family business success Archives - TAB Corporate

Solving Family Business Conflicts Before They’re Out of Control

Family Business

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:

 

9 Elements of Family Business Success

Happy family

Balancing familial and business roles present unique challenges in every family business at times. These challenges can become awkward, and it is difficult to find advice on how to manage family business challenges as many business consultants tend to shy away from specific family business topics.

But, family business relationships can also be greatly enriching. They allow family members to share something that is meaningful in their lives. By setting expectations and positioning company operations, many family business challenges can be eliminated, or at least mitigated. In his book, 9 Elements of Family Business Success, TAB Founder & Chairman, Allen Fishman, outlines critical elements of running a family business.

1. Creating & Sharing Personal Vision Statements

A personal vision statement is a written document outlining what you want in life on a personal level. What personal goals are you working toward achieving in your life, and is your family business working toward helping you achieve that goal. This is important, not just for the family business leader, but also for family member employees in a family business. All too often, we find that the family business leader expects family member employees to live the leader’s dream, without taking their own personal vision into consideration.

2. Hiring & Firing Family Member Employees

The expression, “It’s just business—nothing personal” does not apply to family business hiring practices. Family business relationship problems often stem from bad hiring decisions relating to family members. To reduce these challenges, create a clear hiring & firing policy for family member employees, which should include considerations of family member eligibility, evaluation of family member employee’s performance, and grounds for family member employee’s dismissal.

3. Compensating Family Member Employees

The variables surrounding compensation of family members are quite complex and viewed more subjectively than compensation of non-family member employees. Compensation can become even more complicated as multiple family members enter employment in the business. Discuss business economics with your family member employees openly in order to manage expectations, and be sure to instill a consistent compensation plan—and stick to it.

4. Selecting the Family Member Successor

Without a chosen successor and a development plan, your family business will likely die along with you. It could also become an insurmountable burden to the family members left behind. However, you can put steps in place so that your business will have a much greater chance of continuing to successfully run under the leadership of your chosen successor. Few family business leaders think about a succession plan when they start the business, but remember it is never too early to begin planting the seeds of succession by developing your family business succession plan.

5. Grooming the Family Member Successor

Grooming the family member successor for your family business is a critically important step of your succession plan. This can begin informally at a young age, but at some point the family member successor will need to begin training in both the technical skills and soft-skills of running a successful business. Leadership skills are those that most often lack in a family business successor, as these skills are easily overlooked by the family business leader. Mentoring the family business successor and providing formal leadership training is a critically important element in a successful family business succession plan.

6. Aligning the Culture of the Family Business with the Company Vision

Company culture takes on a different meaning in the context of a family business because you have all the cultural dynamics that non-family businesses have meshed in with family dynamics. Family politics and business politics overlap, and the potential for conflict from the family culture takes on a whole new level of intensity. Help ensure that the family business continues to move toward greater success by aligning the inherent culture of the family members in the business with the company vision for the business.

7. Addressing Spousal Business Partners’ Multiple Role Challenges

Spouses working together can, and often do, create family dynamics that are more awkward than other family business relationship. The challenges relating to spouses being family business partners are particularly difficult, in part because the spouses not only work together but also live together. The first step in creating greater spousal harmony in a family business is to create clear definitions of “business time” and “personal time”.

8. Recruiting, Retaining, and Inspiring Non-Family Member Employees

Recruiting and retaining talented employees are challenges for any business owner. But with the added factor of the family dynamics, there are more barriers in family businesses to hiring and holding onto talented non-family member employees. Common concerns include career development opportunities, long-term job security, and resentment over preferential treatment (either real or imagined). By providing honest communication and feedback, you can manage non-family member employee expectations when it comes to their place in your family business. Find creative ways to incentivize non-family member employees and avoid double-standards wherever and whenever possible.

9. Transitioning Ownership to Family Members

The decision to keep the company in the family after the family business leader’s retirement is leaded with questions such as to whom, when, and how the company ownership will be transferred. The answers are the bedrock of a succession plan and cannot be avoided or delayed.

Family business challenges can seem insurmountable at times, but sharing the business ownership experience with your family members can be a very enriching experience. By recognizing the 9 Elements of Family Business Success and creating a structured plan to implement each element in your family business, managing the dynamics of your family business will be far less challenging.

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