Australasia Communication North America UK

50 Common Causes Of Family Business Conflict – #7 Equal Ain’t Equitable

One of the most common causes of family business conflict arises from (innocently) confusing equality (providing equal benefits), with equity (providing fair treatment).

On careful analysis, this almost always indicates avoidance of responsibility to exercise discretion towards family members in widely different circumstances, even where most outsiders, and most family members, would think it perfectly reasonable to exercise well-informed discretion.

The common default position is: “I love my children equally, therefore I treat them all equally”. Although entirely appropriate for distributing love and affection within a family system (even if easier to declare than achieve!), this formula simply doesn’t work in a family business context – where commercial focus, competitive performance, contribution and merit demand, objective commercial recognition – and where equally shared ownership and authority is a recipe for disaster unless the family, and the business, have excellent and separate systems for managing same.

Inevitably, different family members, both in and out of the family business, have different needs, at different stages in their lives. Consider the Groggin Family:

  • Mum died from a lingering cancer when all 3 children were teenagers.
  • Child A is a high achieving merchant banker, married to a leading surgeon. They have 3 gifted children, all well-balanced and succeeding at school. They are very comfortable financially, and make no demands on anybody.
  • Child B is a single mother who’s led a rough life and has 2 young children, from different (long departed) fathers, both suffering from Foetal Alcohol Syndrome, due to long-term substance abuse. B has a junior clerical role in the business, which is more an act of charity than practical employment. Dad lets her live rent free in one of his small investment properties. She’s always broke, dependent on others, and on the scrounge.
  • Child C is married to a teacher and has 2 “standard” children. He’s worked with Dad in the business for over 15 years and has frequently been promised: “One day this will all be yours, just look after your sisters”. He’s currently General Manager, which is more of an honorary, than a realistic title. He has a big mortgage, is being sucked dry by private school fees, and has a very pushy wife. Although a competent and hard worker, he lacks any natural management or leadership ability, has not sought any relevant on-the-job training to improve his executive skills, and now has limited employment prospects outside the family business.

Clearly, they each have very different needs, both inside and outside the business. You’d anticipate that treating them equally would have to create conflict. And it did!

Had Dad made more effort to treat everyone wisely and fairly in their private lives, rather than equally, and had he done it through family, instead of business channels, it would have been a braver, wiser, more enlightened course of action.

Continuing emotional and financial support could have been tied into personal commitments by both of the more dependent and needy children to change their lives to become more self-sufficient. Dad won’t be there forever to support them, and his plan to transfer 1/3 of the business to each child on his undisclosed retirement date, is unlikely to end well.

Solution
Separate “family-think” from “business-think”. Go “Business First” in the business and “Family First” in the family by establishing different forums, rules and processes for decision-making in each entity.

If the family wants to support family members in need, they should use family, rather than business resources, to do so. The family, as a group, should allocate and retain money in a private slush fund for distribution to family members in need – according to agreed family values and the rules and policies they need to develop and commit to, as a group.

Establish a Family Council, representing all key bloodlines, to adopt processes, create policies, and make decisions about family issues, on behalf of the family. Family Council activities should be entirely separate from business activities, even if: (a) key personnel are the same in both entities, and (b) the business is required to take the family’s wishes into consideration when developing and executing its strategies.

Business decision-making should happen in accordance with commercial best practice, if the family wants its business to be successful, over the long term.

Critical decisions should take place within Business Boards and Executive Management Teams; operational decisions should take place within business units. In all cases, participants’ roles, responsibilities and authority should be commensurate with their positions in the business, not their status in the family. Note: there’s no role of “owner” in any known business organisation chart!

Overall: get real in your thinking. Separate family from business decision-making. Help family members in their private lives through family resources; support the careers of family employees through objective HR measures, within the business – preferably recommended and administered by competent, non-family staff members.

Ensure that any family support provided, and any major future intentions, are distributed wisely and fairly, to where they’re most needed and where they make the most sense. Future plans, especially succession plans, should be discussed and agreed with the whole family, well before they need to be implemented.

Also – be prepared to change your thinking about what constitutes the right thing to do after you get honest feedback from family members, reliable staff, and trusted advisers. Personal guilts and perceived family obligations don’t produce the best decisions, most of the time.

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