family business tips 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:

 

7 Family Business Tips from TAB Delaware’s Doug Roof

Balance Between Business Work and Family Life

TAB Facilitator/Coach, Doug Roof, shares business tips and best practices for managing the complicated relationships involved in a family business. Doug recently facilitated a meeting of five business owners, all of whom lead a business with other family members involved. They were gathered to share best (and worst) practices based on their own experiences. The discussion focused on bringing the next generation into the business, and preparing them to take the helm. Here are the most significant family business tips that emerged:

Family Business Tip #1: The next-generation family member should start out “mopping the floors”. They need to earn the respect of other employees.

Family Business Tip #2: Establish the discipline from day one of differentiating between “talking business” as employer-employee, and “talking personal” as family members.

Family Business Tip #3: A young family member in their teens entering the business, even on a part time basis, creates special challenges. Their lack of real-world work experience makes it harder for them to understand the necessary separation between family and business relationships.

Family Business Tip #4: Family member employees need exposure, over time, to all areas of the business. Ascertain whether the organization can compensate for their weaknesses and allow them to play to their strengths if and when they assume the leadership position.

Family Business Tip #5: Be willing to accept the fact that the next generation family member may not be cut out to eventually run the business.

Family Business Tip #6: You must manage your expectations, which may be distorted because you are personally close to the family member. Allow them to surprise or disappoint you, and make necessary adjustments to your expectations and plans as they do.

Family Business Tip #7: Differentiate between compensation and business ownership. Compensate based on contribution to business results. Allocate ownership based on any family considerations you deem to be fair.

Running a business is challenging; leading a family business adds another layer of complexity which only family business owners can fully appreciate. What business tips and best practices have you found helpful in managing the complicated dynamics involved in a family business?