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18 September 2019

Managing Conflict in a Family Business

Forward Thinking Business Blog –

There are many reasons why conflict arises in a family business. Tensions in family relationships, feelings of resentment or entitlement, fear of change, reluctance to share information, financial disagreements, clashes between family members who want to invest in the business and those who want to take a dividend, personality clashes — these are all typical issues that arise in family-owned enterprises. They can be difficult to deal with, and for that reason, they are sometimes ignored. Left unresolved, however, tensions can have a damaging impact on decision making, planning, profitability and the long-term sustainability of the business. As a result only 30% of family businesses survive the second generation. Consequently, it’s important for family business owners to prevent conflict arising in the first place where possible and to develop techniques for managing it without damaging family relationships in situations where conflict cannot be avoided. Look after the business and the business will look after the family through generations. Furthermore, a business succession strategy, should be a central element of developing a sustainable family business.

Preventing conflict

One way to minimise the chances of conflict arising is to develop a Family Business Vision/Plan. Importantly, the Family Business Vision/Plan should develop a shared understanding of core business values and an agreed set of rules to govern family interactions with the business. At FPM we encourage clients to document these values and rules in a formal Family Agreement, signed by all direct family members. While this can be time consuming initially, businesses generally find that it helps them to manage more effectively and avoid potential family conflict and business deterioration.

Improving communication

It is inevitable, however, that conflicts will still arise from time to time in all businesses. More often than not, communication issues are the root of the problem. Consequently, improving communication is one of the key areas clients need to focus on.

Communication should be a two-way process that involves both sending and receiving information. Most of us are good at the ‘sending’ part — we’re happy to put our point of view across — but we’re often less good at ‘receiving’.

Learning to listen is the key to understanding the needs, wants and responsibilities of family members and a necessary first step in preventing conflict.

Formal vs informal communication

A question that often arises, is what can we do to improve communication for our shareholders and family members?

Families often meet informally at social gatherings, family parties, funerals and so on and it’s not unusual for business conversations to take place at these events. However, it’s important to find the right balance between formal and informal communication. Miscommunication often happens when a conversation is remembered and reported differently by individual participants. This is one reason why formal meetings are minuted.

As family businesses grow and more people become involved, the need for formal communication increases but informal communication will always remain part of the picture.

Good communication plays a vital role in preventing and managing family business conflict, says Feargal McCormack.

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So, when thinking about how to improve communication, the elements to consider will include:
  • Open your mind to change as we all know, standing still in business means only one thing — going backwards.
  • Ensure your family business has a Partnership/Shareholder Agreement (if applicable) and a clear division between ownership and management/employment.
  • Define the responsibilities/roles of key staff. It is important to pick the right people for the right job. No one should be appointed to a role just because they are family.
  • Implement sound business practices and ensure your management structure and management information systems are fit for purpose.
  • Ensure all staff (including family members) have employment contracts and are rewarded on a performance basis (i.e. judged on outputs rather than on family membership). This prevents conflict, particularly where family members have worked in the business for a long time.
  • Learn to control events rather than allowing events to control you. Plan early for business succession and recognise succession is a process and not an event. Don’t fudge the succession decision by deferring it to the next generation. Communicate and agree decisions in an open and transparent way, involving all family members.
  • Record formal weekly/monthly/quarterly and annual meetings

It’s rare to come across a business where conflict never happens.

In family businesses, emotional factors are almost always part of the picture and disputes can spill over and damage family relationships.

For this reason, many businesses bring in independent directors and involve mediators or facilitators in family meetings. To find out more about these services….

Contact Feargal

Feargal McCormack / Managing Director

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