Conflict is unfortunately an inevitable part life. Today we see countries at war, political parties in disagreement and people arguing. Family businesses are no different.
In fact, according to the Harvard Business Review, only 30 per cent of family businesses survive into the second generation.
Meaning, 70 per cent of the time, the family loses control of their business, possibly their assets, and their relationships are potentially destroyed as a result.
Whether it be a disagreement over business strategy, conflict over entitlements, a personality clash, or simply a difference of opinion. All family businesses will encounter some degree of conflict over their life.
These conflicts can make or break your business and your family. So, it’s important to know what steps can be taken to mitigate its impacts and create positive outcomes.
So, where should you start?
Create a shared vision
It’s important that your business and your family have something that they are looking to achieve together over the long term. Something that pushes you through the day to day challenges and unites you to a common cause. Something compelling. You need a shared vision. If you can get agreement on what you want for your business and your family, then this will become a pillar that you can come back to when times are tough or when disagreement and conflict arises.
Promote communication and trust
To come to a shared vision, you need a platform for open and honest communication. It needs to enable everyone to; have their say, discuss business strategy, talk about challenges, and make decisions. The stakes are high. The Harvard Business Review attributes a lack of trust and communication for being responsible for 60 per cent of the failure rate of family businesses.
Those that buck the trend, tend to have a platform in place that promotes communication and trust. These platforms often include:
- a structured meeting program (possibly via a ‘family council’ and an ‘advisory board’)
- a set of rules to govern conduct and resolve conflict (a ‘family constitution’)
- a documented and understood succession plan; and
- a concerted ‘non-structured’ focus on talking to staff at all levels every day to keep the ‘finger on the pulse’.
Establish clear roles
Once you have your shared vision and clear communication channels, everyone needs to know where they stand in the family business and who is responsible for what. That’s why you need to establish clear roles, responsibilities and have a formal governance structure.
The role for each person should align to their skill level and their position within the business. It should be endorsed by the family and their authority within their role should be respected.
Invest in training and development
Don’t stop there. Once you have defined clear roles and responsibilities, make sure you prepare each family member for success. Invest in training and development. Invest in programs to help potential successors hone their skills and gain the knowledge and experience they need to excel in their roles. This program may include having family members work in various roles within the business to build their knowledge and gain respect from staff.
Prun the family tree
Over time, the next generation will become ready to take over the family business. Roles and ownership will be passed over. Resulting in more and more families becoming involved in the family business. This creates complexity and this complexity can create more opportunities for conflict to arise. As a result, many family businesses decide to simplify their structure.
In many instances, this means providing an opportunity to buy back large portions of equity from certain branches of the family tree. Also known as ‘pruning the family tree,’ this strategy can be a useful way to reduce the number of decision makers in the business. It enables those involved in the business to continue its operations while providing income for other family members to peruse their interest and passions.
This topic and anything involving family wealth can often be seen as ‘taboo’ topic to discuss. However, as I’ve touched on, communication is vital if you wish to manage conflict effectively. As a result, many family businesses seek assistance from an advisor to help facilitate their discussions and provide an independent input to take the emotion out of the conversation. When conflict does arise, having someone to help mediate the conversation is also useful.
In summary, conflict is a normal part of business. If you can create a business that has a shared vision, open communication channels, and a formal governance structure then you will be well placed to address conflict and challenges as and when they arrive.
Andrew Ash is director, accounting and tax at HLB Mann Judd.
This article first appeared in the November/December issue of INCLEAN magazine.