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Conflict resolution: how to handle disagreements

There is greater potential for conflict within family businesses than non-family firms – resolving differences before they go too far is key to harmonious work and family life

‘Disagreements can arise over many different issues, the most common being the future direction/strategy of the business, transition of control or ownership, the level of return to shareholders, and the involvement of family members in the business.’ Photograph: iStock

‘Disagreements can arise over many different issues, the most common being the future direction/strategy of the business, transition of control or ownership, the level of return to shareholders, and the involvement of family members in the business.’ Photograph: iStock

 

We all joke about our “work family”, but what if work actually was your family? With the prospect of normal family tensions spilling into the workplace, or business disagreements potentially affecting harmony at home, family businesses have the potential to be a hotbed of discontent.

Is conflict within family businesses something that is par for the course, or is it rare? According to Shaun O’Shea, partner at Beauchamps, there is greater potential for conflict when family members are working together.

“It is by no means par for the course, but it would be understating it to say it is rare. There are particular stress points such as transition of ownership and transition of management and control from one generation to the next, and this is where conflict most commonly arises,” he says.

This can happen even after years of apparently harmonious working relationships, he notes.

“Disagreements can arise over many different issues, the most common being the future direction/strategy of the business, transition of control or ownership, the level of return to shareholders, and the involvement of family members in the business. These issues can arise at any time within the life cycle of a business.”

Depending on its nature, this conflict may not be solved at a family dinner and may ultimately require mediation. While it isn’t necessary to call in the lawyers immediately, in many cases it is the only option. Thus, having proper legal structures and legal agreements in place is worthwhile, notes O’Shea.

“While the hope would be that one has never to look at them, they are very useful if a dispute or issue arises as there is a pre-agreed procedure to follow,” he says.

The content of those documents will vary depending on the type and size of the family business, but O’Shea adds that in addition to a formal shareholders’ agreement, it is also helpful to have informal structures such as family constitutions and family forums in place.

Family forums

Family forums are critical for allowing grievances to be aired before they fester, continues O’Shea.

“The ability to have sufficient opportunities to discuss issues and to do so as early as possible before they become serious problems is important. One might be dealing with one’s family in a business on a daily basis but that does not mean that you should dispense with the opportunity to have a formal forum where formal concerns and issues can be raised,” he says.

O’Shea also suggests the drawing up of a family business charter. He says this serves to address a number of issues, including the purpose of the business, the structure of control of the business, the value from the business, and the contributions of the family members to the business.

A succession plan is another essential, and must take into account generational differences in approach, views and attitudes. “Succession is usually a significant issue in any family business, and it is important that the present owner addresses it well in advance of his or her retirement,” says O’Shea.

“They need to consider and discuss with family members who should step into the key positions within the business. If existing family members are already within the business, and are interested in being in the business, it is very helpful to train and mentor these family members, with the ultimate aim of testing their ability to step into a leadership and management role,” he says, adding that the family business charter must identify the relevant roles and the skills involved. “An unqualified family member can have a significant financial impact on the business and ultimately may be responsible for it going out of business.”

Family businesses, like any business, need advice, and O’Shea suggests the appointment, formally or informally, of a family adviser. Someone who knows both the family and the business is ideal, he says.

“There is no doubt that the family adviser can assume many roles including being a mere provider of advice or source of information, a trusted adviser and ultimately perhaps a family mediator,” he explains. “For that reason, technical knowledge from a professional adviser to a family business is only one necessary ingredient, because it is also important that the adviser understands the family business and the family dynamic.”

This individual can be invaluable in helping to resolve any disagreement that is not easily settled.

‘Third-party mediator’

“If it is the case that a particular issue cannot be resolved internally and dialogue and progress has not proved possible, then I would recommend that a third-party mediator or trusted confidante of the whole family, as opposed to just one of the parties involved, be brought in to help,” says O’Shea. He adds that it helps if the particular person has mediation or dispute resolution experience as he or she can help guide the family through to a solution.

O’Shea has been involved in helping many family businesses through petty squabbles to complex disagreements.

He recalls one situation where a father left his successful business to two siblings but it became apparent after a short period of time that they could not work together.

“It was clear that if the situation was to remain as is, it would lead to the ultimate failure of the business. In this situation, as the business was primarily an asset-based one, it was possible for the business to be split in two. We put this in place and each sibling took a separate part of the business and went on to develop it with their own families.”

Before reaching such a drastic conclusion, the proper protections and the best advice will protect most family businesses, says O’Shea.

“There is no doubt that if the family has robust and comprehensive documentation in place and has established a proper forum for discussion and resolution of potential conflicts, preferably with an independent, respected chairperson, it will assist an ultimate resolution of the conflict.”