From outlaws to in-laws

In-laws can be the family business wildcard, wielding a great deal of unseen power. They'll be a blessing or a curse, depending on how you treat them.

One topic that seems to generate a lot of heat in family businesses is what to do with the in-laws (or outlaws, as some would call them). In-laws might not figure prominently on the boards or management chains of family businesses but let’s not kid ourselves, they’re the power behind the throne.

Consider a familiar scenario, or variations thereof, that has been played out many times. Three brothers run a family owned logistics business. At a board meeting, they map out a strategy for expansion overseas which would involve increasing debt and would require each of them to spend some time out of Australia. One of the brothers comes home and tells his wife. “You’ve got to be joking,’’ she says. “We’re saddled with enough debt paying off this home. How are we going to pay for the kids’ education? You want me to go to mum and dad again for help? And if you plan to leave Australia, don’t expect me to come.” The next day, he comes into work and tells his brothers: “Sorry, guys I don’t think this is going to fly.”

Sound familiar?

In-laws in family businesses, whether intentional or not, can generate conflicts. What happens when a family member wants their spouse or partner, who might have an MBA from a top notch business school, to take a senior job in the company and family members object? Or when a senior non-family employee has a falling out with the HR manager who happens to be the wife of one of the family members?

For sure, the best solution in all this is communication. But how far does one take it? Business owners would probably agree that in-laws should be kept informed about how the business is travelling and what the plans are for the future. However, they might be less likely to agree that in-laws should have a hand in the strategic running of the business.

The first thing that should be done is to sit everyone down and work out a family plan, much like a strategy plan. Stretching out to 25 to 100 years, it sets out where the family business is going and looks at all the possible problems that might come up and to stop them happening. It can also put in place mechanisms like shareholder agreements

The next step is to create a family constitution (The constitution solution to governance clutter, May 1). Apart from such issues as dealing with family and non-family employees, the process for resolving conflicts among family members, policies relating to estate-planning matters, rules regarding the succession of the family members in the management and on the board of directors – all of which affect in-laws – the family constitution would also set out whether in-laws are welcome to join the business, whether they can work for the company and what role they should be confined to. How that works out will depend of course on the family dynamics, and every family is different. This is the strength of family constitutions. They seek to involve family members who might not have a direct role, and in effect help forge a stronger commitment from the family, which has to include in-laws.

The best way a family constitution can deal with the problem is to set it up right at the start, before family members get married and start their own families. Getting the rules locked in right from the beginning is better than tackling the problem once it’s erupted. And doing it early on in the piece is critical as the family expands and more in-laws are brought into the picture with the possibilities of rivalries and battles multiplying.

But family business consultant Jon Kenfield says it is important to have the plan first, and get everyone singing from the same page, before setting up a constitution rule book.

“It’s like a commercial contract,’’ Kenfield says. “If the parties to a commercial deal aren’t on the same page and agreeable and committed then no piece of paper will make that work.

“If you’re going to go for family business best practice, the concept is that you need to professionalise the family and professionalise the business. They think of what could go wrong and put things in place to stop it from going wrong.”

The reality is that spouses and partners have a massive influence and more often than not, they tend to know exactly what’s happening in the business even if they are not directly involved in it. Ignoring them can be disastrous because co-operation between all the parties is critical for success.

To manage the relationship, family businesses should look at bringing in-laws into the family council to participate in discussions and meetings. They might not have voting rights but they learn about the family’s vision and values first hand, far better than interpreting their spouse’s version. Some families might exclude them from critical issues like wealth and asset protection. Nevertheless, participation is likely to create a more united front and would short-circuit potential flare-ups.

Of course, no one can pick who their children will marry. But instead of blaming everything on the in-laws and creating unnecessary emotional baggage and tensions, family business owners should take responsibility for them and manage the relationships. In that sense, every family business gets the in-laws it deserves.