Soriano: When an in-law becomes an outlaw

Soriano: When an in-law becomes an outlaw

When a shareholder, especially the parent/founder of a company passes away, their shares may be inherited by their heirs, including their in-laws. In some cases, this can lead to in-laws owning shares in the company, which can present unique and most often daunting challenges for the business and the family. If my readers can recall, I shared a case last week concerning John, the son in-law anointed as chief executive officer (CEO) and tasked to lead the family business after its founder and his father-in-law George passed away.

Immediately after John took over the driver’s seat, he made a series of poor judgments that jeopardized and damaged the company’s reputation. The impact was so disruptive that it created a toxic work environment with senior executives tendering their resignations one after the other. In less than a year, the consequences of his decisions resulted in a loss of customers and a tarnished brand image. When the family commissioned an independent audit team to probe why sales plummeted resulting in financial losses, the initial findings pointed to misallocation of resources and unethical dealings.

The audit also uncovered a spate of lawsuits and penalties that the company continued to endure. These were primarily due to John’s non-compliance with regulations, breaches of contracts and other actions that violated corporate laws. Sensing the CEO’s lackadaisical attitude in resolving the mounting problems created by his ineptness, the family realized it had to act to save the family business. The members, comprising the next generation shareholders recognized the importance of the organization and the need to protect their founder’s legacy so they decided to engage our services.

To urgently address the business’ sorry state, our team buckled down to work and proposed interventions that marshalled all family members to a mindset focused on communication, governance, stewardship, shared purpose and corporate best practices. These initiatives led to the creation of the family code of conduct, business protocols and ownership agreements as well as initiating a series of workshops to educate the board of directors and other non-active shareholders on their important roles as members.

When the results of the audit investigation came out, it was clear that blatant violations were made by John. With enforceable agreements in place, the joint family council and the Board voted to remove him as CEO. The action to save the business by removing John from a position of power and finding a new leader with the skills and experience necessary to turn the business around was important, critical and urgent. The Board then issued an official statement that was read during the emergency stockholder’s meeting: “The mismanagement of the family business by John created serious repercussions to the business and its stakeholders. By taking action to address the situation, we are putting in place governance and preventive measures so we can mitigate the risks associated with poor management and ensure long-term success. There were reports of serious anomalies committed by John. Regardless of his status as an in-law and being part of the family, we want to make it clear that he will have to be made accountable for his actions.”

John knew the consequences and he had no other choice but to comply with the decision of the family council with the Board acting as the enforcer of rules.

You might be asking how John’s wife took the news regarding her husband’s ouster? She felt bad of course but she took the collective decisions of her siblings well. Proactively, we made sure that she was aware of the information coming from the independent audit as well as the initiative of the clan in requiring John to come forward and explain his side using the Family Council as an objective platform bereft of any unnecessary emotional drama and blackmailing.

That was the rule that we set in place as part of the family governance process: to hear John’s side first and after due process decide on the appropriate sanction. We knew the sensitive nature of the incident and that any misstep can potentially lead to a range of emotional consequences. If the family council did not follow our intervention protocol and left the wife out of the loop, she would naturally feel betrayed by her siblings.

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