How companies die

The various attempts at asset protection (creation of "asset holding companies," wills, advance inheritance, lifetime donations, non-family management, creation of corporate governance, etc.) are very useful and applicable. But none of them truly addresses the root causes of conflicts within business families. These conflicts are mostly cultural and emotional in origin. Based on research by Höft Consultores, in its 35 years of working with business families in Brazil and other Latin American countries, the 70% rate of family asset destruction is quite high. It is even higher than the global rate of 65%, according to research by FBCGI – Family Business Consulting Group International.

A more in-depth examination of the causes reveals some points that deserve highlighting in our reality:  

• Most of our entrepreneurs come from humble backgrounds – many were immigrants who fled extremely adverse situations – and are strongly dedicated to their work. Concerned with building something and leaving an inheritance for their descendants, they became absent, patriarchal, and very dogmatic fathers in their family relationships. The consequence, in many cases, was a relationship of conflict, and not always just generational. Many even strove to "provide their children – from a strictly material point of view – what they themselves did not have in their childhood or adolescence."
• This accumulation behavior is not necessarily accompanied by preparing the heirs to manage the assets they will receive. The transfer of an inheritance without a proper legacy ends up causing low emotional identification with what is inherited. Legacy, in this context, encompasses everything that is part of the construction of the patrimony from a historical perspective, including the values ​​and sacrifices that were necessary. Most patriarchs are concerned with finding structured solutions, both from a legal and tax standpoint, for the transfer of resources. But they do not allow themselves the time, patience, and affection to transmit the meanings that permeate what has been materially accumulated.
• Another important point is the realization that not every entrepreneur becomes a businessman. A businessman, in this context, is understood as someone who sees their achievements as a means of continuity for future generations.
• The relationship between the creator – the entrepreneur – and their creation – the company or assets – is so visceral that they cannot imagine the creation without them. And in this condition, they cannot detach themselves from the creation, which hinders the inclusion of their descendants in the succession and continuity process. Given that this detachment is caused by the fear of losing power, the only alternative, in the exceptions we have observed, has been those where the entrepreneur managed to find new sources of self-esteem preservation through other forms of power replacement.   
• Another strong component in this context is the unpreparedness of the spouses of these entrepreneurs to deal with their absence. And we are not talking about preparedness for business management. We are referring to understanding their role in an ambiguous context of conflict, where the family variable is of great importance. Especially when the family has developed a culture of "pretending" that everything is fine, and lives a hypocritical integration to deceive parents, or even society in general. In other words, conflicts and disagreements are omitted to "spare" everyone from any position that does not conform to the expectations of others. In many families, the institutionalization of a forced collective inhibits the emergence and realization of individuality.
• Also noteworthy are family and asset structures that have developed a pattern of financial dependence on shared assets. In various ways, the new generation is prevented from creating alternative sources of liquidity that they can manage as they see fit. Considering that, in the medium and long term, the living standards of new family units will inevitably differ, the refusal to address these inequalities can create a passive attitude in the search for solutions that do not originate from the family business. This complex situation is further amplified when most also view the family business as their only alternative for professional fulfillment.
• Finally, and still far from exhausting the subject, there is also the attempt to replicate in new generations the model of society/property that guided the first generation. Few families understand that from the second generation onwards, they need to prepare themselves for the role of partners in a group of people where there was no freedom of choice. Therefore, despite the sibling relationship, or cousin relationship, seeing each other as partners is a new fact that requires preparation, humility, and a great deal of mutual trust.

The biggest challenge for most family businesses isn't a lack of knowledge about many of these issues. It's the resistance, or inability, to address these topics through dialogue. Whether it's concluding that they can stay together, divide, or sell their assets. This is because most who succumbed to these challenges weren't sold, but bought by competitors or investors, without any emotional involvement. This serves as a challenge for families to address this issue, ideally preventively.