How to Manage Conflict in a Family Business
May 8, 2023
Family business conflicts are usually severe, frequent, and difficult to resolve. More often than not, family members take their employment in the company very seriously. As a result, there can be stubborn positions regarding roles or access to family wealth. The stakeholder's perception of what the job and money mean to them is often emotional, relating to self-purpose and identity. Family members often go to great lengths to maintain (or advance) the status quo when their position is threatened, regardless of the driving factors, which could include financial security, access to society's upper ranks, family approval, or the desire for recognition. Combined with the highly emotional family system, the business becomes a breeding ground for fierce conflict. Leadership in a successful family business understands and accepts there will be obstacles to overcome for the company to grow and prosper. By enlisting the help of unbiased and trusted consultants to work with the family, leadership can craft productive resolutions to preserve the family business.
Understanding Systemic Conflict
Managing conflict and a commitment to developing solutions that will support business advancement are the most critical factors for family business challenges. Breaking down conflict into its constituent parts provides a better understanding of a systems approach to resolving family enterprise conflict:
Families that co-work or own assets bring their past into the business. These histories are frequently challenging because they conceal past grievances, betrayals, and broken trust beneath the happier memories they would instead recall. Old feelings resurface as business dynamics test the family bonds, causing resentment and mistrust.
Families produce various personality types, each having unique values, skills, and talents. When stakeholders depend on one another in a business or shared wealth setting, this may result in conflict. Simply put, family members compelled by circumstances to collaborate and own assets together may not respect or get along with each other (or each other's spouses).
Different Business Mindset
Stakeholders' goals for the company may not always line up because they are motivated by different values, truths, or needs. They have different perspectives on how to manage a business, risk tolerance, and work ethic. As a result, decision-making may stagnate or cause conflicts. Other causes of frequent conflicts in a family business include:
- Decisions regarding the future and strategy of the business
- Other family members' participation in business decisions
- Family members' performance in the company
- Comparing dividend payments versus the reinvestment strategy
- The decision of whether to include family shareholders (conflict of interest)
- The issue of who will succeed over the business
Effective governance is necessary to keep discussions about these issues from turning into arguments and conflicts.
How to Manage Systemic Conflict
The three main methods for handling conflicts are force, development, and bargaining. It is crucial to match the right strategy to each component once the conflict's sources have been determined and divided into parts.
Managing Systemic Conflict: Bargaining
Traditional dispute-resolution methods like direct negotiation and mediation may successfully resolve financial, political, and control-related issues. The values of affection, talent, and commitment, as well as history, cannot be negotiable. Therefore, participants can agree upon only specific objectives and how decisions will be made through negotiation.
Managing Systemic Conflict: Force
Any attempt to bring about an outcome to one's advantage through the application of force (i.e., litigation or threats of retaliation) can worsen the conflict. After all, if the disrespected use of power triggers the dispute, any other use of power to manage it is likely to worsen matters. As with bargaining, there may be different motivations for using power. However, it can address only issues of opposing goals and how decisions are made. History, talents, feelings, and psychological problems cannot be dealt with using force.
Managing Systemic Conflict: Development
While this is not a term usually associated with managing conflict, structural and personal development can effectively manage the systemic conflict unique to a family enterprise. This is especially true when it is essential to continue relationships. Development helps to identify deficiencies and improve them. It works exceptionally well when ongoing relationships are essential.
Development of the Structure
The identification and improvement of deficiencies process is the development of the structure. Conflicts frequently start with compensation schedules, reporting structures, procedures and policies, agreements, and strategies in a family business. Inappropriate reporting mechanisms, document ambiguity, and ineffective communication and process can all lead to conflict because these demonstrate structural power entities. Such things are much simpler to change than the people involved. Functional area experts can significantly contribute to the enterprise by evaluating documents and organizational structures. They can then offer independent guidance and best practice recommendations, such as strengthening governance. The intention should be to support the business in pushing itself out of systems that generate conflict rather than simply professionalizing it by tackling structural issues that involve or exacerbate conflict.
Stakeholders can work on themselves to grow out of conflict. Stakeholders can overcome conflict through education and coaching, understanding others, growing in empathy, addressing psychological problems, and resolving long-standing grudges. Development, both personal and structural, is the only one of the three strategies for conflict management that can address historical impasses and values. Many other conflicting stakeholder goals may be resolved as people learn more and work on themselves and the structures they interact with.
Other Options for Handling Family Conflict
Knowing how to stop a family conflict when it occurs can be challenging. The following are other ways conflict can be handled in a family business: It can be challenging to know how to stop a family conflict when it occurs. The following are other ways conflict can be handled in a family business.
Discuss the Conflict
Talking about the conflict is the first step, even if it seems difficult. This will improve your mutual understanding and perhaps result in a solution.
Establish a Plan
Create a strategy to end the conflict after you've discussed it. This might entail collaborating to find a resolution, taking personal time, or using a mediation or counseling service.
Adhere to the Plan
It's crucial to follow your plan, even if it's challenging. You can resolve the conflict and improve your relationship by doing this.
Reach Out for Help When Necessary
It might be beneficial to ask for assistance if you discover that you are having trouble resolving the conflict independently. This might entail speaking with a friend, family member, therapist, or conflict management team. An effective conflict management team may include attorneys for reviewing documents, expert opinions from estate planners, and business consultants for strategic and organizational analysis. Also, a wealth manager can help planning, accountants, and valuation professionals evaluate historical and comparative performance. Additionally, you may consider bringing in a psychologist or clergy to address personality, emotional, and forgiveness issues.
Forming a Resilient and Sustainable Family Business
By cooperating, having a shared understanding of how the different systems interact, and being conscious of the value of the ongoing relationships, this team of professionals may direct the efficient and dependable management of systemic conflict. Approaches that enhance the individual talents of family members and other stakeholders result from understanding the systemic nature of the family business conflict. Additionally, it strengthens the organization's procedures, rules, and contracts. The outcome is a family and business that are resilient and sustainable. Over the years, individual attempts to resolve disputes rarely have longer-lasting effects, and occasionally, they worsen matters. Since a different set of values drives each stakeholder, their objectives for the company may not always coincide, and this always results in conflict. Force, development, and bargaining are the three main approaches to handling conflicts that have yielded results. Other effective conflict management teams can as well help.
"Running and operating a family business can be challenging, let alone when it comes to making tough business decisions that can affect family members differently. By partnering with the team at Bowers, our family was able to successfully navigate those situations. Their team helped us think outside the box and see the big picture, which benefited our whole organization. I am very thankful we partnered with their team to ensure our business is ready for a successful future."
Justin Petcosky - Vice President, Petcosky Companies
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