Put On the Professional Hat

Tracy says her father is one-third owner in their family business. He isn't involved but still insists on taking a salary. Tracy is bitter and wants to know if there's a solution to this.

QUESTION: Tracy in Louisville says her father is one-third owner in their family business. He isn’t involved with the business but still insists on taking a salary. Tracy is bitter about it and wants to know if there’s a solution to this or if she should just get over it.

ANSWER: Draw three concentric circles on a piece of paper so that they overlap in the center. Then any given two of them overlap on the sides. It looks a little bit like an Olympic symbol—a Venn diagram. In each of those circles, write “Owner,” “Management/Leadership,” and “Family.” This is a standard family business diagram. Most problems in family business come when people forget which freaking circle they’re in. You could be a member of the family and not have any ownership or not be in leadership. You could be in leadership and not be in the family or not be an owner. You could be a member of the family and be an owner but not work at the company. That would be your father.

People who are owners of something and are members of families do not get salaries. The reason you’re bitter is he shouldn’t be taking a salary. As an owner, he should be getting distribution of profits—his one-third when the profits are distributed. As an owner, the three owners—I assume there are three of you—form a board, a counsel, of owners—a counsel of stockholders—and you direct the leadership and the management of the company on how you want the company run as a group of owners. If two of you outvote your dad on what the profit distribution is, he has to live with it because he’s what’s known as a minority owner.

I think you guys have got to reset this and say, “We made a mistake. We don’t pay people who don’t work in the business a salary. We distribute profits to people who don’t work in the business and are owners.”

We have misbehavior on your dad’s part. And you have boundary breakdowns and your toxic family script is now interfering with your business.

It’s time that you three adults sit down with your father and have an adult discussion—the four of you. The adult discussion says, “Dad, this is how family business works. We set this up. You’ve been repaid for your venture money, and you will be getting—from this point forward—a distribution of profits. For you to expect otherwise is unreasonable. If you want to be unreasonable, you have that right. If you want to be super unreasonable, we’ll start discussing buying you out of your third.” But this is wrong.

The way you’re saying that says, “If I was giving him $1 million a year and that was wrong and that was really stupid, I’m going to keep doing it because I’m not willing to face this.” That’s what your, “Yeah, yeah, yeah,” says. I can hear it in your voice you’re not going to deal with this. You’ve got to go deal with it because it’s going to drive you bananas. You’re going to end up getting so pissed off that you’re going to be unable to have a civil conversation about this. This is a civil conversation. People get confused about which hat they’re wearing.

I have a son-in-law who works for me. I have a daughter who runs our family foundation, and I have a daughter who works in our firm. But when we are inside this building doing business, my name is Dave. I’m the CEO, and I’m your freaking boss. I’m not your dad. And you don’t call me Daddy in a meeting, either. You don’t get to play that card not because I’m mad at you but because Daddy is a trump card. It’s a veto card in a meeting. You can’t do that. It causes Daddy’s heart to melt, and he makes stupid, bad decisions.

Inside this building, we put on hats that are professional. Rachel is a professional speaker. She is a high-quality speaker. She gets paid really nice fees to go and speak to college students and high school students and women’s groups. She is a professional young woman. She earns everything she makes and probably a little more. But like everybody else, she’ll earn her keep. And she’ll fight and she’ll win in the marketplace. The same with her old man. Then when we sit down and have Thanksgiving dinner, we take that hat off, and I put on the Daddy hat. Rachel puts on the daughter hat. Then that’s just fine. We can switch hats, but you’ve got to have a professional relationship inside of a family business. Otherwise you’ll kill each other or you’ll allow stupid things to go on.