Of Feuds And Family Businesses

wealthymattersStrong disagreements are inevitable in all human relationships, but families that own businesses are more at risk for serious conflict than ordinary families because the power, status, and money at stake are greater.

There are seven predictable stages of conflict.These stages are largely avoidable, but the owners of family businesses have to be aware of them,and of the ways to extricate themselves when they get caught up in a spiral.

The Seven Stages Of Conflict Are:

1) Interests Diverge :

An interest is a broad desire that a person or group of people have for something. Some interests are shared; others are individual. Most business families are united first and foremost in their wanting  to keep the business healthy. However, given that family members have different roles and responsibilities as the family business grows, interests naturally diverge. Some family members work in the business, and some are owners (some are both; others are neither). Those employed in the business will be more inclined to channel profits to re-investment and bonuses, while owners will be disposed to pay higher dividends. Where anyone stands on a particular issue will be influenced by where they sit in the family business system.

2) Positions harden:

Once interests diverge, individuals or groups typically adopt different positions on issues. A position is the specific way that people try to get what they want, and positions become clear as soon as decisions must be made. Again, all families have to make important decisions but business families are called upon to make significant decisions more frequently. Because these decisions often involve the allocation of resources, positions can degenerate into zero sum games.Positions harden, and suddenly everyone feels that the matter can be resolved in only one way – his way. Positional bargaining begins, and even if a solution is reached, one party often comes away feeling that the solution is unfair. Consequently, positional bargaining typically leads to outcomes that are neither successful nor sustainable.

3) Communication breaks down:

When there is a failure to recognize common interests, and when positions harden, then communication gets badly affected. Family members start shunning one another or sending flaming emails or even conversing through memos that are vetted by their personal lawyers. Typically it’s not silence or all out war, but rather a tense dynamic where people break away and don’t talk for a while, and then the tension bubbles up to the surface again, and things explode. Family members don’t talk to one another for months after a fight, not even on business matters. And they squander opportunities to reconcile their differences.

4) Alliances form:

When people stop talking directly to each other, alliances inevitably begin to take shape. Everyone feels forced to take sides, and partisan camps spring up, often starting with the spouses of the “wronged” family member. Alliances harden as confirmation biases set in: All actions of the other side; are interpreted through a lens that confirms the righteousness of the alliance’s view. In this stage, things get very personal, and each side labels the other as stupid, lazy, or worse, and this polarization makes compromise even more difficult. In business families, five kinds of alliances are common: alliances that form around family branches , owner groups (e.g., voting versus non-voting shareholders), participation levels (owner-operators versus passive owners), gender, and generations (senior versus next).

5) Proxy wars are unleashed:

As alliances get entrenched, those on opposing sides look for ways to bolster their positions, and inevitably they entangle other people in the conflict. Family members call in insiders; non-family managers and employees, for example; to serve as pawns in a game that nobody will win. Proxy wars take multiple forms: In a very large firm, businesses aligned with, or led by, the other side are sold; aligned senior managers are fired; dividends are withheld to hurt some passive owners, at the expense of the many,board members threaten to unleash an out-of-the-ordinary audit of the work of managers aligned with the other branch, not too subtly accusing them of fraud.

6) Advocates are called in:

After involving innocent insiders, the next move down the conflict spiral is to bring in expert outsiders as advocates for a particular point of view or position. For example,warring directors,both relatives, call in say ,a compensation consultant, whom one of the relatives then proceeds to accuse of being biased. They may then dismiss the consultant, but the tension between the relatives doesn’t abate. Even worse, family members lawyer up. Since lawyers are obligated to advocate for their clients, they make the strongest possible, uncompromising case for why their side is in the right, and the other side in the wrong. The nature of the dialogue changes, too, as the search for unlawful behavior takes center stage over reconciliation. For this reason, even the best-intentioned lawyers almost always ratchet up the conflict. Business meeting degenerate into one legal objection after another that smotheres all attempts at making important decisions.

7) Lawsuits are filed:

Turning a family difference into a lawsuit is an act of all out war. Families can and do get to this stage, and it’s almost always counterproductive, and expensive, both financially and psychologically. When families think of lawsuits as the remedy, they are not taking into account the likely regret they will feel for the next five or 10 years, or longer, as well as the impact on their employees and the community.

However,once feuding starts, its not like all hope is lost.There is a path out of the conflict spiral .The following few important steps can get the business family on the right path again :

1.)See the opportunity in the pain:

If family members feel enough pain, then they become willing to see their interests in a new light. Pain brings fresh opportunities. Indeed, intense pain is a sign that interests have actually shifted, and this shift allows warring factions to come to the table and find compromises that didn’t exist before.

2.)Re-tap the ties that bind:

After interests are redefined, business families who successfully break the conflict spiral do so by acknowledging the ties that bind them together. These families tap into a visceral, almost biological, realization that family matters deeply, and that protection of the family is an almost evolutionary imperative and go back to common interests. After rediscovering the emotional ties that link them, successful business families are then ready to create another deal together based on the new interests that they share. To do this, however, they need to return to ground zero. Even when relations have improved, family members can’t just reverse direction and go from stage seven back to stage three — from filing a lawsuit to just plain communicating poorly. They have to go right back to the beginning again to try to find some points of commonality in their redefined interests.

3.)Re-set expectations:

Finally, once families have completed all the previous steps, there comes the inevitable resetting of expectations. Families that have sued one another may never end up as friends again, but they can revise what they want from one another. Once-warring family members may never forget the past, but unless they can forgive one another, they will never be able to look together towards the future.

Tragically, there are times when families just can’t turn their pain to their advantage. They can’t go back and find a commonality of interests, a new grand bargain; they can’t forgive the mistakes of the past. Then it’s time to sell the business and to separate socially, if possible.

Even better than knowing how to get out of a conflict that is spiraling downwards, however, is knowing how to avoid the seven stages of conflict. Really understanding the cost of litigation, appreciating how ugly is it, and how much families will regret it later,can go a long way toward keeping them from waging all out war.

If family members want to avoid the disastrous spiral of conflict, they should keep an eye open for the seven escalation points. When people disagree, they often think that the best way to address their interests is to leap into action. And the tricky thing is that this reaction is often rational. If someone in the family is not honoring a written deal, the logical step is to turn to a lawyer. It’s also reasonable that the other party will hire his own lawyer. Taken individually, all these steps make sense. Ironically, it’s rational actions provoking rational reactions that send business families down the devastation spiral.Family members, do well to take a deep breath before allowing to themselves to escalate conflicts to the next stage. Recognize that whenever they say, “I think this is the only way to do it,” they’ve taken a step towards escalating conflict in the family business system. Whenever they give up truly trying to communicate, they’ve taken a step toward all-out war. Each of the seven stages of conflict is a step that a family member or family branch can take or not , there is a choice. And that’s the really hard part because each family member has many chances to keep the family and the business from self-destructing.

About Keerthika Singaravel

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