Resolving Family Business Conflicts

Conflict is a normal part of any family relationship. But when you combine standard sibling rivalries or parent-child conflicts with business disputes over money, management, and ownership, both family and business relationships can suffer a terrible beating.

Even if your family business is a model of harmony, it's a good idea to think about how you'll deal with conflicts before they arise. The more open your family is about handling conflict, the more likely  your business will succeed because of disagreements, rather than in spite of them.

Strategic Guidelines

1. Hold regular family meetings to discuss business issues and settle disagreements. Include all family members who own stock or who play a substantial role in the business, along with spouses, in-laws, and other members who may have decision-making influence. It might be a good idea to have objective professionals like accountants or lawyers attend some of these meetings, depending on what is discussed. Don't assume that informal meetings can do the job, or that discussions will "trickle down" to other family members. They won't, although they will breed miscommunication and mistrust.
2. Create a formal, written policy that governs family participation in the business. Specify a decision-making process, succession rules, salary and equity guidelines, dispute resolution, and other vital points. Don't rely entirely on lawyers or other outsiders to set a family policy — the process of creating such a document within the family is just as important as the end result. This is not meant to be a legal document, but rather a reflection of the family's shared ethics and business culture.
3. Performance evaluations aren't just important in a family business — they're essential. But they're also a major source of hurt feelings and family conflict. Develop a formal, structured evaluation process that everyone understands and accepts. Focus on improving family members' work performance rather than simply pointing out their flaws and weaknesses.

Compensation is another source of conflict in family businesses. Some family businesses try to keep the peace by paying everyone the same, regardless of his or her contributions. This false equality may work in the short run, but it will eventually alienate family members who don't feel recognized and rewarded for their work.

Similarly, in-laws, spouses, and peripheral family members may want a stake in the business, but more active members may not be willing to dilute their decision-making authority. Instead of completely shutting out some family members, consider issuing both voting and nonvoting stock. This gives everyone a stake in the business, while limiting decision-making to a core group. And it can also help keep power from being spread too thin as succeeding generations come into the business.

Finally, remember that too little conflict can be just as destructive as too much conflict. Constructive criticism and debate are essential for growth. Don't "manage" conflict by avoiding it or pretending that it doesn't exist. You're much better off tackling problems head-on and turning conflict to your advantage.

— Matthew McKenzie