Create a formal process for managing conflict

By Carrie G. Hall

Family business feuds capture the public imagination. Last year, HBO introduced an original series, Succession, that centered on a quarreling fictional family who control an international media empire. In real life, disagreements in prominent business families often make the front page of the newspaper.

Although family business conflict is interesting to outsiders, it can tear families apart. What’s more, family conflict that’s not properly managed can harm the economy. According to the 2019 Global Family Business Index, compiled by EY and the University of St. Gallen, the world’s top 500 family-controlled enterprises grew by 9.9%, versus 0.06% growth for the Fortune 500. Family feuds can stunt this important economic growth.

Plan ahead for conflict
There are ways to plan for conflicts before they erupt. The best way is through a formal resolution process that can bring some order to the ebb and flow of emotions that are inevitable in a business-owning family. Just as businesses have contingency plans to address various threats, family companies should also have a plan in place for managing family disputes before disagreements escalate and tensions rise.

We found that conflict can be an important part of family businesses and even a positive force when handled correctly. In a 2016 EY survey of the world’s 525 largest family businesses, nearly half reported “dysfunctional family conflict.” But as I tell my clients, disagreement is inevitable. If everyone has bought in to the methods for resolution before a particular issue arises, there is a sense of fairness about the process, and not the view that any one person or situation is being short-changed.

As Joseph Astrachan, Ph.D., former chair of family business and professor of management at Kennesaw State University, puts it: “For family businesses facing conflicts without an easy solution, having a formal resolution process can be key to successfully solving problems. This process should include detailed responsibilities for each person involved in the process; a procedure for resolution, accountability and monitoring; as well as post-dispute analysis. Shareholders and other third-party individuals can be brought in to help ensure that conflicts are resolved fairly and that all parties are represented.”

Task conflicts versus relationship conflicts
Part of managing conflict involves distinguishing between task conflicts and relational conflicts. While disagreements over how business is conducted can stimulate needed change and spur creativity, disputes stemming from relationship issues can quickly become toxic and threaten family cohesion.

If relational conflicts are allowed to escalate, family members may no longer be able to function effectively together as colleagues or business partners. On the other hand, when family members work together to resolve conflict, they learn new things about each other and build family unity.

The data prove this. In EY’s 2018 Global Family Business Survey, 84% of respondents reported that their family members care deeply about one another. They spend time and effort shoring up family relationships, most effectively through initiatives such as developing family business branding and participating in corporate social responsibility activities.

Family cohesion is a key ingredient in generating better financial returns in the business. A vast majority of survey participants (83%) said their family members are very proud of being part of the family. This is positive news for the future of family business, since connectedness and pride are also important elements of multigenerational success. When families are cohesive, members can more easily compromise on personal preferences for the good of the family’s broader interests.

Our research has found that family cohesion leads to greater family business return on equity, and that the same mechanisms that lead to cohesion also reduce family conflict.

The importance of communication
Communication is often key, we’ve found. Our survey of the largest family businesses found that 90% have regular family or shareholder meetings to discuss business issues, 70% have regular family meetings to discuss family issues and 64% have a family council that meets regularly. Using social media to stay in touch is becoming increasingly popular, although the phone is still the primary channel for business and family communication.

Low-conflict families reach out to each other much more frequently than high-conflict families. Communication serves to build trust, reduce misunderstandings and strengthen relationships in general. Families who keep in touch can discuss disagreements as soon as they arise so bad feelings don’t fester.

Creating a system for addressing conflict can help families manage a range of issues, including simple personality clashes as well as disagreements over business strategy, expansion, financing, acquisitions or corporate governance. The process serves as a kind of early warning system that alerts company executives, family and non-family alike, to brewing problems.

A formal resolution process should outline responsibilities for detection and identify what steps should be taken. Families must create personalized systems that are based on their family values, meet their unique needs and have widespread support among stakeholders.

A sample conflict-management process
Here’s an example of what such a process might look like. These steps incorporate practices that leading family businesses are already using to manage conflict before it erupts into a feud that can threaten the business.

1. Create a standing committee of trusted family members (five to seven people) before any conflicts have erupted. There should be a broad agreement about who should serve on this committee.

2. All family members should have access to the committee. The committee, like the best committees in a corporation, should be proactive.

3. Committee members should regularly poll family members employed in the business so they can get a sense of trouble brewing before it explodes.

4. If a conflict is recognized, the committee will determine whether something should be done or whether the matter can be resolved without some kind of intervention.

5. If the committee decides that action should be taken, it will impose a cooling-off period. If the disputed issue is not urgent, perhaps it can be tabled until a later date.

6. The next step involves mediation with the parties involved and two or three members of the standing committee.

7. If that does not work, the committee should bring in professional counsel, such as an objective facilitator.

8. If the issue remains unresolved, the conflict should go to the full committee for adjudication. Hopefully, this last in-house step will suffice.

9. Finally, if there is still no agreement, the parties should be encouraged to submit to binding arbitration before lawyers become involved.

There’s no guarantee that a plan like this will head off a family feud, but best practices in this area can lessen the chances that family conflict will threaten the business’s growth and the family’s harmony. While it’s impossible to eradicate all family business conflict, business-owning families do best when they create structures and procedures for managing inevitable disagreements and channeling them into productive change so the business can thrive.                       

Carrie G. Hall is Americas Family Business Leader at EY (ey.com/us).

Copyright 2019 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permission from the publisher. For reprint information, contact bwenger@familybusinessmagazine.com.

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July/August 2019

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