Family Business on the Couch

A Psychological Perspective

Manfred F. R. Kets de Vries, Randel S. Carlock, Elizabeth Florent-Treacy

• Publisher: Wiley
• Year: 2010
• ISBN:
  9780470687475
• Edition: 1
• Topic: Business
• Subtopic: Small Business
• Index: Business

The challenge faced by family businesses and their stakeholders, is to recognise the issues that they face, understand how to develop strategies to address them and more importantly, to create narratives, or family stories that explain the emotional dimension of the issues to the family. The most intractable family business issues are not the business problems the organisation faces, but the emotional issues that compound them. Applying psychodynamic concepts will help to explain behaviour and will enable the family to prepare for life cycle transitions and other issues that may arise.

Here is a new understanding and a broader perspective on the human dynamics of family firms with two complementary frameworks, psychodynamic and family systematic, to help make sense of family-run organisations. Although this book includes a conceptual section, it is first and foremost a practical book about the real world issues faced by business families.

The book begins by demonstrating that many years of achievement through generations can be destroyed by the next, if the family fails to address the psychological issues they face. By exploring cases from famous and less well known family businesses across the world, the authors discuss entrepreneurs, the entrepreneurial family and the lifecycles of the individual and the organisation. They go on to show how companies going through change and transition can avoid the pitfalls that endanger both family and company. The authors then apply tools that will help family businesses in transition and offer their analyses and conclusions.

Readers should draw their own conclusions from careful examination of the cases, identifying the problems or dilemmas faced and the options for improved business performance and family relationships. They should ask what they might have done in the given situation and what new insight into individual or family behaviour each case offers. The goal is to avoid a bitter ending.

PART I

QUESTIONS AND OBSERVATIONS

INTRODUCTION

We start this book by providing a case study of a real-life family in order to give a flavor of the kind of issues commonly occurring in family businesses. We chose this case because it demonstrates how over 50 years of entrepreneurial achievement, through two generations, can be destroyed by subsequent generations if the family fails to address the psychological issues they face.

A Family Story: The Rise and Fall of Steinberg Inc.

Act One

The Steinberg case is the story of a family who, through hard work and innovation, created one of North America’s greatest retail companies [1]. In 1911 Ida Steinberg and her husband immigrated to Canada to escape the poverty and anti-Semitism in their native Hungary. The husband, never much of a provider, soon abandoned Ida and their children. Ida, an energetic and resourceful young woman, opened a small grocery store in Montreal’s Jewish ghetto. The store was profitable and her son, Sam, left school at age 14 to become his mother’s junior partner in the business. Over the next 20 years, Sam became a pioneer in grocery retailing, developing the concept of the full service supermarket. In 1978, at the time of Sam’s death, sales exceeded $4 billion (Canadian) and the Steinbergs had become one of North America’s leading business families.

. . .

Act Two (to be discussed below)

. . .

Act Three

The final 18 months of Steinberg Inc. as an independent company were marked by a battle for control of the firm. On August 22, 1989, over 70 years after Ida Steinberg opened her first grocery store on St Lawrence Boulevard in Montreal, family conflicts that spilled over into the boardroom and business forced them to sell the business.

The new owner of Steinberg Inc. went bankrupt only three years after the takeover, having financially overextended himself, and the stores were sold off to various supermarket chains. Thousands of employees lost their jobs. And the ultimate cost? There is no longer any store with the name of Steinberg.

In presenting this family drama, we have deliberately omitted Act Two. Why? Because by doing this, we can draw your attention to the fact that it is events in Act Two that completely reverse the destiny of this company. In Act Two, the second and third generations enter the scene, and the real drama begins. Act Two also describes how family relations broke down; how non-family professional executives lost confidence in the family owners; how Sam’s four daughters took their personal battles into the business arena; how the family was forced to sell; and how many key stakeholders lost money in the transaction. It tells us what happened and gives clues about why. Act Two holds important clues to understanding the family’s destiny, and we will now look at it more closely.

A Family Story: The Rise and Fall of Steinberg Inc., Act Two

Act Two

The seeds of the conflicts that would destroy the Steinberg family’s business were sown quite early on, in decisions that Sam Steinberg made regarding business and family governance, and ownership and management succession. Business governance at Steinberg was dominated by Sam and his friends, who followed Sam’s lead on all major strategy and management decisions, including management succession—Sam appointed his son-in-law as CEO on the basis of his family membership rather than a decision based on talent. This sent a clear message to the organization that professional competence was not an important leadership selection criterion.

Sam organized his estate so that ownership of his company would be handed over to his children when he died. Ironically, part of the motivation behind his estate planning was to keep his family together after he was gone. In 1952, Sam had divided most of his assets into equal trusts for each of his four daughters and their children. The daughters all became trustees of each others’ trusts. This system worked well while Sam was alive. His voting control and strong personality restrained emotional undercurrents among his four daughters. After his death, the voting shares were kept together and were voted as a block by his widow, Helen. For a few more years, the process worked smoothly. Sam’s oldest daughter Mitzi took an executive role in the company, and his third daughter Marilyn took over effective control of the family trusts. There were irritations, however, because the daughters had different views on how they wanted to invest and manage their portions of the money accruing to the trusts and how they wanted to spend the proceeds.

The problems began in earnest in 1985, after a non-family CEO ousted Mitzi from Steinberg Inc. Sidelined from the business, she began to assert herself through her ownership role and the management of the family trusts. More critically, having lost the power struggle with the CEO, she seemed to have lost interest in the company and wanted to sell Steinberg Inc. Alarmed, Sam’s two surviving daughters, Marilyn and Evelyn (Rita had died in 1970), joined forces to prevent Mitzi selling the company.

Attempts by other family members to mediate the resulting disputes failed, and both sides became increasingly hostile. Then, in 1987, Marilyn and Evelyn, who had cemented their voting control of the family trusts, managed to push through a motion breaking the agreement that gave Helen the voting rights for 40% of shares held by the trusts, along with the 12% left to her directly by Sam. Helen was served legal notice of the intention to break the voting arrangement in July of that year, 35 years after Sam had created the trusts. This break in the control block represented a material change for the company and had to be reported publicly. The family feud became public knowledge and front page news, and the stock market picked up the scent of a family business in trouble and a possible forced sale.

Shortly afterwards, a family business meeting degenerated into a screaming brawl, and all civil communication between the warring parties ceased. The last vestiges of privacy were stripped on December 30, 1987, when Mitzi shocked everyone by filing a lawsuit to have her sisters and their husbands removed from the management of the family trusts. In the statement of claim, peppered with catty personal comments, Mitzi accused her sisters of ‘gross negligence and reprehensible neglect’ in managing the trusts. A well-known Montreal cartoonist satirized the unseemly spectacle by portraying the Steinberg sisters as sodden mud wrestlers.

In many family businesses it is what happens in Act Two of the family drama (the point at which later generations get involved) that determines the continuity and success of the business, or conversely, sows the seeds of conflict and ultimate break up. Clues to what went wrong in this family drama, and its bitter ending, can be found in Sam Steinberg himself. Part of what we would seek to analyze in looking at a family like this are the following questions:

• What early experiences shaped Sam’s mother?

• How did she raise Sam and his siblings?

• How did Sam’s life experiences influence his leadership style?

• How did his personality steer the creation and growth of his empire? How did it influence its downfall?

• Could the mistakes Sam made have been avoided, or was Steinberg Inc. programmed to self-destruct from the time he took control (and if so, why)?

• How did Sam’s parenting style and gender attitudes affect his daughters?

• What could have been done to prevent the downfall of the company?

At various points throughout this book, we will be looking at the kinds of issues raised by this family drama. We will also look at other family case studies, before returning in Chapter 11 to a more thorough analysis of the Steinbergs. We hope by this means to show how business families going through change and transition can avoid the pitfalls that endanger both family and company. Our goal is to help readers who own, work in or deal with a family business to avoid an ending like that of the Steinbergs.¹

ENDNOTE

1 The Steinberg family story in this Introduction and in Chapter 11 is taken from a case study written by Manfred Kets de Vries (1996). Family Business: Human Dilemmas in the Family Firm. London: Thompson. Other sources for the Steinberg case: Gibbon, A. and Hadekel, P. (1990). Steinberg: The Break Up of a Family Empire. Toronto: Macmillan; National Film Board of Canada documentary The Corporation: After Sam; Mintzberg, H. and Waters, J.A. (1982). ‘Tracking strategy in an entrepreneurial firm,’ Academy of Management Journal, 25 (3), 465-499; and Steinberg Inc.’s annual reports and corporate communication materials. Arnold Steinberg, a former executive vice president at Steinberg Inc., and a nephew of Sam, was also a valuable resource.

CHAPTER 1

A PSYCHOLOGICAL PERSPECTIVE ON BUSINESS FAMILIES

In most societies the family is a fundamental institution for transmitting values to succeeding generations, and for ensuring their physical and emotional development. Families are usually driven by a deep concern for both the well-being of individual family members and for the family legacy. However, in a business family, normal family goals may come into conflict with the business’s economic goals because an important theme within the family system is to meet the human and psychological needs of its members rather than to arrive at the best economic return.

It is a truism that human beings are subjected to many elusive, out of awareness processes that affect how they make decisions. We all know that executives (including people working in family businesses) do not always act rationally, logically, or sensibly [1]. However, we have discovered that many leaders of family businesses seem to be especially prone to irrational behavior (as will be illustrated in the various case studies that appear in this book) [2]. Clinical investigation has shown that many problems in family businesses stem from the fact that their leaders (as well as other family members employed in key positions in the business) are often unknowingly acting out their deepest conflicts, desires and fantasies in the larger arena of the family business. The task for anyone studying family businesses is therefore to look at deep structures: the inner motives, fantasies, desires and defensive reactions of the principal actors. What drives them? What makes them act the way they do? How can we make sense of their behavior?

In a family business (particularly one in crisis) there will be a need at some point for its members to reflect on how their family is organized and to tease out the structures and rules that drive their interpersonal relationships. They will have to discover which of their interaction patterns are functional and which are dysfunctional. Carl Jung often asked his troubled patients, ‘Is this behavior working for you?’ If the answer is ‘No,’ it may well be time for the family to consider other approaches to relating to each other.

A very effective conceptual way of understanding individual behavior and motivation is psychoanalytic psychology, particularly objects relations theory [3]. However, when studying family businesses we have found that this orientation to understanding complex human processes needs to be enhanced by theory from the more recent fields of systems analysis and family therapy—known as family systems theory [4]. We have discovered that combining psychodynamic thinking with family systems ideas into a psychodynamic-systems approach can be invaluable as a key to unlocking many of the knotty problems faced by business families.

PSYCHODYNAMIC AND FAMILY SYSTEMIC PERSPECTIVES

One of the challenges we faced in writing this book was overcoming some of the institutional or academic barriers to working across the boundaries between psychodynamic and family systemic therapy. In 1998, Christopher Dare, in a paper on the practice of psychodynamic and family systemic therapy, commented:

The two disciplines of family therapy and psychoanalysis remain organizationally and conceptually disassociated from each other despite the two subjects having considerable overlap, plying adjacent trades and using theoretical ideas which show considerable parallels [5].

At the time, Dare encouraged a stronger link between the two disciplines. But in fact, a rapprochement of these two ways of looking at human behavior is increasingly becoming a reality. In practice, we have found it extremely useful to establish a link to the inner psychological theater of the individual and explore how the scenes of this inner theater are enacted in the larger family system.

To have a greater impact in family business interventions, this book is designed around the application of psychodynamic and family systemic frameworks for studying human behavior [6]. Applying these two perspectives creates a more complete and balanced view of individual behavior and interpersonal relationships. It is an ideal way to bring a degree of rationality to what can, at times, be extremely perplexing behavior.

Because of this orientation, we use theories, concepts, methodologies, techniques, and vocabularies that are more often used in psychology than in discussions of management issues. In particular, we draw on concepts and theories taken from psychodynamic psychology (particularly object relations theory, self-psychology, and ego psychology), dynamic psychiatry, developmental theory, cognition, and the study of narrative.

In this search for rapprochement between various disciplines we like to emphasize that object relations theory, an offshoot of psychoanalytic theory that emphasizes interpersonal relations, primarily in the family and especially between mother and child, will be especially helpful to bridge the gap between classical psychoanalytic psychology and family systems theory. Object relations theorists are interested in inner images of the self and other, and how they manifest themselves in interpersonal situations. Consequently, there is a degree of overlap between this derivative of classical psychoanalysis and family systems theory. As Christopher Dare said, ‘Psychoanalysis and family therapy can come together now, [. . .] by agreeing that both are preoccupied with the therapeutically useful, ethically apt re-creation and telling of stories’ [7].

KEY IDEAS FROM THE PSYCHODYNAMIC APPROACH

The psychoanalyst Sigmund Freud postulated that the human mind functions through the interaction of opposing forces. A person has wishes and fantasies that evoke anxiety, leading to defensive reactions that range from relatively normal to dysfunctional. The conflict between these forces is mainly unconscious, and yet can have a huge impact on people’s emotional life, self-image and relationships with other people and larger organizations [8].

Children are born with certain innate desires that cause them to seek pleasure and avoid pain. These desires become transformed into mental images that govern their feelings and behavior. As their parents attempt to socialize and fit them for society, children inevitably experience frustration of such desires as they learn what is allowed and what is forbidden. Gradually their childish impulses are modified and transformed more in line with societal norms. During this process many of the original desires and anxieties associated with them are seemingly forgotten. However, these unacceptable wishes and desires are not really forgotten but continue to linger below the surface, retaining the potential to affect adult behavior significantly in later life.

Freud later went on to formul...

Table of contents

• Title Page
• Copyright Page
• Dedication
• PREFACE
• Acknowledgements
• PART I - QUESTIONS AND OBSERVATIONS
• PART II - REFLECTION AND LEARNING
• PART III - INTEGRATION AND ACTION
• APPENDIX 1 - DEVELOPING A BUSINESS FAMILY GENOGRAM
• APPENDIX 2 - THE CLINICAL RATING SCALES AND THE CIRCUMPLEX MODEL
• INDEX