Avoiding conflicts in a family business

Intergeneration as well conflicts with siblings are a common fact among family run businesses, most conflicts can be discussed and solved, however if the conflict goes unresolved OR is allowed to simmer for a period of time, it can have a negative impact on business.

Below are some of the common reasons for conflicts in a family business. If a family proactively puts in proper structures and governance procedures, some of these conflicts can be avoided.

• Common Strategic vision and mission of the business – if the business has a shared vision, mission and a common goal that every family member is working towards, then conflicts over the future path of the company can be avoided.
• Process and authority over strategic decisions – While some autonomy may be given with regards to decision making, processes need to be put in place for talking key strategic business decisions and arriving at a consensus, further there needs to be a conflict resolution mechanism in cases of disagreements
• Roles and responsibilities – Clear identification of the roles, responsibilities and performance measurement criteria of family members and outside employees can reduce any potential sources of conflict. Avoiding cross reporting and overlap of duties and responsibilities, also reduces issues and conflicts.
• Salary / perquisites / other benefits – Unequal compensation, perquisites and other monetary benefits are a common reason for unhappiness and conflicts. Proper compensation policies, based on education, experience, roles and responsibilities etc reduces discrimination when it comes to monetary issues
• Who owns the business – Transfer of the family ownership, either now or during future family business succession needs to be done in a proper manner that is documented and agreed with all the stakeholders. If the ownership structure is loose OR there are chances of misunderstanding / confusion, then conflicts can arise.

• Distributions of dividends – the quantum, timing and circumstance of dividend distribution to shareholders and rewards to non-shareholders needs to be documented, without documentation and awareness of the dividend policy, the family members may raise issues regarding money.
• Future Successor – To avoid confusion, it is ideal to identify and train the successor who will be having the ownership and management of the business. For further clarity, this process should be agreed and accepted by the other family members. 
• Key Responsibility Areas – the KRA’s of the family members need to be agreed and they should be accountable for meeting their KRA’s. Any shortfall in meeting the KRA’s needs to be addressed to avoid resentment from other family members.
• Acceptance of Differences is Temperament – Acknowledging the differences in temperament and personalities of family members in the business and acceptance of the difference can go a long way in reducing conflicts.
• Extended Family in the business – Joining and accepting a key role in the family business should be based on a documented criteria such as educational qualifications, experience and merit. Similarly, businesses should have clear rules, so that conflicts are avoided and the family business is not treated as a birth right / parking place. The policy should apply to all family members.

• Imnterpersonal Rivalries – It is natural to have differences in opinion and someone will be better at a particular job/business than the other sibling, however, conflicts should not arise due to someone not getting “attention” feeling ignored or not being part of the decision-making process. Each sibling should be treated fairly and differences should be resolved fairly. 
• Estate and Inheritance Planning - Lack of clarity on the estate and inheritance plan formulated by the parents/elders raises anxiety and concern among the younger members of the family. If the younger family members do not have a clear understanding and acceptance of their share in the inheritance, conflicts are bound to arise.
• Money Matters – Lack of discipline on money matters and differences in earning, spending, investments, loans etc often lead to major sources of conflict among family members. Funds that are earmarked for business should not be used for personal purposes. Clear guidelines for financial management must be established to ensure that businesses do not bear the strain of personal spending.

As seen above, there are many reasons—both justified and unjustified—for conflicts in family business successions. There need to be proactive guidelines/structures to ensure that the causes of the conflicts are identified at an early stage and resolution processes are in place so that the issue is not allowed to develop into a larger conflict and have an impact on the business.
 

The author assists business families in planning for successful business succession