Beware the ticking conflict bomb

Family business conflicts can't be avoided and how they're handled makes all the difference. With family dynamics, business issues and ownership all in the mix – poor conflict management can lead to an explosion.

Family businesses are different. Filled with constant tensions, they’re more vulnerable to conflict than other businesses. Managing conflict is the big challenge for every family business. Fail to do it, and you could affect profitability and long-term survival.

Conflict anywhere is difficult. But in family businesses, it’s harder to resolve. Why? Because you have to untangle three agendas driving the enterprise: family dynamics, business issues and ownership. 

Potentially, these conflicts can get into the machinery of the business and stop it from running. And because every family, and therefore family business, is different – the soap opera of Gina Rinehart’s battles with her children is nothing like the kind of struggles we see in other family businesses – there are usually no boiler plate solutions. Still, there are some rules that keep getting employed to resolve the issues.

There are many sources of potential conflict. The first can be the mother-father disconnect – the couple behind the business have their communication issues which may flow over into the business.  Added to that is the impact of divorce. With one in three Australian marriages ending in divorce, there is a strong likelihood that this will happen in many family businesses. The result: claims against the family wealth, which might include the business, dragging members of the family and, for that matter, non-family employees into litigation.

Another is the father-son conflict, very much a case of the old bull, young bull interplay where the son wants to put his own stamp on the business, true to their MBA. Many sons have been working in the family business for many years and would start to get twitchy if the succession plan is not proceeding in the way they had expected. Related to this are mother-daughter tensions.  

Ethnicity can also generate conflicts. In a country with a high proportion of first and second generation migrant families who went out and set up a business, generational tensions can be compounded when children raised here and more immersed in the local culture seek to reshape the business according to their modified outlook.

Another classic area of conflict is sibling rivalry. Then there are the dynamics of what happens when one sibling is preferred over the other.  

And you can’t ignore the impact of in-laws (often referred to as outlaws) and blended families, something that’s becoming more common with the high divorce rate, where some family members might want to involve spouses, partners, in-laws and offspring of another marriage in the business against the wishes of others. In some family businesses, the in-laws are the powers behind the throne.

Resolving these conflicts is difficult but not impossible. Many family businesses call in consultants who end up working like marriage guidance counsellors.

There are some basic rules.  A few weeks ago, I talked about the importance of creating a family constitution (The constitution solution to governance clutter, May 1), which binds family members together morally (albeit not legally) and forces them to resolve issues. Unfortunately, few Australian family businesses have them, leaving them more vulnerable to conflict. Many family business conflicts could be avoided with a constitution.

The other golden rule is to communicate. Significantly, parties in dispute always blame the conflict on a breakdown in communication. Strictly speaking, that’s missing the point. George Bernard Shaw famously said: “The single biggest problem with communication is the illusion that it has taken place”. Shaw was referring to ineffective communication which doesn’t get the message across or which miscommunicates. The source of conflict has nothing to do with the communication breakdown; it’s about the relationship itself.  

That means the conflict needs to be recognised and acknowledged, especially when it’s simmering beneath the surface like a slow burning fuse.

It is also important that family managers communicate honestly and openly with all employees if the conflict is out in the open. Non-family employees shouldn’t feel they are less in the loop.

Family business consultants/counsellors say one of the most important first steps to resolving conflict is to establish healthy boundaries between family and business. That means not confusing family decisions with business decisions, and doing things like borrowing the company car for vacations or passing off personal expenses as business expenses. It happens. It also means not putting family members on the pay roll if they’re not working for the company and making sure there are performance reviews for family and non-family employees alike. They also need to think twice before offering a contract to a supplier who happens to be a family member. They should avoid creating two classes of employees – family vs. non-family. Nothing could be more demotivating for non-family employees than family members being given special treatment. Everyone needs to be paid at market rates.

When the problems are identified, the next step is to set up an action plan detailing what needs to be done, who is to do what and timelines. This needs to be monitored to ensure everyone is sticking to their respective commitments. The body enforcing the timeline will be either the family council as part of its role as the governing body behind the family constitution, or the board of directors.

Putting the action plan away in a drawer and pretending the problem will go away is not only bad governance, it will condemn the business to sup-par performance.