Solving Family Business Conflicts

Solving Family Business Conflicts

The strong personalities and wills that make family businesses successful are also the roots of family conflicts. Too many of these conflicts have been allowed to grow out of control and have wound up in litigation, causing major rifts in families as well as in the businesses. They usually cause major strain on family relationships through one party buying out another or by family members continuing to work with each other in an atmosphere of tension.

Often I have heard comments such as, “My sister wants to keep our company small and is fighting a controlled growth,” or “Dad won’t let go of the control,” or “My brother and I are paid the same and he doesn’t carry his weight.”

Family members usually have different levels of involvement and will rarely agree on what those levels are, or how to set fair compensation for different levels of involvement. Are the perks reasonable? What about the children of the non-active family member? Should the business be required to give them good jobs as well? Can it afford to? These conflicts get much worse if a divorce takes place.

One way to avoid lawsuits is to agree to binding arbitration. This means that you let a third party decide who is right after the party hears arguments and sees evidence from both sides.

Another alternative dispute resolution approach is the so-called “rent-a-judge” method. Family members hire a judge who gives a binding or, depending upon the wishes of the parties, a non-binding opinion.

Some family disputes are being solved by using a confidential-non-binding process in which the attorneys representing the family members give condensed arguments to an expert advisor. This process—called a mini-trial—lets family members look at the strengths and weaknesses of both sides and facilitates a settlement through the exchange of information.

Of course, the best solution is always to try to avoid disputes of this scale altogether by structuring the ownership and responsibilities in a family business to suit the abilities and personalities of the family members involved. The sad reality is that these disputes are inevitable. When they do occur, the key is to acknowledge and address them right away, usually through an objective third party. The sooner you can act on a problem in your family-run business, the better your chances of avoiding the knockdown drag-out family feuds that cause the downfall of many businesses and the disruption of many families in business.

Allen E. Fishman founded The Alternative Board (TAB), the world’s largest franchise system providing advisory board and executive coaching services to business owners, Presidents and CEOs.

Fishman is also the author of several books in which he shares his business insights to help business owners, including two best-sellers:

  • The Alignment Factor: Unlock Potential, Boost Employee Performance and Increase Profits,
  • 7 Secrets of Great Entrepreneurial Masters: The GEM Power Formula for Lifelong Success (McGraw-Hill, 2006)
  • 9 Elements of Family Business Success: A Proven Formula for Improving Leadership & Relationships in Family Business (McGraw-Hill 2008).
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