This week, The New York Times published a special section titled “Wealth and Personal Finance.” Its lead article, “Learning to Share,” focuses on managing money within a family and discusses succession and inheritance issues. Given demographic trends in the United States, succession activities will increase significantly over the next five-ten years.

Nonetheless, most bankers give little thought to succession or other family-related issues that their clients face, even though these are of critical importance to their clients and, perhaps, to the performance of the companies they are financing. Similarly, family and succession issues impact the majority of the 8,000 U.S. banks and thrifts that are family-owned. Like their clients, many banks explicitly fail to address the complexities of being a family-owned company. But some do, and there is a growing amount of literature on what constitutes best practice.

Some of the issues facing family-owned companies include: work relationships, nepotism, governance, succession and ownership, and many others.

* Work relationships. As a banker, I saw many instances in which family members working together operated in a dysfunctional fashion. The father, often the company founder, played an outsized and somewhat mythic role in the company, one that cast a shadow over the activities of the next generation. Members of that next generation had significantly different capabilities and interests. Some were driven and dedicated to building the family business while others seemed oppressed by the expectation that they would dedicate themselves to an enterprise in which they had limited interest.

However, these issues were seldom identified and discussed by the families themselves. They hurt the company and the family, but remained unaddressed.

* Nepotism. We have all worked in companies in which we question why a particular colleague is employed there. One firm that I worked with made sure to hire the children of clients and potential clients, in a not very subtle (but effective) marketing effort. While a certain degree of nepotism always exists, if unchecked it can both erode the spirit of the colleagues who are really steering the company’s success and, ultimately, harm performance.

* Governance. Even small companies can create complex governance issues. Family companies operate with fewer formal rules and often have no written guidelines. Further, the gap between what might be written and how things actually operate can be significant. Ensuring discipline in areas of corporate governance can support a foundation for faster and steadier growth.

* Succession and ownership. I have seen companies in which both family and non-family management fail to introduce required changes because they are waiting for the next generation of management to take over. That is understandable, since they expect the new generation to be more open to change and more willing to move quickly. However, at many companies the timing for succession is often uncertain, keeping both the next generation and the overall employee base in suspense.

Even when it occurs as expected, succession raises many problems for the family business. Ivan Lansberg, in a Harvard Business Review article published last year, describes some of the “thorny” challenges a new family leader faces: “He or she must cope with family members, especially siblings and cousins whose support may be vital to control the enterprise, as well as manage several other constituencies —  such as directors and senior executives; bankers and suppliers; and, from time to time, stock analysts, regulatory agencies, institutional investors, and trade unions — that may or may not be convinced that the successor has earned the right to lead the company. These stakeholder groups have different, even contradictory priorities, and they usually make their judgments in silos. Still, the fate of a CEO depends on how all of them answer the same question: Are we in good hands?”

What to do?
Given the complexity and emotionally-laden aspect of family issues, both clients and, in many cases, bank management itself should pull back from their day-to-day activities to identify the key challenges they face, determine the strengths to lever and weaknesses to fix, consider the optimal strategy to manage family issues, and learn from others by assessing best practices in this area.

Through its Executive Education unit, Harvard Business School, for one, offers a program that can provide significant value to business owners, including the owners of banks. “Families in Business: From Generation to Generation” offers a six-day focus on family issues with an emphasis on driving to specific solutions for attendees (www.exed.hbs.edu/programs/fib). Among the leaders of this session is John A. Davis, faculty chair, who co-authored Generation to Generation: Life Cycles of the Family Business, and is an acknowledged expert in this area. The families who attend, often in groups of four or more, recognize both the value and challenge of getting family governance right.

As bankers, you know which clients would most benefit from taking the time to reflect on and resolve their family-specific issues. As company executives and, in some cases, family members who are executives within your own banks, you may want to consider signing up your own family for a program like HBS’s.  By the way, the course is held once a year in mid-October.