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In Business With the Family - How to Avoid Conflict

» Posted on: 9 September 2008
» Posted by: Elaine Hurn
» Service area: General

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More than three quarters of UK Enterprises are family businesses. Many are founded by a key individual with a clear focus on why he is founding the business and what he wants to achieve from it. Such individuals are often very sure of themselves. Their management style is entrepreneurial and autocratic based on gut instinct and business nous.

Many founders haven an ambition to pass on the business to their children. This can lead to problems if not properly handled. Because the business is so important to the founder, (indeed it often gives him a platform in society as well as a powerbase at work), a founder often finds it difficult to delegate or involve others in decision making. Too often a family member takes up a position in the business as a soft option or because he has had no clear plans for himself or where he sees the family business as his inheritance. Either way they are highly unlikely to have the same drive or passion for the business as the founder.

Disputes between unrelated business partners can often arise and be resolved by the business partners going their separate ways. When you are in business with the family, however, it is difficult to prevent disputes within a company spilling over into a family relationship.

If a family members role is not made clear, or the steps to succession are not spelled out in advance, the outcome can be conflict not only with the founder but also with other siblings. Each of the family members may seek to take control of the business once the founder has stepped down or passed on. Often a business that runs successfully on autocratic lines does not run well by a committee.

Friction is not limited to within a family. There is often conflict with loyal and talented but non family employees. They can be taking the burden of maybe running the business whilst having no share in the ownership. Their remuneration which at the market rate may be considerably less then that paid to under performing family members which can cause resentment.

What working with members of your family demands is an awareness that in business you cannot subordinate the needs of your business to a fear of hurting your relatives’ feelings, nor be blinded to their possible short comings. As the going gets tougher for local business it may no longer be possible to afford the salary of family employees who cannot pull their weight.

The good news is that many potential pitfalls facing family businesses can be predicted and overcome.

  1. You should establish a forum for everyone with a stake or an interest in the family business so that they can meet together regularly to find out what is going on in the business and to discuss the important issues.
  2. A clear policy should be established for share ownership and management. For example, if the intention of the founder is to provide an income to the family members then perhaps non voting shares could be considered whereby dividends can be declared on a regular basis with the individual concerned having the right to attend relevant meetings but unable to influence business decisions where they lack experience.
  3. You should establish criteria for family members involvement in the business. Clarify what talents if any or abilities or qualifications they must have, how their performance will be judged, their salaries and benefits set and training required. Don’t assume that family members ought to be appointed to the Board of Directors. Being a director has responsibilities with it which can be onerous and many family members are too young or inexperienced to hold the position. Why not invite them to attend board meetings, to observe and listen but have the board comprise a significant number of professional or experienced well rewarded non family employees.
  4. Separate out ownership and management. The ownership of the business or the majority of the ownership should remain within the family but the management left in the hands of qualified professionals. In order to motivate and ensure that the loyalty of none family professionals consider implementing a share option scheme or a performance related bonus arrangement which instead of paying out in cash allocate a minority stake the business.
  5. Address matters before they begin to fester and affect the whole organisation and the reason for founding the business in the first place.
  6. Draw up an agreement. Just as those with substantial assets entering into marriage are advised to enter into a prenuptial agreement to minimise a dispute in the event of marriage breakdown, ideally people going into business together (whether they are related or not) should have clear agreements drawn up, whether they be in business together as a partnership, limited company or one employing the other.
  7. Plan - If you are that founding owner consider carefully and discuss with family members what it is that you expect of them and what they are prepared to contributed to the family business. Set out a plan and try to stick to it. That way no one gets disappointed.
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