This week, Joanne Whelan, a partner with Deloitte in Ireland, looks at conflict in family businesses.
It is no secret that family businesses are complex. This complexity arises from a mixture of family chemistry, diverse family priorities, and the organisational challenges and opportunities which most businesses face. It can often lead to a degree of conflict in family businesses - lines may be more easily crossed and disagreements can become more heated, and personal relationships with family members can cloud judgement when it comes to making business decisions.
Based on my own experience of working with family businesses, there are a few main areas that often give rise to conflict among family members:
- Reward/remuneration policy for family members – How are remuneration packages for family members agreed on? Is there a requirement for a remuneration committee? Should non-executive family board members who are not actively involved in the running of the business be paid a directors fee, and if so, at what level?
- Distribution policy – Will family members not involved in the running of the business receive a return on their investment in the form of a dividend or distribution? If so, at what level, and who will be responsible for deciding?
- Decision-making – Are there certain decisions that require the unanimous approval of all family members? Which decisions are made at board level, and which decisions require shareholder approval? Who has the casting vote in the event of deadlock?
- Roles and responsibilities – Are the roles and responsibilities of each family member clear and agreed? Which decisions are made at what level, and by whom?
In my experience, a number of the common problems that arise in a family business context can be anticipated in advance. The key is to create an environment that fosters clear and open communication, which can help to prevent issues arising by managing expectations.
However, it is also important to be realistic - it is inevitable that there are going to be times when all family members will not be in agreement. When this happens, having basic ground rules in place is vital:
- Have open and honest conversations, in the appropriate forum - (Sunday dinner may not be the right place for a conversation on remuneration!)
- Family conflict should be separated from conflict over business issues – identifying why the tension has arisen can help
- For business issues arising, in my experience, focus should normally be on the long term benefits for the business rather any short term needs of family members
Family owned businesses make a valuable contribution to the Irish and global economy. Having appropriate measures in place to manage and hopefully prevent family conflict can ensure the success of the business for generations to come.
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