What’s Missing from the Balance Sheet: Intangible Assets and Liabilities in Business Families

The stock market tells us that the total value of Microsoft shares outstanding (“market capitalization”) is (or was) about $85 billion. But Microsoft’s financial records say that the total value of Microsoft (“book value”) is (or was) only $7 billion.

What does the market know that the accountants don’t?

The stock market values Microsoft’s intangible assets – its enormous potential to continue domination computer software industry, while accountants struggle with Microsoft’s tangible value and historical costs.

What are the important unreported intangible values in business families?
• Is family ownership and family management a business asset or a business liability?
• Conversely, is family ownership and family management of the business an asset or a liability of the family relationship?

Some businesses are formidable competitors in the market place because of family involvement. They are managed by talented family members whose positive relationship -- though quite intangible -- constitutes a very valuable business asset. (“Green light” families I call them.) This valuable business asset exists only because the family has discovered and nurtured it. This asset is not reflected on the balance sheet. This asset cannot be acquired or transferred.

Some business families are profitable in spite of family involvement. Wracked by dissention and conflict, their family relationship is a definite business liability. (“Red light” families I call them.) I empathize with their CPAs whose generally accepted accounting principles provide no place to report this liability in the financial statements.

Then there are businesses whose family relationship is part asset and part liability. Some family employees perform brilliantly; others are coasting. There is undue tension between inside and outside shareholders. They settle for substandard business practices and less-than-satisfactory family relationships for the sake of “holding things together”. (“Yellow Light” families.) The assets and liabilities of family management and ownership are offsetting.

Is the business itself an asset or a liability of the family’s relationship? Does the business reinforce the family relationship, or disrupt it? Or is the business both a reinforcement and disruption?

Here’s a graphic way of presenting the question:

• If both are assets, congratulations!
• If one is an asset, the other a liability, you have some work to do.
• If both are liabilities, soul-searching may be in order.

Gerald Le Van

glevan@uww-adr.com

Lawyer Counseling: Part IV

Shafer and Elkins conclude with some practical tips about client interviews:

25. Be especially careful with “why” questions. “Why” questions connote disapproval, displeasure, insinuate that the client has done wrong or behaved badly. “Why” questions put the client on the defensive.

26. Be aware of clients’ non-verbal communications – what people tell us without trying. Watch for tenseness, rigid posture, clenched hands, facial expressions, dress, physical condition, gait, tears. If tears come, try acknowledging them sympathetically e.g. “You’re having some feelings…” Then wait quietly and respectfully for the client’s composure to return. Keep tissues nearby.

26. Be aware of your own non-verbal communications – the unstated message of your law office environment, your dress, sitting across from instead of next to the client, extensive note-taking with eyes down, etc. Engage the client, don’t just encounter her.

27. Be especially aware of the client’s opening and closing sentences. The opening sentence may tell you what’s uppermost on your client’s mind. Her last sentence may tell you the most about her perception of your lawyer-client relationship.

28. If the client shifts the conversation abruptly, it may be a defensive maneuver, away from something he doesn’t want to discuss. Try, “Did you want to say more about _____?”

29. Listen for recurrent themes and references. They may reflect deep client concern. Try, “I believe you mentioned ____ several times. Is there something more you wanted me to know about that?”

30. Listen for inconsistencies and gaps. What the client leaves out may be most important. Try, “I’m trying to make the connection between _____ and ____. Can you help me with that?”

31. Giving the client feedback can be helpful, but be sure it’s non-judgmental. In giving feedback, stick with your reactions. Don’t try to describe the client’s behavior, e.g. “I sensed that you were distracted” rather than, “You weren’t listening”. Then follow up with something constructive, e.g. “Would it help if we went over that again?”

32. Don’t give feedback without an invitation from the client. It’s best if the feedback invitation originates with the client, e.g. your client asks, “Do you think I’m being selfish?” or “Does it sound as though I’m fooling myself about this matter?” If the client doesn’t invite feedback, you might invite yourself but first ask permission e.g. “Would you like some feedback from me about our conversation to this point?” If invited, begin with something like “This is what I’m hearing: …”

33. Like TV’s wrinkled detective Colombo played by Peter Falk, let the client know you’re struggling to understand her story and its meaning. If you discover something the client isn’t aware of, try, “Let me see if I understand” rather than, “Isn’t it true that…?” Try, “I don’t understand” rather than “What do you mean by…?”

34. Open-ended, non-judgmental questions work better. Save cross-examination and leading questions for the courtroom.

35. Let the client set the pace. If the pace is too slow, the client will become bored, which often means angry with the lawyer. If the pace is too fast, the client may become confused, and that comes across to the client as rejection by the lawyer – which it usually is.

36. Be Colombo.

Gerald Le Van

glevan@uww-adr.com

Why Mediation for Amicable Families?

Confidentiality Inside and Outside

There’s no guarantee that amicable families will remain so. But sound governance encourages good family relationships to continue. In their search for sound governance most families require a skilled facilitator. Only a mediator can facilitate governance-building – and other important family deliberations -- while assuring confidentiality both inside and outside the family.

If you are healthy, why watch your diet? Why exercise regularly? Why quit smoking? Why get regular medical checkups? Indeed, why carry medical insurance? Because these are sensible precautions. No healthy person is immune from future health problems.

No amicable family is immune from future discord. Births, deaths, marriages, divorces, estrangements, alliances, unforeseen events, changes in circumstances –all can challenge the peace that amicable families enjoy today.

If an amicable family is also joined at the wallet, the risks of eventual turmoil rise sharply. Sharing family wealth or a family business should be deeply satisfying: enjoy it, use it wisely, grow it, cultivate the opportunities wealth provides. These are good signs of healthy wealth. But wealth-sharing can also generate hazards, hurts and unhappiness.

“How can we perpetuate healthy wealth? What can our family do to avoid the kinds of disputes that destroy other wealth-sharing families? How can we prevent disputes from arising? Or if they do, how can we manage our differences in amicable ways?”

Maintaining healthy bodies requires a regimen. So does healthy wealth -- but where to start? Begin by organizing around your wealth. Wise families usually choose a facilitator – a “personal trainer” of sorts to begin a healthy wealth regimen –to surface the issues, build productive agendas, guide sensitive discussions, organize ongoing family councils. Effective family governance is critically important to maintaining healthy wealth.

Various therapists, coaches, financial counselors, and family business consultants hold themselves out as family governance facilitators. Some are quite skilled. Yet non can guarantee confidentiality of the governance-building process. Should discord generate a lawsuit, neither the facilitator nor family members may claim a privilege of confidentiality.

Some lawyers would be excellent family facilitators. But they are limited by ethical constraints. Lawyers may ethically represent all family members as their clients. But whatever one family member discloses to the lawyer must be shared with all other client members of the family. Hence, lawyer-facilitated governance-building remains confidential from persons outside the family, but individual disclosures to the lawyer are not confidential inside the family. (The lawyer's dilemma deepens if some but not all family members are his/her clients.)

In my experience, this “disclose all to everyone” requirement can be a huge impediment to fruitful family discussions and deliberations. In the interest of continuing family solidarity, some confidences need to be disclosed only to the facilitator, and not shared with other family members.

Mediators alone enjoy the best of both worlds. If governance-building is facilitated by a mediator, the entire process is confidential from third persons. In addition, mediators are free to interview individual family members and to keep their confidences from other members of the family. The same is true of other mediator-facilitated discussions involving family business or family wealth e.g. family business succession, shareholder issues, distributions from estates, trusts or family companies, selection of outside directors, fiduciaries, advisors, etc.

Wise families value their mediator’s unique role as a neutral, a confidant and a patient guide through difficult but transformative conversations. Mediation makes good sense for families who yearn to perpetuate their amicable relationships down the generations.

Gerald Le Van

glevan@uww-adr.com

Lawyers' Feelings: Transference and Countertransferrence - Part II

Emotions at Work in the Helper-Client Relationship

This continues a discussion of Professors Shaffer and Elkins, Legal Interviewing and Counseling (4th Ed. West Group 2004). Below I paraphrase some of the authors’ main points in bold. My comments are in italics.

This discussion of emotions and the unconscious may be unsettling.

You may prefer to deal with facts.

These are emotional facts.

18. Three things we professional helpers can do with our feelings about a client:

• Repress feelings until we’re unaware of them, then find an emotional release outside the professional relationship through exercise, family life, hobbies, etc.; or


• Secretly channel feelings back into the professional relationship as tools of manipulation; or


• (Preferably) partner with the client: bring feelings openly into the relationship.
  

“Touchy-feely” has come to connote the inappropriate intrusion of emotions into an otherwise “rational” situation – as though emotions could be turned off or set aside. So long as human beings are involved there is no entirely rational situation devoid of emotion. Like it or not, aware of it or not, emotions play a powerful and ongoing role between helper and client. Injunctions like “let’s not get emotional” or “let’s be reasonable” pretend that reason can trump emotions. Too often it’s the other way around. Remember to forget the phrase “touchy-feely”. It demeans the emotional dimension in human life and advertises the speaker’s insensitivity. Better to recognize emotions and deal with them in a professional manner – and to strike “t-f-” from one’s vocabulary.

19. Transferrence is a psychological term for some of the client’s strong feelings towards the helper. Transferrence can occur in any relationship where one person is viewed as an authority figure, upon whom the other becomes emotionally dependent. Transferrence can have a positive or negative impact.

A successful helper-client relationship requires deft understanding of the client’s emotional disposition towards the helper and an appropriate reaction to it.

20. Transference is the tendency of clients to relive an emotional relationship from the past, and to (emotionally) cast the helper in an inappropriate role. The helper is made a stand-in for an important person in the client’s life, typically the client’s father. This can create an emotional dependence on the helper. As a result, choices ostensibly made by the client are, in fact, made by the helper.

A client is likely unaware that transference is taking place. It’s helpful for the helper to ask herself, “Who else might I be in the client’s story?” Elsewhere the authors insist that choice of desired outcomes belongs solely to the client. (See Part I) Though it’s sometimes tempting with a weak-willed client, helpers need to avoid the “Father/Mother Knows Best” role.

21. Countertransferrence is a psychological term for some of the strong feelings of the helper directed towards the client. These helper feelings

• are linked to the helper’s other relationships (often past), or


• the helper’s needs and feelings that are not specifically related to the client or


• both of the above.
  

As a result, the client may experience the helper as being overly-helpful.

A lawyer may well ask herself, “Who else might this client be in my story?” Remember, both transferrence and countertransferrence take place outside our awareness.

22. Some signs of lawyer countertransferrence are:

• Feelings of discomfort during or after client interviews.


• Carelessness or discourtesy towards the client—tardiness to appointments, inconveniencing the client, permitting avoidable interruptions.


• Strong affectionate feelings for the client.


• Inclinations to boast about the importance of the matter.


• Avoidance of the client and neglect of the case.


• Gossip with others about the client.


• A tendency to hammer away at minutiae in the client’s case.


• Boredom or drowsiness – “almost inevitably an indicator of extreme anxiety produced in the attorney.”

23. Countertransferrence is threatening to the lawyer-client relationship because it conflicts with the role expectations lawyers consciously shape into their professional masks (persona).

A persona is an actor’s mask. We helpers wear personas that project our professional roles and insulate our privacy from clients’ curiosity. The hazard is that our masks conceal those portions of our personal stories that clients are entitled to share – our empathy, understanding, concern, our underlying humanity.

24. The unconscious is that area of human interaction that takes place outside our awareness. Lodged in our unconscious are:

• Feelings of inadequacy, incompetence, impotence, or grandiose defenses against a feeling of helplessness.


• Affection and sensitivity to rejection.


• A need to punish or be punished.


• Passive-dependent feelings, especially in men and women who aspire to high achievement.


• Intense feelings of loneliness and isolation.


• Qualities in oneself we can’t tolerate in others.


• Feelings of unworthiness and despair.

Transference and countertransferrence both originate in the unconscious.

- Gerald Le Van

glevan@uww-adr.com

Your “Number” Part Two

In his new book, “The Number”, Larry Eisenberg focuses on three building blocks to a fulfilling retirement: money, health and happiness.

In an earlier posting, I summarized Eisenberg’s stern money message about The Number — the net worth you’ll need for a financially secure retirement. Your Number can finance good health care, and it also helps if you’re disciplined about diet and exercise, and inherited good genes. But can your Number buy retirement happiness?

Baby boomers have been tagged as the Me Generation. Boomers look forward to retirement as a second adolescence. After freedom from work, with one’s life dues paid and an adequate Number, I can be who I am, do what I really want to do. A second adolescence with liver spots instead of zits — is this the self-absorbed retirement happiness a boomer’s Number is supposed to buy?

Not necessarily, say the “life planners” — financial planners who would help boomers find meaning in their retirement years as well as financial security. Life planners ask wrenching money-and-meaning questions: Why does money make us knotty? Why do we impart evil to it? Why do we anoint it with magical feel-good properties? Why do we run from it? Why do we lose love and friendships over it? Why do we work so hard to get it? Why do we waste it once we have it? Why don’t we spend more of it on things that matter? Oh, and by the way, what does matter?

Guru life planner (and philosophy professor) Jacob Needleman raises the alarm. Money has the power of giving people the idea that they are powerful, happy and important. That’s where the danger lies, because it is a false sense of comfort. We’re living and growing old in an age where everything is monetized. Yet a financial plan is fundamentally hollow unless it’s wrapped around a life plan. Your Number needs to finance a lifestyle that has meaning. Oops, are life planners playing in the sandbox where psychotherapists keep their pails and shovels?

Granted, life planner seminars may resemble group therapy, but at least the life planners are trying to connect money with meaning. Enter the happiness researchers, who’ve already learned that the happiest lives are filled with meaning, lives lived for something outside and more important than ourselves. If a meaningful life is the highest form of happiness, is it crazy to speculate that the Me Generation, in their earnest search for happiness, might just morph into a retired Meaning Generation?

Eisenberg calls these meaning-seeking boomers the “New Seniors”. Readers, travelers, and curious learners, New Seniors will want to share experiences, to teach, mentor, tell stories. New Seniors will remain productive into their eighties and nineties, be compassionate about others, be concerned about the world around them, not just themselves. Beyond Me and into meaning.

Thomas Jefferson was sixty-six at the end of his second term as president. Tired and disillusioned, he fantasized about selling his Monticello estate above Charlottesville, Virginia, to live out a well-deserved second adolescence in Paris for the rest of his days. But Jefferson knew he couldn’t abide the fools who governed France, so he retired to Monticello — at least for a while.

Nine years into retirement, a now very elderly Thomas Jefferson continued to find meaning in public service. For him, public education was always a top priority. So at seventy-five, Jefferson founded America’s first public university. He surveyed the land, worked with the architects, developed the curriculum and personally interviewed most of the professors. In 1825 the University of Virginia, visible from Monticello, opened with 123 students.

Jefferson died on July 4, 1826. Carved on his tombstone are the lifetime achievements he considered most meaningful: author of The Declaration of Independence, responsibility for the Virginia Statute of Religious Freedom and founder of the University of Virginia.

Source: “The Number: A Completely Different Way to Think About the Rest of Your Life” by Larry Eisenberg (Free Press 2006).

- Gerald Le Van

glevan@uww-adr.com

"It took years to get here. It will take time to get there - if 'there' is a better place to be".

Families embroiled in a problem need to do what may be difficult - recognize that it may take time to work through it. That is a problem when the family is facing an immediate disagreement that freezes progress or destroys harmony. When something is aggravating, first preference may be to get beyond it by reaching an agreement. Or, it may be to ignore it in hopes that what is hard to face does not actually have to be faced and that somehow, the problem will just subside.

Neither approach works most of the time, if ever really. If the disagreement is just a manifestation of something grounded in years of being in the same family, it will take time to discuss "how we got here" and how to really get to a better place. If the disagreement is just one more chapter in a years long book of family, it may take a few more chapters to make meaningful improvements, some of which may be needed to solve the immediate problem.

That is why they say "an ounce of prevention is worth a pound of cure". It is as true for family health as it is for physical health.

Richard B. Lord

rlord@uww-adr.com

Reducing Compensation Without Doing More Harm Than Good

There is a nexus between compensation, an individual’s sense of fairness and identity, and a company’s economic vitality. The family enterprise is not immune from needing to walk a delicate path when REDUCING compensation when economic headwinds facing the company warrant it.

The extent to which compensation should go down is company and contextually specific. THE HOW is critical. Remember, each family member will have feelings that are effected and overriding most will be a sense (assuming it is necessary) of whether it is fair. Non-family members too will react, if not overtly, than certainly internally. Perceptions impact how they feel. If non-family members are the first to feel the pinch, their receptivity, their morale, and their resultant productivity will depend on their perception (understanding) of the need and whether they feel what is happening to them is fair. It may be too much to ask that non-family members take a haircut when family member employees don’t feel the same pain. Informing all of those who will be affected with the reasons for the reduction is only part of the equation to successfully walk the delicate path. How everyone feels will be a dominant factor in whether it can be accomplished without doing more harm than good. Communication is the key.

Among the family members, this may be an opportunity to bring compensation into alignment with value to the company for the efforts expended by each effected family member. A compensation sub-committee adjunct to an existing family counsel is a valuable way to set the stage for information sharing, meaningful deliberations and decisions best tailored to the needs of the company, the needs of the family, and the needs of the individuals of that family. The information gathered and shared, the fairness of the decision making process, and the impacted family members having a seat at the table, will enhance the quality of the decision and necessary buy in of those impacted.

- Richard Lord