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Resolving Conflict in Multi-Generational Family Businesses By Harvy Simkovits, CMC Family business continues to be a cornerstone of the American economy and a mainstay in the smaller-business world. Yet, multi-generational family businesses tend to be more complex to manage than professionally-managed firms. Not only do they contain both ownership and management constituencies that must lead and make important decisions for the business, but they also contain family members (children, siblings, in-laws, etc) that may have conflicting needs and expectations that can affect business and family decisions. The conflicting needs between the family and the business often surface with regard to issues like a family-member’s a) career choices; b) remuneration (pay and/or other forms of compensation), c) ownership (shareholder succession), and d) decision-making authority (criteria for rising through management or gaining ownership), to name a few. In any family business, the needs and aspirations of these three distinct, yet related and overlapping groups of ownership, management, and family (represented in the diagram) need to be continually weighed and balanced if the whole enterprise is to serve both the business and the family effectively.  Some individuals in the business, like early-career children of the owner/founder, may straddle two groups (i.e., management and family). Others, like the business founder or his/her successor(s) – who act as the family/business patriarch(s) – usually straddles all three groups, being in the center of most, if not all, ownership, management and family issues. Sources of Family/Business Conflict Based on this view, sources of conflict and strife in any family/business enterprise can emerge if: 1. Issues related to one group spill over into the workings of other groups. For example, if two of the patriarch’s child-managers compete for their parent’s attention or good will, they may inappropriately take their sibling battles into management meetings or the ownership board room. 2. There is inconsistent or unfair treatment of people between two groups, like family managers being paid more than, promoted faster than, or hired over competent non-family managers. 3. Some members of a group are excluded from important conversations that affect the current or future success of that group For example, if family in-laws, not involved in the business, are not made to understand the values, vision and condition of that business, they may have unrealistic expectations about what that business ought to provide them in terms of future financial or career prospects. 4. Significant differences in goals and values across groups can have lasting negative effects on the family and the business. For example, some who value security may want the business to stay the same, while others may be more willing to take risks for potentially greater future returns. Festering conflict here can potentially tear a family and business apart. 5. There is avoidance of proper succession planning within one or more of the groups. If clear successors are not chosen and developed, then factions can rise within the family, and battles can ensue for control of the business. Managing Family/Business Conflicts Some of better ways to manage these inherently conflicting needs, and to create an environment of fairness and equity within and among the three family/business groups, are to: A. Create and maintain the right kinds of meeting forums and processes for dialog, problem-solving and decision making for each group. Family meetings must be separated from ownership meetings and from management meetings. Each forum also needs to define and clarify its charter, rules of conduct, and role in the overall family/business enterprise. B. Define what issues ought to be talked about in each forum. Having the wrong conversations within any group can blur the boundaries of appropriateness, and create confusion and misunderstanding. For example, sibling rivalry or in-law issues should be suitably handled in a family forum, and not a business management or ownership forum. C. Members that straddle more than one group (like family members who own shares in the business but are not involved in managing the business, or like non-family managers who own shares in the business, or like family members who are managers but do not own shares in the business) need to learn how to effectively carry and present themselves in the various forums they participate in, while duly respecting the forums they are rightfully kept out of. D. Because of the propensity for conflict, members from all groups need to be sufficiently educated in both conflict resolution skills (so as to be effectively able to become aware of, address and negotiate differences that are inherent to such family/business enterprises), and communication skills (so as to caringly and considerately draw the lines among what conversations need to be handled in what family/business forums). E. Outside coaches and advisors (financial, legal, organizational and psychological), who specialize in family business, can help members of the various groups to maintain objectivity and realism, and work through important but delicate issues, like management and ownership succession. Families in business do bring with them great personal and marketplace advantages (like higher family and non-family loyalty and trust; closer relationships to customers, vendors and employees; and the pleasure of life-long relationships). However, family businesses have the added complexity of family matters intertwined within the business, thus having many more issues to deal with than professionally-managed firms. If the various groups represented within the family/business enterprise are not effectively managed and dealt with, inherent conflicts can dominate day-to-day enterprise interactions, and subsequently jeopardize the future prospects of that business and the family it was ultimately meant to serve. To better ensure fairness and equity for all family and business constituencies, the right forums, processes and capabilities need to be put into place. Harvy Simkovits, CMC, President of Business Wisdom, works with owner managed companies to help them grow, prosper and continue on by offering innovative approaches to business development, company management, organization leadership and learning, and management education. He can be reached at 781-862-3983 or . Business Wisdom |