August 2, 2017: The Limits of Stage 3 Planning: Part 2

By Scott E. Friedman, Andrea H. HusVar, and Eliza P. Friedman

Hello and welcome back to our discussion of “Stage 3” planning.

Last week we started on the topic of The Limits of Stage 3 Planning and looked at a variety of factors that contribute to the suboptimal results of contemporary family business planning.

This week we bring you the second (and final) installment of The Limits of Stage 3 Planning—beginning with new studies in the field of neuroscience.

“Stage 3” planning fails to take into account recent findings on the neuroscience of trust, purpose, engagement and happiness.[1] We believe that, over time, the failure to account for such considerations, combined with often naturally differing perspectives on (a) vision, mission, values, (b) who is capable and qualified to fill positions (and who is not),[2] (c) how to effectively reconcile disagreements or resolve disputes before they get out of hand,[3] or (d) simply how to compete in an increasingly competitive market, erodes intra-family trust as family members come to view each other as unreliable, insincere and incompetent.[4] In such circumstances, the collaboration required to work together successfully in business is virtually impossible and the resulting negative emotions and behaviors can lead to incivility in the workplace and, from there, to infighting. Research convincingly demonstrates that incivility and infighting, in turn, result in wasted time and resources, decreased productivity, and diminished bottom lines.[5] The combined impact of these challenges, highlighted in the below image, show the seemingly inexorable path to failure for too many family businesses.[6]







We believe that families, assisted by their professional advisors, can—indeed must—thoughtfully consider how to apply new insights from these and other scientific disciplines[7] in order to inform and, when appropriate, create plans, policies, and structures that both help nurture inter-personal relationships while enhancing a business’s bottom line.[8] We refer to this approach as “Stage 4 Planning.” In combination with Stage 1, Stage 2 and Stage 3 Planning strategies, families in business have good reason to be optimistic that their members, and their business interests, can flourish over the generations.

Next week we’ll discuss how these emerging scientific studies can be applied to “Stage 4 Planning.”

[1] See, e.g., Paul J. Zak, The Neuroscience of Trust: Management Behaviors that Foster Employee Engagement, Harv. Bus. Rev., Jan.–Feb. 2017, at 86 (“In my research, I’ve found that building a culture of trust is what makes a meaningful difference. Employees in high-trust organizations are more productive, have more energy at work, collaborate better with their colleagues, and stay with their employers longer than people working at low-trust companies. They also suffer less chronic stress and are happier with their lives, and these factors fuel stronger performance.”). While beyond the scope of this article, insights from positive psychology hold great promise for lawyers, law firms, and the legal profession. See e.g., Anne Brafford, Building the Positive Law Firm: The Legal Profession at Its Best (Aug. 1, 2014) (unpublished M.A. thesis, University of Pennsylvania), (suggesting that a positive psychology approach can help law firms and lawyers perform better and more profitably).

[2] In our experience, family members too often wind up working in a family business because it is “convenient,” “expected,” or “lucrative,”—not necessarily because it is a good “fit” based on interests, talents, passion, etc. See infra, notes 149–155, and accompanying text.

[3] See infra notes 151–56, and accompanying text.

[4] See Williams & Preisser, supra note 12, at 1 (most family business failures are attributable to mistrust and miscommunication, not to poor tax and financial planning).

[5] See, e.g., Christine Porath, The Hidden Toll of Workplace Incivility, McKinsey Q., Jan. 2017, at 12 (the costs of incivility include settling scores with offenders, decreasing time spent working, reduced interest in collaborating with colleagues, diminishing commitment to an employer, employee turnover, etc.); Susan Sorenson & Keri Garan, How to Tackle U.S. Employees’ Stagnating Engagement, Gallup (June 11, 2013), (finding that actively disengaged employees cost the U.S. up to $550 billion in lost productivity per year).

[6] Perhaps most importantly, although beyond the scope of this article, such negative emotions may have untold and attendant resulting personal costs, including depression, frustration and anger that, in turn, results in significant health risks, including high blood pressure, heart attacks and strokes.

[7] Famed Judge Learned Hand anticipated the need for new planning strategies based on science when he remarked: “How long we shall continue to blunder along without the aid of unpartisan and authoritative scientific assistance in the administration of justice, no one knows; but all fair persons not conventionalized by provincial legal habits of mind ought, I should think, unite to effect some such advance.” Parke-Davis & Co. v. H.K. Mulford Co., 189 F. 95, 115 (C.C.S.D.N.Y. 1911), aff’d in part, rev’d in part, 196 F. 496 (2d Cir. 1912).

[8] See generally Shawn Achor, The Happiness Advantage: The Seven Principles of Positive Psychology That Fuel Success and Performance at Work (2010).

Scott E. Friedman, Andrea H. HusVar, and Eliza P. Friedman, Advising Family Businesses in the 21st Century: An Introduction to “Stage 4 Planning” Strategies, 65 Buff. L. Rev.,  May, 2017