Don't Let Conflict Hit The Family Firm
30th March 2015 Howard Hackney
Manage the family and business boundaries to prevent disputes escalating
Family firms are built upon relationships and clearly when you work with your nearest and dearest there is a tendency not to draw the line between business and family life. Managing boundaries in the board room is clearly essential if you want to reduce the risk of disputes that could escalate out of control so that you are not one of the 70% of family firms who fail to survive to the second generation.
As Howard Hackney, leading family business consultant in the UK explains, “Conflict is an essential part of everyday life and helps deal with the issues at hand. In fact, in many circumstances different perspectives coming to the fore enable a debate to be had which in family firms, may not otherwise have happened. The challenge for family firms is not to get personal and to manage the discussion process so it does not escalate out of control.”
Families in business together potentially have a greater chance of a dispute arising because as the saying goes, ‘you can choose your friends but you cannot choose your family.’ There is often a natural tension between family and business issues too. Just because you are part of the same family does not mean that you think the same way, and inevitably, historical issues come to the fore at times of discontent and emotional issues such as nepotism, favouring one child over another, and the need to make choices come to the fore.
For family firms, one of the most contentious times, according to Howard, is transition. As Howard explains, “whether it is selecting a successor from the next generation, taking the decision to sell the business, or determining who to leave the shares to, the business is likely to be a valuable asset and human nature is such that everyone wants their fair share.”
“Determining what is fair and equal amongst siblings for example is never easy for a parent, a matter that is exacerbated when there is more than one sibling and at least one, but not all of them, work in the family firm. Inevitably, issues can arise around distribution of the shares in the business and cause some discontent amongst the family too.”
“I would tend to propose that shares are distributed to those involved in the management and day-to-day operation of the business rather than those that are not.”
Remuneration planning and an appropriate dividend policy that is documented and communicated can also help to alleviate concerns around finances too, which can also become a bone of contention. Escalating issues and disagreements are never going to be in the best interests of the family or the business and plans need to be in place to reduce the risks.
There are some key steps that can help reduce the risks of a family feud developing, including:
- Develop an effective family code of conduct, outlining acceptable behaviours, roles and responsibilities
- Make sure that confidential conversations remain as such and do not get discussed at ‘family’ get togethers to build trust
- Behave appropriately with other family members, inside and outside of the family firm
- Communicate with all family members, including in-laws and siblings who may not be in the family business and consider introducing family meetings too
- Work on developing appropriate procedures for dealing with issues as they arise to prevent them escalating out of control
- Plan time to discuss family problems when they occur
- Avoid playing communication games and ensure that there is an environment of openness, trust and honesty
- Use trusted advisers to help explore options and mitigate risks
- Document findings and policy decisions and communicate as appropriate
- Make sure there is a shareholders agreement and a family constitution and potentially contentious issues are addressed such as valuation of shares, rights of employment, share ownership, remuneration policies etc
Although there is an inevitability about conflict in any business, it is the degree to which the conflict takes place that is the challenge for family businesses.
Debating key issues such as remuneration and dividends and employing key staff take place in board rooms the world over, and it is preventing the personal circumstances in the family firm from taking over and creating something over and above the decision being discussed that is important.
“By being fair and open with clear policies in place to address the issues that lead to conflicts arising, families in business can help to mitigate the risks to them,” concludes Howard.