I often refer to Bud D’Avella, Jr. as the family business “whisperer.” With more than four decades of helping families transcend an entire range of difficulties, he has a unique ability to go into even the most toxic of situations to help families achieve resolution and be able to move forward. From an early career working in his father’s New Jersey pharmacy at the age of 12 to managing one of the largest law firms in New Jersey to serving as President and Chief Operating Officer of Prudent Publishing Company, Bud has always led by example. He is a Member of the Federal and New Jersey State Bars and a New Jersey Court-Approved Mediator. I’m pleased to share Bud’s insights here in my exclusive interview with him.
BB: Bud, you are consultant and a mediator for family businesses and have more than 40 years working with family businesses. You’ve helped families navigate a breadth of issues, from financial and managerial to emotional. What do you think it takes to run a successful family business?
BD: It takes the same skills and talents to run a family business as to run any business. Such things as developing human resources, being ready for change, planning for the future, financial prowess and finding, developing and marketing a product must be done well to be successful. Sadly, in the many family businesses that fail, this simple fact is ignored. Too often people in family businesses feel that the way they’ve always done it will always work, and too often it does not.
BB: What are the three signs that indicate that a family might need an external advisor to help them with their business?
BD: Families – or a family member – reach out to me when they are unable to move forward. Often it is when they can’t reach an agreement on a single issue or something larger like the overarching strategy of the business. Or it could be the result of the death of an important family member. Interestingly, it is often the person who could not make it on the “outside,” separate from the family business, who initially reaches out. Finally, it can be when a significant part of the family is looking to sell. The most important thing I tell everyone in that situation is that getting family issues straightened out before doing a deal is critical. My job is always to facilitate a balance of success and harmony.
BB: Are there common themes that cross a breadth of family businesses, regardless of industry and location?
BD: The most common is history and longevity. A strong family connection can simply make a business stronger and last longer. Reputation is a close second, in part because when the family name and mantle are attached to a business all the family members work very hard to keep that reputation strong. Finally, I would say the culture of the business can be handed down and strengthened in a family business situation.
BB: How important are the individual family dynamics in a business situation?
BD: This is the root of many family problems: they don’t deal with the underlying familial dynamics. I consistently see a similar set of profiles and these main characters:
The Patriarch: Often the founder, with great talent but sometimes unable to transition the business to the next generation, or grow it to the next level.
The Bully: Often a talented child of the founder who feels that he or she deserves the premier role and that others know little.
The Foil: Very family-oriented, sometimes older than the Bully, but can save the business’s future.
The Mascot: Sometimes spoiled, always loved, but never able to really take on a primary role. The individual’s behavior is a reflection of everyone else in the family.
The Youngest: This is not the Mascot. This individual has learned from his or her older siblings’ errors, is gregarious and able to bring people along. When he or she has talent, they can be a very effective leader of the business.
BB: I imagine each family situation is unique and requires its own solution, but how do these profiles impact how you work with each family?
BD: The hardest part of my work is fathoming the real sources of problems in the family business. These profiles help to identify the various forces at work within the family, and bring to mind other families’ issues and possible solutions.
BB: Let’s talk about money. I know from my own experience as a wealth advisor that money can often fracture family relationships and cripple a business.
BD: Compensation often surfaces as a common challenge. I advise families that they should pay each family employee what they are worth on the open market. They should not try to make it even out. For example, if one child is doing a fantastic job, carrying the lion’s share of work, pay them what they are truly worth. Conversely, if another child does not contribute the same positive value, they should not be rewarded with an equal salary or other benefits.
BB: I’ve heard you mention an old saying, “shirtsleeves to shirtsleeves in three generations.” Can you explain this further and discuss the particular issues, depending on which generation the business is operating; for example, if it is the third generation, is that harder than the second generation?
BD: First, let me clarify that saying: it means that the wealth built by the first generation is lost by the time the family business reaches the third generation. The success of the business – and avoidance of this result – often depends on whether the second or third generation has the magic answer: to bring in and listen to talented outsiders. With so many career options and global access, today is quite a different landscape for a family business than it was 50 years ago. You’ll now find enlightened families asking the children if they want to come into the business; a generation ago that was a given and the question wasn’t asked. And it is important to note that few family businesses can support all of the children. They often need to have other options.
BB: What are the most critical legal planning issues a family business should have in place?
BD: The legal planning in the event of a death must accomplish certainty in the continued conduct of the business, safety from financial stresses due to estate taxes, etc., and clarity regarding the disposition of the business and other assets. As to the first, such clarity must be provided in the event of a disability as well.
BB: Have you ever known a family business to have been dissolved or be sold because the family can’t come to terms? How would you advise to guard against this type of situation?
BD: I am aware of many situations where that has happened. In the most recent I was appointed custodian by a court which found one of the shareholders to be “oppressed.” While several of the family members did not want to sell the business, that turned out to be the only way to get fair value to all the shareholders. So I was tasked to negotiate the sale, and the family, while receiving an excellent price, no longer owned the business they had grown from nothing.
In my view, such situations only grow when there is a lack of communication, and often respect, within the family. Conducting regular meetings, sharing information in a businesslike setting, and being sure all sides of the family have a chance to be heard can prevent such a disaster. Often a facilitator familiar with conflict resolution is needed, and perhaps a formal Board of Advisors, but I have seen such methods greatly reduce family disharmony, find the common ground, and significantly improve the business such that all are content.
BB: What are some of the challenges in acquiring and incorporating another business into an existing family business?
BD: The main challenge in such a merger situation – whether or not involving a family business – is melding the different cultures. This takes skill, time and effort. Where a family business is involved another significant layer is added to the culture melding, one that can be very threatening to the non-family business side of the equation.
BB: Can you discuss goal-setting and some of the HR techniques that you incorporate?
BD: Just having the discussion about goal setting is often foreign to family businesses. It’s another instance where the family business needs to take its cue and be run more like a normal business. Too often the family members feel entitled to their place in the business. By setting goals and working to achieve them – with fair judging – they can earn their place in the business and, most importantly, the business can fare better than it would otherwise.
Bud can be reached here.
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