When it's best not to resolve family discord

By Lloyd E. Shefsky

Should every challenging family business relationship or dynamic be repaired? Some family disputes are not fixable. However, even if an educated guess says they are, could it be that in some circumstances attempts to resolve the underlying issues might actually be detrimental to the family and business?

I have considered these questions deeply over several decades of working with family firms. The behaviors and relationships of family business members vary not only among families, but also among individual members of particular families. Some interactions are chronically challenging. Extraordinary amounts of resources—time, energy, money, emotion—are expended in never-ending attempts to improve those relationships and behaviors (not even counting the cost of the antacids and Valium!).

In many cases the relationships do improve, and the positive results can be profoundly gratifying for family members, other stakeholders in the business and consultants. I've been fortunate to experience such gratification many times. That may make my next statement rather surprising: In certain cases, trying to improve bad family business relationships is counterproductive, and everyone would be better off if no such attempts were made.

Sometimes it is better to do nothing about a difficult family business relationship because the costs of taking action likely would outweigh any benefits.

My new book, Invent Reinvent Thrive, recounts stories told to me by prominent family businesspeople. Two of those families—the Pritzkers and the Bronfmans—provide good examples of situations that could have been defused more strategically. In these two real-life cases, doing less, or at least placing less priority on certain activities, might have been preferable to the way the issues were handled.

The Pritzkers

The high-profile Pritzker family owns extensive assets, including Hyatt Corp., the result of decades of savvy hard work starting with A.N. Pritzker and his sons, Jay, Bob and Don. The family's success and wealth continued to grow after Jay's death in 1999. So too did distrust and discord, likely due to inappropriate governance practices and poor transparency, resulting from and enabled by foreign trusts that earlier generations had instituted to reduce taxes and "unwarranted" access. A decade-long battle involving multiple rifts, liquidation of major assets and divisions of ownership ensued.

Had those sources of distrust been handled before the asset-related issues, some relationships might not have ruptured. Other, more seriously damaged bonds could have been addressed later. Critical problems could have been treated more quickly and certainly more privately.

The discord resulted in cousins and even siblings communicating only through lawyers. The separation of assets was the tourniquet needed to stop the bleeding. It was also the easiest solution. Mending the fractured relationships was complicated at best, and would take a long time, during which assets could have been compromised. Ultimately, as Jay's son and family trustee Tom Pritzker said, "Quibbling shareholders can damage a company... I didn't want that instability for them [family members]... I decided to let go." Thus, the assets were divided and interdependency among family members minimized.

Some relationships have improved; others haven't but perhaps will over time. Had the upfront focus been on attempting to hold the family together, the value of assets and businesses might have decreased as key employees departed rather than be caught in crossfire. That would have exacerbated the existing problems of emotional bloodshed, public embarrassment and high legal costs. Ultimately, perhaps the soundness of the Pritzkers' businesses and assets made the family "too big to fail." But most family businesses lack that scale. Nevertheless, the Pritzkers' travails and solutions provide valuable lessons for others, no matter their size.

The Bronfmans

Samuel Bronfman founded Seagram, producers of Seagram's spirits and other valuable brands. As per his wishes, his sons Edgar and Charles became co-chairmen after his death, but younger brother Charles stepped aside eventually to make Edgar the sole leader. Edgar's son, Edgar Jr., succeeded his father, and sold Seagram to Vivendi in an infamous deal that resulted in a multibillion-dollar loss for the family.

The Bronfmans had a serious underlying issue: complex, non-communicative relationships, especially between Edgar and Charles. These stemmed in part from their relationships with their father, based on both love and fear. They had witnessed Samuel's outbursts at others, as well as his legal battle with and estrangement from his cousins. Such experience had lasting influence, and contributed to the family's poor prioritization in handling its issues.

Specifically, the Bronfmans focused excessively on appearances of propriety and compassionate concern for the impact on other stakeholders, prompting Charles to resign as co-chair. In effect, they rearranged the deck chairs (titles, etc.) instead of resolving the fundamental communication problem. Dealing with governance before communications can, as it did here, make good governance a near-impossible goal. As a result, Charles, though a proven communicator with others, was later unwilling to address challenging issues such as the Vivendi deal with his brother and his nephew. Had they prioritized communications and deferred governance issues, such as whether to have co-chairs, then Charles could have expressed his concerns as a stockholder to Edgar, regardless of Charles's exact governance role. Charles did ultimately attempt to resolve the relationship problems, but the damage had been done, and the debacle had obliterated a huge portion of the family's wealth.

When less is more

The Pritzker and Bronfman stories offer examples of how triaging problems more carefully could have paid off. Now let's discuss several situations where such strategies may be of benefit.

Wide range of challenging relationships. Typically, the most difficult challenges involve a minority of family members. The proverbial "80-20 rule" is often in effect here: 80% of the most perplexing problems may be caused by or affect only 20% of family members, or even fewer. In such cases, it may be advisable to defer, possibly in perpetuity, addressing the most challenging relationships (such as long-time estrangement or situations where the one perceived to be wronged has passed away but descendants have not forgiven). That's because trying to improve the most difficult situation might be a distraction, slowing progress on other, more approachable fronts while an inordinate share of financial and emotional resources is expended on unsolvable problems. Furthermore, addressing the most extreme issues early violates one of my key rules of tackling any complex family business situation: Always aim for early successes, to build confidence and momentum.

Deferring handling the largest challenge enables the family leaders to devote greater resources to the easier challenges, or to improve the most amendable situations. That likely won't solve all the issues among family members, but it can give the majority (the 80%) some hope, and may even convince those responsible for the largest challenges (the 20%) to board the "resolution train" before it leaves the station, lest they lose leverage and their chance for sufficient air time. On the other hand, if you (as a family member or consultant) try to tackle the largest challenges first, the more amenable family members will tire quickly and will likely assume you can't do any better with the situation than they can (or than the last four consultants who tried and failed).

Ticking time bombs. We all have been in or witnessed interpersonal situations where quiet, long-term avoidance turns quickly into loud confrontations. Sometimes the inflection point is a single sentence (or even a word) or action. These "time bomb" situations are common in family firms, where divergent expectations about roles, succession, money and a whole host of other issues can lead to simmering tensions that flare without warning.

While it's tempting to bring such issues into the open, the problem is that the blowouts that typically follow can have pervasive negative effects on the broader family and business. Even much more benign relationships among family members can be sucked into the vortex and develop tensions of their own, as members take sides or push their agendas.

Turnarounds. When negative business (operating) results seem to be in imminent turnaround, it may pay to delay attempts at fixing family relationship issues. For one, tending to the "open sores" of family relationships might retard the pace of business improvement or diminish its trajectory, given the required diversion of resources and the potential for increased short-term discord, as suggested above. The negative business results could, in turn, contribute to even more challenging relationships. Thus, even good intentions can result in a vicious cycle with devastating consequences.

An additional benefit of waiting in this circumstance is that the higher returns—such as earnings or morale—associated with successful turnaround results might enable you to "buy" interpersonal peace through increased dividends, redemptions or other means, or at least to make difficult conversations less likely to spiral into the aforementioned vicious cycle. I've observed, time and again, that a rising tide of profitability lifts many boats in a family business.

Setting priorities

There is a tendency to try to fix everything, based on the dangerous assumptions that everything can indeed be improved and that attempts to do so are cost-free. However, if the family is sufficiently functional to keep the business healthy, you are ahead of many other family firms. In other words, if it's not clearly broken, there may be no need to fix it, and attempts to do so may actually worsen the situation.

Holding back may involve resisting natural pressures to press onward. Family members who are so exasperated that they have agreed (perhaps for the first time in years) to hire a consultant want to see results. Consultants, eager to prove their value, may be tempted to try to solve all problems as quickly as possible. The decision to start with the most intractable problem may stem from our conditioning by untold generations of mothers to eat our brussel sprouts before we get dessert.

The next time you consider approaching a series of family challenges, think twice about which issues should be prioritized and which are best deferred. I'm not suggesting you start every meal with dessert, but do consider taking the path that leads to crucial early success.

Lloyd E. Shefsky is the author of Invent Reinvent Thrive (www.inventreinventthrive.com)and Entrepreneurs Are Made Not Born, both published by McGraw-Hill. He is Clinical Professor of Entrepreneurship and founder and co-director of the Center for Family Enterprises at Northwestern University's Kellogg School of Management.

Copyright 2014 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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November/December 2014

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