August 18, 2017: Understanding Family Business Problems through Science, Part 1

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

Welcome back to the blog. This week we continue our discussion of “Stage 4 Planning” and how science—particularly the “fight or flight response” theory—can help us understand the innate challenges that threaten family businesses.

In his best-selling book, Thinking, Fast and Slow, Nobel Prize Winning author and professor Daniel Kahneman observes that “[b]y and large . . . the idea that our minds are susceptible to systematic errors is now generally accepted.”[1] Professor Kahneman’s observation about the susceptibility of our brains to make systematic errors extends in numerous directions and is the subject of a growing body of scholarly books and articles on our complex human nature, including, for example, our systematically irrational behavior,[2] the on-going tug of war between reason and impulse,[3] our propensity for making snap decisions,[4] how we actually pay less attention than we believe we do,[5] and how imperfect our memories are.[6]

Perhaps as problematic for family owned businesses as any other systematic error that our minds make is our propensity to react—and overreact—in “fight or flight mode,” an immediate and automatic response to that natural selection imbued our ancestors with when faced with true existential (and perceived) threats where delaying could be fatal. While modern civilization has thankfully reduced or eliminated many such threats, our brains continue to overreact in fight or flight mode to even petty annoyances, perhaps angering us when someone takes “our spot” in a crowded parking lot, or the concern we might feel if someone fails (for whatever reason) to respond promptly to a text or email. Dr. Dan Baker describes this phenomenon in his best-selling book What Happy People Know, writing:

The forces of evolution, by their very nature, endowed [our neurological] fear system with tremendous power, because in the brutal early epochs of mankind, it alone kept us alive. It gained us the hair-trigger capacity to spring into action at the first hint of threat. The automatic fear response became faster than the process of rational thought, faster than experiencing the feeling of love, faster than any other human action. . . . Unfortunately, in modern life, what is good for survival is often bad for happiness and even for long-term health.[7]

Join us next week as we take a closer look at how fear-based thinking negatively impacts family businesses and what can be done to remedy these situations.

[1] Daniel Kahneman, Thinking, Fast and Slow 10 (2011).

[2] See, e.g., Dan Ariely, Predictably Irrational: The Hidden Forces that Shape Our Decisions xix-xx (2008) (“Although a feeling of awe at the capability of humans is clearly justified, there is a large difference between a deep sense of admiration and the assumption that our reasoning abilities are perfect . . . [W]e are not only irrational but predictably irrational . . . our irrationality happens the same way, again and again.”) (emphasis in original).

[3] See, e.g., Dan Ariely, The (Honest) Truth About Dishonesty: How We Lie to Everyone—Especially Ourselves 113–14 (2012) (“Being human and susceptible to temptation, we all suffer in this regard. When we make complex decisions throughout the day (and most decisions are . . . complex and taxing), we repeatedly find ourselves in circumstances that create a tug-of-war between impulse and reason. And when it comes to important decisions (health, marriage, and so on), we experience an even stronger struggle. Ironically, simple, everyday attempts to keep our impulses under control weaken our supply of self-control, thus making us more susceptible to temptation.”).

[4] See, e.g., Malcolm Gladwell, Blink: The Power of Thinking Without Thinking 85 (2005) (“We don’t deliberately choose our unconscious attitudes . . . [O]ur unconscious attitudes may be utterly incompatible with our stated conscious values.”).

[5] See, e.g., Christopher Chabris & Daniel Simons, The Invisible Gorilla: And Other Ways Our Intuitions Deceive Us 38 (2010) (“For the human brain, attention is essentially a zero-sum game: If we pay more attention to one place, object, or event, we necessarily pay less attention to others. Inattentional blindness is thus a necessary, if unfortunate, by-product of the normal operation of attention and perception.”).

[6] See, e.g., Schacter, supra note 87, at 4 (“I propose that memory’s malfunctions can be divided into seven fundamental transgressions or ‘sins,’ which I call transience, absent-mindedness, blocking, misattribution, suggestibility, bias and persistence.”) (emphasis in original).

[7] Dan Baker, What Happy People Know 6–7 (2002).

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

August 8, 2017: Stage 4 Planning: Applying Science to Family Business Planning

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

After last week conclusion of “Stage 3 planning” strategies, we turn now to one of the most important paradigms of Family Business Advising in the 21st Century: “Stage 4 Planning.”

Over the coming weeks we’ll delve into this often overlooked, yet highly relevant planning phase and discuss how families in business together can benefit from its implementation.

Insights and advances in science, particularly from the fields of social neuroscience and positive psychology, suggest new planning strategies for lawyers and other professionals working with family businesses. Many of these insights have become well known through bestselling books written by preeminent scholars and researchers, resulting in increased accessibility to lay audiences.[1] Some researchers and scholars have brought particular focus to how such insights can be applied to business, discussing their findings and strategies in a variety of publications, including prestigious journals like The Harvard Business Review.[2] As a result of ongoing cutting edge research that has already built a compelling body of knowledge supported by empirical data, strategies informed by positive psychology have become increasingly familiar to, and applied by, business leaders into actionable ideas, plans and strategies that nurture culture and enhance an organization’s success.[3]

Shockingly, however, while these strategies continue to gain increasing recognition in “non-family” business settings,[4] it remains a virtually undeveloped planning paradigm for family businesses and there is an unfortunate dearth of material on how family businesses could benefit from science.[5] As a result, we are excited to introduce “Stage 4 Planning” strategies and explain how these insights can be applied in practice to help family businesses.[6]

Our discussion continues next week as we explore how our innate “fight or flight” mode can lead to negative, fear-based behaviors in the workplace.

[1] See generally id.; Carol S. Dwek, Mindset: The New Psychology of Success (2006); Barbara L. Fredrickson, Positivity (2009); Martin E. P. Seligman, Authentic Happiness: Using the New Positive Psychology to Realize Your Potential for Lasting Fulfillment (2002); Garrison Kitchen, The Long and Winding Road from Positive Psychology Theory to Corporate Application (August 1, 2016) (unpublished Master’s thesis, University of Pennsylvania) (on file with the University of Pennsylvania Scholarly Commons), http://repository.upenn.edu/cgi/viewcontent.cgi?article=1103&context=mapp_capstone.

[2] See e.g., Harv. Bus. Rev., Jan.–Feb. 2012 (featuring the iconic yellow “smiley face” and the title: The Value of Happiness: How Employee Well Being Drives Profits).

[3] See e.g., Margaret Greenberg, Profit From the Positive: Proven Leadership Strategies to Boost Productivity and Transform Your Business 98 (2013) (stating that companies like Google, Zappos, and Amazon use positive psychology as a low cost strategy to increase productivity); Zak, supra note 89 at 86 (“Consider Gallup’s meta-analysis of decades’ worth of data: It shows that high engagement—defined largely as having a strong connection with one’s work and colleagues, feeling like a real contributor, and enjoying ample chances to learn—consistently leads to positive outcomes for both individuals and organizations. The rewards include higher productivity, better quality products and increased profitability.”). In addition, as of this writing, LinkedIn identifies twenty-five profiles of “Chief Happiness Officers,” some at well-known companies such as Hewlett Packard. Chief Happiness Officer, LinkedIn, https://www.linkedin.com/title/chief-happiness-officer (last visited Apr. 3, 2017).

[3]. The relevance of positive psychology in the practice of law has already been recognized in some other contexts. See generally, e.g., Clare Huntington, Happy Families? Translating Positive Psychology into Family Law, 16 Va. J. Soc. Pol’y & L. 385 (2009).

[4] The relevance of positive psychology in the practice of law has already been recognized in some other contexts. See generally, e.g., Clare Huntington, Happy Families? Translating Positive Psychology into Family Law, 16 Va. J. Soc. Pol’y & L. 385 (2009).

[5] Though these strategies are still underutilized in family business planning, some resources do exist. See generally, Scott E. Friedman, Family Business and Positive Psychology: New Planning Strategies for the 21st Century (2014); Donella Caspersz & Jill Thomas, Developing Positivity in Family Business Leaders, 28 Fam. Bus. Rev. 60 (2015); Scott E. Friedman & Eliza P. Friedman, Family Business and Positive Psychology: A New Planning Paradigm, N.Y. St. B. Ass’n J., Jan. 2014, at 44; Eliza Friedman & Andrea HusVar, New Strategies for Family Businesses, Buff. L.J. (Jan. 5, 2015), https://www.bizjournals.com/buffalo/blog/buffalo-law-journal/2017/01/new-strategies-for-family-businesses.html.

[6] There is a substantial amount of research that suggests strategies that tend to help individuals live happier, more fulfilling lives could also be applied to benefit individual family members and their family business, because emotions are “contagious.” For example, fifty years of research by Gallup scientists, in partnership with economists, psychologists, and other scientists, suggests certain common elements of wellbeing that transcend cultures: (1) career wellbeing (i.e. simply liking what you do every day); (2) social wellbeing (i.e. having strong relationships in your life); (3) financial wellbeing (i.e. effectively managing your economic life); (4) physical wellbeing (i.e. having good health); and (5) community wellbeing (i.e. feeling engaged in the area where you live). See, e.g., Tom Rath & Jim Harter, Your Career Wellbeing and Your Identity, Gallup (July 22, 2010), http://www.gallup.com/businessjournal/127034/Career-Wellbeing-Identity.aspx; Tom Rath & Jim Harter, Your Friends and Your Social Wellbeing, Gallup (Aug. 19, 2010), http://www.gallup.com/businessjournal/127043/Friends-Social-Wellbeing.aspx; Tom Rath & Jim Harter, Your Spending and Your Financial Wellbeing, Gallup (Sept. 16, 2010), http://www.gallup.com/businessjournal/127193/Spending- Financial-Wellbeing.aspx; Tom Rath & Jim Harter, Exercise, Sleep, and Physical Wellbeing, Gallup (Oct. 21, 2010), http://www.gallup.com/businessjournal/127211/Exercise-Sleep-Physical-Wellbeing.aspx; Jennifer Robison, Wellbeing is Contagious (for Better or Worse), Gallup (Nov. 27, 2012), http://www.gallup.com/businessjournal/158732/wellbeing-contagious-better-worse.aspx.

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

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]

j

 

 

 

 

 

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), http://repository.upenn.edu/cgi/viewcontent.cgi?article=1063&context=mapp_capstone) (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 http://www.mckinsey.com/business-functions/organizations/our-insights/the-hidden-toll-of-workplace-incivility (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), http://www.gallup.com/businessjournal/162953/tackle_employees_stagnating_engagement.aspx (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