Case Study | Counsel to a Family Business

          One of my long-time clients is an old West Texas family with significant holdings in ranching, oil and gas, investments and insurance. While they have been in business more than a century, many of their investments, managed by trusts from the 1940s and 1950s, continue to operate. Generally, members are the trustees of various trusts. They are quite intelligent and well-educated.
          Not unlike many established families, this family’s vision for its future tended to be static, often too tied to the past. From a management perspective, they often reacted to events instead of shaping them. Because its wealth was not created through entrepreneurial activity, family leaders were not accustomed to thinking in terms of relative risk and reward or cost and benefits. As is quite common, the trustees tended to see themselves as managing what had befallen them rather than enhancing it. They were also constrained by older trust instruments created by individuals long-gone. Few family members understood the legal ramifications of the arrangement. That led to complacency either because they were accustomed to having such matters handled for them or because “that’s the way we’ve always done it.” Because so many of the entities were trusts, there was no business-like structure accountable to its members, partners, or shareholders to encourage change. Its members were quite diverse, representing opinions across the social and political spectrum. Some outright disliked others.
          Fortune treated the family well, and its assets grew substantially, far beyond the imaginations of its forebears. Ultimately, it evolved to a level requiring more sophisticated ways of management. Whether members liked it or not, they were in business together for the foreseeable future.
          As a group, they needed a “vision” that all members could accept. This presented both opportunities and challenges. In the short term, there was a large pool of assets that could not be divided but could afford investment opportunities and sophisticated management reserved only for institutional clients. Yet it was complex because various members had different goals, needs and philosophies.
          The family did not think of themselves as a unit, or even the outcome of intentional hard work. To do nothing was a prescription for disaster because the death of elderly family leaders would leave a huge pile of assets for beneficiaries without the experience to manage them but who, nonetheless, had to work together. Serious conflict seemed inevitable.
          Originally I got involved by doing estate work for one of its members, but increasingly did work for others, including some of the family’s trusts and other entities. I set up generation-skipping trusts and then a family limited partnership. The situation was replete with ethical challenges, so I was careful to disclose conflicts and get appropriate waivers. Soon, my role morphed into multi-faceted dimensions, as I became a trusted family advisor and “general counsel.”
          My years of transactional, litigation and mediation experience were beneficial, given the many hats I wore. I continued to be involved in the family’s overall estate planning and daily operating transaction work, directly doing the actual legal work and often helping them select and coordinate various outside counsel who specialized in their particular complex legal needs. I used my contacts and investment experience to help the family write investment management policies and to select more experienced investment managers to manage their assets. With my guidance, they retained new accountants who were planners and not simply preparers of tax returns. At the same time, I served as a facilitator and mediator in harmonizing the various factions and helped transform diverse individuals into a family unit.
          Perhaps the best example of the latter was my orchestrating a family meeting at a location far from home where members could meet without distractions of familiar routines, even relational ones. I created a program and an agenda and brought investment and other advisors to make presentations regarding asset allocation, investment performance and economic forecasts. At the end of each meeting I provided an opportunity for members to ask questions, however trivial, about the family businesses. Questions were honestly answered. I encouraged transparency. On the last night they ate together, banquet-style, not as a collection of individuals who happened to be related, but as a unified family.
          Borrowing techniques out of mediation, I helped members feel that their roles in the family and businesses were valued. Eventually, they began to take ownership in the family, and see themselves as a unit much larger than themselves.
          Today, the family operates harmoniously with mutual respect and trust. It will survive the deaths of its senior members and decisions will be made collaboratively and in the best interests of the group as a whole.