Conflict in family business

Family businesses can give rise to some of the most meaningful and enduring versions of success possible.

Yet, because of the proximity of personal and business relations inherent in them, family businesses can also be breading grounds for conflict. Perhaps the most challenging aspect of counseling family businesses is encountering them for the first time in hot conflict, knowing that these explosive outcomes could well have been avoided with advanced planning. In the spirit of promoting this advanced planning, consider these four propositions:

n Family businesses require greater attention to communication. This is so because family businesses invariably include some owners or managers who are more in control than others. This almost invariably continues or causes longstanding resentments, visible or invisible, among the family members less in control. The solution need not be to give every family member equal control. Rather, the solution must enable family members to be heard, giving them at least the satisfaction of knowing they have had their say.

n Good lawyering should facilitate giving family members their say. Hearing those family members who want to be heard in a regular process is, in the long run, far less costly and time consuming than hearing disgruntled family members’ lawyers in court in hot conflict. Communication can be formal or informal. It can be promoted by culture, but also by legal structure.

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n Well-crafted legal structure can foster good communication. By far the majority of family businesses that I have encountered are close corporations – very often Subchapter S, with one class of stock owned by multiple family members. Often these family businesses are run with no cognizance of whether bylaws for the corporation exist, whether a board of directors exists.

n Properly formed boards and committees can enhance relations. Creating a board of directors that recognizes various family constituents is a good place to start. A board that is inclusive can go a long way toward satisfying outlying family members’ sense of importance. This can be achieved without rendering the board too cumbersome, even if a control group needs to keep 50 percent of voting control. Tailoring the bylaws to accommodate the majority as well as the outliers can be achieved, and very often the process of getting there is a valuable facilitator of communication among family members.

In addition, effectively planning and using standing and ad hoc board committees and tasking them with clear objectives and regular meetings can further enable communication from and among all who want to be heard. These mechanisms can provide ways to give family members a greater sense of participation in the corporation, making them less likely to incite contention.

Of course, having the structure and not actually using it won’t do the trick. Building the structure is, indeed, a significant undertaking but can go a long way toward opening channels of communication.

Still, adhering to the formalized processes of boards and committees must be continued over time to build trust and confidence among family members. Using these tools to involve all of the family constituents in the business in a constructive, management-friendly way may turn out to be the most effective means of maintaining it.

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