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The Ins and Outs of Handling In-Laws

THE GLOBE AND MAIL – MANAGING – Thursday, January 7, 1999, B8

In-laws occupy a no man's land in a family business. It's a position of considerable danger, but it's also one of potential power. That's why family members should consider the role their husband or wife should play.

No man's land promises few rewards. For instance, in-laws are not automatically considered members of the business, deserving of a share in the enterprise; yet, they are expected to support their spouse's work.

They get caught in family squabbles and find themselves in the midst of hours of business talk at social functions. They may even be expected to work in the business themselves. But their opinions are not sought. At the outset, at least, many in-laws feel subordinate even to unrelated outsiders who have worked in the company, endured the hardships of the early years and gained the trust of the family leaders. Other in-laws may see a new spouse as a threat, creating competition.

As if this were not wearisome enough, a new spouse may be moving into a smaller community where the family business has existed for decades. Even the townspeople appear to know more than the bewildered spouse.

But then there's the other side of the equation. Spouses may wield considerable influence over their partners. They play a huge role in developing children's attitudes toward the business. Whether they work in the business or not, their presence inevitably grows over the years.

Sometimes, in-laws can abuse their influence. One spouse threatened to block her parents-in-law's visits with their grandchildren unless her husband received a larger pay cheque.

As with all challenges, getting the issues out in the open is the best policy. Successful business families meet and come to some agreement, especially on the two most difficult questions: Can in-laws work in the business? And can they earn or inherit shares? Many families prohibit in-laws from working in the business, believing they bring too many complications. Others have no restrictions. Both approaches can work, but each has obvious disadvantages.

The first scenario rules out potentially talented participants with special dedication and loyalty owing to their relationship. The second risks all the dangers of married couples in a single workplace, as well as the problem of how to remove an in-law who is not working out. In-law participation also raises the possibility that the family will be put under pressure to create a job for an otherwise unemployable individual. If in-laws wish to work in the company, they must clearly have a role.

Sometimes, in-laws can abuse their influence. One spouse threatened to block her parents-in-law's visits with their grandchildren unless her husband received a larger pay cheque.

The opposite situation may also arise, however. An in-law with skills in high demand may be asked to leave other responsibilities and join the family business. It's a momentous decision, because turning the offer down – or accepting and reversing it later – may cause a damaging rift within the spouse's family.

Most family businesses still under the control of the founder ban in-law participation, and this may be unavoidable. But this policy undermines the whole reason for keeping the firm in the family over the long haul. Handled properly, in-laws add to the fabric of the family business and offer new perspectives that can break sibling deadlocks that have existed for years.

There is a third policy that may work for some families. Rather than refusing or accepting all in-laws, one family allows one spouse from each couple to work in the business – but not both. It later made an exception for couples who meet at work and marry after several years in the business. This family also maintains a strict policy that all of its positions are filled on the basis of merit, not family ties. In-laws seldom earn or inherit shares in the company. Keeping the company's shares within the family's bloodlines makes it easier to minimize taxes, maintain ownership control and avoid hostile situations in the event of marital breakdown, premature death and unforeseen inheritances.

The exceptions tend to be extreme cases. In one family, a son-in-law with an engineering degree earned a share of the company by building a manufacturing division.

But in most cases where an in-law makes a valid contribution, it's useful to remember that ownership and management are separate concerns that should not be confused. The usual resolution is to compensate the in-law for competent management, but to reserve ownership for the spouse who was born into the family.

As for inheritances, family members' wills and the shareholders' agreement should be clear that upon death, shares pass either to the children or revert to the company. You are protecting the future of the company and – as a Norwegian expression holds – we don't feed our in-laws.

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