, too.

Phelps Wood (47:27):

Sometimes the onus is not only on that person, the question is, all right, well, have you. Do you have any kind of very clear parameters for how Phelps is supposed to perform? Like, do you have clear. Does he have a clear role definition? Does he know what his, you know, his key performance indicators are? Right, right.

Jonathan Goldhill (47:45):

Does he have any reviews?

Phelps Wood (47:45):

I mean, what type of review process do you have? And so, you know, try to, try not to put all the onus on the individual. The individual may well be underperforming. , But in a family business, my argument would be, all right, well, how do we support that person to perform at a higher level? That’s the benefit that you have in a family business is, well, maybe, maybe he needs a little more education, or maybe he needs a specific, , you know, kind of instruction or class on, in some way. Maybe he needs a coach, a personal coach. So there’s some ways to address it. Again, this is, you know, high level. I don’t know the specifics.

Jonathan Goldhill (48:27):

But – No, but you pointed to the structural stuff first as what needs to be, like, let’s put. Do we have structure in place that measures performance, clarifies what his role is and his accountability? Those things are super important. Yeah. And a lot of times those problems dissolve. Once that gets clarified. And it is really important that those metrics, those accountabilities are not specific to him or her. Yeah. But specific to the position and what’s needed.

Phelps Wood (48:57):

Exactly.

Jonathan Goldhill (48:58):

Yeah. Yeah. Well, surprise question, what’s your favorite movie or television series or show around family business? Do you have one?

Phelps Wood (49:13):

I mean, I’ve seen all the more recent ones, you know, that people are talking about a kind of succession, Yellowstone, et cetera. I go back to the one that I watched. I was actually, at the time, my father was running his business and I was trying to talk with him, trying to get him to address some succession issues. It was called Six Feet Under, which was an HBO show about a family-owned mortuary where the father died and kind of one of the brothers came back to help out. And it was a combination of it had a small component of family business, but it had a lot of humor, a lot of morbid humor, as you can imagine, the mortuary. Right, and I don’t know, it just struck the right tone for me at the time. So I think of that one quite a bit.

Jonathan Goldhill (49:58):

Did you, did you share that with your dad?

Phelps Wood (50:02):

No, I didn’t. I don’t, I never did, actually. I never did have a chance. I don’t think we were talking about TV shows at the time.

Jonathan Goldhill (50:10):

So, you know, I was gonna ask you as a closing question, what’s one conversation every family visit should have before conflict arises? But I’m thinking that, you know, maybe it’s, they should watch a movie, you should watch a movie together around the issues that you’re dealing with. One of the first consulting workshops that I became familiar with when I first started my consulting career decades ago was the consultant would run the television program, or the movie, 12 Angry Men. And there was another one. It was a leadership movie. It was, I think, High Noon. And it would talk about leadership style. So, you know, when we’re looking at something outside of ourselves. And yet now it becomes something maybe we can have a conversation about afterwards.

Phelps Wood (50:54):

I think so. I was thinking of the other one that’s great is Arrested Development, if you’ve watched that, because that’s just – No. Oh my God, that’s just purely. It’s high humor and it’s just purely dysfunctional. It’s about a family and a family-owned business, but it’s mostly about a family. You know, a friend of mine once said that family businesses are Shakespeare. And so, you know, I would argue that you wanna be the history. You don’t wanna be the comedy or the tragedy , you know? But you gotta work, you gotta work at that. So, I think family businesses have all the components of Shakespeare’s, you know, greatest works in them.

Jonathan Goldhill (51:34):

Well, I hope they’re not like Homer’s The Odyssey. , because it would be quite, quite a long journey back to a healthy place. Hey, Phelps, this is fabulous. What you’re doing is great. Thank you for returning to the show and helping us make the cost of family conflict even more visible and concrete. I think the key takeaway is that conflict is not just a family matter. When it remains unresolved, it can affect decisions, talent, succession, growth, and enterprise value. Addressing those conference – conflicts early is not an admission that the family is failing or falling apart. It’s part of a responsible family business leadership plan to do such, you know? So, to our listeners, if this conversation brought to mind issues inside your family enterprise, don’t wait until a crisis forces the conversation. Start while the family still has choices, time, and goodwill.

Jonathan Goldhill (52:35):

And contact myself, Phelps, , or Continuity, for some assistance. And Phelps, thanks again for joining us.

Phelps Wood (52:43):

Today. Hey, great to be on here, Jonathan. Thanks for having me again. Really enjoyed it. All

Jonathan Goldhill (52:47):

Right. We’ll look forward to staying in touch.

Jonathan Goldhill (52:49):

This podcast is sponsored by myself, Jonathan Goldhill, and my company, The Goldhill Group, where we provide coaching for growing companies. I’m Jonathan Goldhill, and my purpose is simple, to guide entrepreneurial leaders in family businesses towards more freedom and fulfillment. I want entrepreneurs to get clarity around the changes that will make them and their businesses more successful so they can experience the same freedom I’ve enjoyed in my life. Our proven practices challenge business owners to think differently about their business and how they’re running it, and quite literally become game changers in our clients’ companies. Learn more at thegoldhillgroup.com website, where you can schedule your free strategy session. Thank you for joining us on the Disruptive Successor Podcast. If you enjoy today’s episode, please subscribe, review, and share with a friend who would benefit from the message. If you’re interested in picking up a copy of my book, Disruptive Successor, go to disruptivesuccessor.com.