<p> THE CAUSES AND CURES OF FIVE DESTRUCTIVE FAMILY BUSINESS CONFLICTS</p><p>James Lea, Ph.D.</p><p>In my more than 20 years of working with, writing about, speaking to and – today’s global business environment. most important for me – learning from So we should accept, respect and even family businesses of all types and sizes encourage differences among family in different parts of the world, I’ve members in the business. become convinced that the family business owner who says “Oh, we never Then there are disagreements. disagree about anything” does not Families often disagree, and family speak the truth. It is uniquely human to members in business sometimes dis- disagree, to make choices and to argue. agree quite loudly. We disagree about That capacity comes with the intelli- things ranging from growth strategies gence that allows us to imagine what we and investment priorities to which of us cannot see, to hold opinions, to make should get the sheltered parking place long-range plans, to be optimistic or nearest the office door. Family business pessimistic, and to get involved in disagreements have to be controlled, of politics. course, and not allowed to distract or stall decision making and management The interactions among family members operations. But there is energy in in business together reflect those disagreement and it can be channeled uniquely human capacities, and it’s use- to very positive purposes. We can learn ful to start by sorting them out. First and benefit from our disagreements, there are differences. The differences from the competition between ideas or among us are generally healthy and perspectives, and from the analytical constructive. They bring diverse capabil- thinking that dis-agreements often force ities to discussions, decisions and the upon us. work that we do. There can be great value in differences among family But some family interactions descend to members in business. Consider this: no the level of conflict, and conflict within one can make a winning football team or surrounding a family owned company out of eleven quarterbacks. A company is almost always wasteful, destabilizing with ten salespersons and no production and destructive. In my experience, workers, or five executives and no there are five common and persistent middle managers, will not be in business causes of conflict among family mem- very long. Similarly, a family whose bers in business together, and those five members all have the same interests, causes make great trouble for family viewpoints and abilities may be so one- businesses all over the world. They dimensional that it’s unable to deal may account for the failures of more successfully with the complexities of family owned businesses than any other 2 individual factor or combination of other first generation owners are in factors. charge, the family usually acknowledges that they have the authority to set The five common causes of conflict are compensation, even if not everyone compensation, competitiveness, control, agrees with their decisions. When the confusion and carry-over. authority of ownership and management is distributed, however, it is often Compensation – The first common weakened, and the potential for conflict cause of family business conflict is is transformed into actual conflict. money and its equivalents. I’m speak- ing here not only of salary, but of Conflict over compensation issues in the compensation, which is the sum of family business really heats up when salary plus benefits plus perquisites plus spouses become involved. “Why does ownership value, which may include your brother drive a Mercedes when we distribution of profits and long-term can’t afford anything better than a appreciation of assets. In some fam- Toyota?” In the absence of a rational ilies, conflict over compensation takes and believable answer to that and the form of open warfare; in others it’s similar questions, the conflict can more like a guerilla campaign. escalate and become a fixed feature of family life. Sons and daughters under In many cases, compensation conflict pressure like that may leave their arises not over who gets paid how families’ businesses and even leave much, but over who gets paid how much their families. for doing what. The classic case is the family member who contributes very A final flash point of compensation little to the performance of the company conflict that can destroy a family owned but is compensated at the same level as business is the failure of understanding one whose effort and productivity are between family members inside the the very heart and soul of the business. business and those outside the busi- The justification is often “I’m in the ness. The family members working to family, too, and I should be paid as manage the business, build it and make much as other family members are it profitable often feel they are entitled to paid.” If that argument carries the day, comfortable compensation: good sal- the arrangement will be seen as blatant- aries, nice automobiles, bonuses. After ly unfair. Either an open policy or a all, by keeping the business successful private agreement that allows unbal- they are ensuring the financial security anced compensation will fuel anger and of other family owners and stakeholders. conflict at many points and levels in the The outsiders who have none of that business and the family. responsibility but nevertheless demand a share of the profits regardless of the If the potential for compensation conflict business’s financial needs look to the exists, that potential increases when insiders like beasts circling the sheep- family business management passes fold. They look like predators. down to the second generation or flows out to cousins and others in the On the other hand, family members extended family. When the founders or outside the business, especially if the 3 business does not distribute dividends businesses have to be competitive to or other shares of the profits, may feel survive, while families have to be that those inside the business are supportive – that is, internally non- compensating themselves too comfort- competitive - to survive. Families are ably. When there’s not enough liquidity programmed to work for the genetic and to make life comfortable for everyone, social continuity of the whole family those outside may see the insiders as group. Businesses succeed when they living on the lifeblood of the business select the very best ideas and people and excluding the rest of the family from and exclude the others. One of the the benefits – they look like parasites. results of this inconsistency is internal The predators versus the parasites: a competitiveness. When we are very classic conflict over compensation in young, we try to climb higher, run faster family owned companies. and eat more ice cream than our brothers and sisters. But as we grow The cure for compensation-based older that natural competitiveness conflict in a family business is perform- usually turns outward toward the rest of ance-based compensation. Each family the world. We give up teasing our sib- business should develop, disseminate lings and instead begin to count on them and enforce a policy that sets up for support, or at least neutrality, as we compensation schedules and criteria for take on the challenges that face us increases for all executives and em- outside the family circle. ployees, that defines eligibility for benefits and perquisites, and that states In some families, however, the shift under what conditions dividends and doesn’t occur. Brothers and sisters other financial benefits will be distributed become one another’s biggest compet- to stakeholders who don’t work in the itors, producing sibling rivalry. In some business. All compensation should be families the rivalry, the competition, is so tied directly to the company’s profit intense that conflict flares up. The performance and to the measurable Gucci brothers, heirs to the Italian contributions to that performance of leather goods family, regularly ended each individual family employee and their management meetings with fist shareholder. fights in the board room. I have seen family companies paralyzed by children Such policies will not be universally fighting among themselves for their appreciated. But they will guard against parents’ favor, for the largest slice of the the conflict that can quickly arise around business pie, or simply to win while compensation issues and drag down making everyone else lose. even the best family business. Another form of conflict fueled by Competitiveness – Competitiveness is competitiveness is conflict between considered a cornerstone of success in generations. It’s natural for children to business, but it can be a major source of try to model themselves after their conflict in a family business. How? The parents and also to try very hard to dif- answer might lie in the contradiction ferentiate themselves from their parents. pointed out by Boston attorney and Sons want to succeed like their fathers, family business advisor Richard Narva: even to be more successful, but they 4 want to succeed in a way completely parents don’t trust their children’s different from their fathers’ way. abilities and commitments, so they won’t Daughters who love their mothers and delegate real management authority to happily turn to them for personal advice match assigned responsibility. They refuse to be identified with their mothers’ install the children in senior positions in manners, traditions and values when it the company but continue to make all comes to business. Such competitive the decisions while criticizing the conflicts open gulfs between siblings performance of persons who have no and between parents and children that power to act on their own. may over time, if they’re left untreated, be impossible to bridge. The parents may be so unsure of their own future that they resist an orderly The cure for excessive internal compet- transfer of ownership and authority to itiveness in a family company is for all their successors. When the senior family members – the competitors and generation can’t let go, no genuine suc- the spectators alike – to see it for what it cesssion can take place. If they appear really is: a destructive drain on the to hand over control but continue to energy and spirit of individuals and the issue orders to loyal employees, they entire family. As in any other com- engage in what I call “double-bossing” petitive situation, rules must be made to which erodes everyone’s morale and govern the competition, focus it on goals undercuts new management when it that are meaningful for the business, really needs encouragement. The result and direct it away from the family’s inner can be a loss of consistent strategic circle. business direction and destructive conflict within the family and the Control – The third great cause of company. destructive conflict in family owned businesses is control. We speak of This kind of control, and the conflict that “controls” as systems that help to keep it produces when its victims rise up to any business operating efficiently, resist it, can block the growth and profitably and legally: financial controls, development of younger family mem- inventory controls, the checks and bers trying to work their way up to balances of good management. In most positions of leadership in the business. businesses, the word “control” is like the Traditionally, perhaps, young people in a word “chair.” It describes a tool. It’s family business would tolerate or accept neutral. such control as a matter of respect or because they had no other alternatives. But in a family business, the word But we now live in a new age. Today it “control” is seldom a neutral word. It is as likely that young family members often implies the ability of more powerful will react to too much unyielding control family members to control the choices, by just getting out of the business. actions, even the lives of others. It is a major cause of conflict, especially as a The cure for this cause of family company approaches planning and business conflict is to develop written implementing succession of manage- and enforceable plans, agreements, and ment and ownership. In some cases, other procedural guidelines and docu- 5 ments that define the extent and limits of in the business and others were called authority. Control is usually possible on to raise questions, voice opinions when business relationships are driven and even challenge his management. I by the power of someone’s personality. attended one of the quarterly meetings The cure, then, demands that business as an observer. I noticed that the senior processes and decision-making be owner did most of the talking. When at impersonal, objective and systematic. last a member stood and asked a legitimate question about a financial Confusion – The fourth major cause of report, the senior owner responded with conflict that I recognize in family busi- a torrent of abusive ridicule. That family nesses is a profound lack of clarity member sat down, remained silent and about roles, relationships, hopes, expec- was not invited to attend another tations and needs. This lack of clarity meeting. turns into uncertainty, then into con- fusion and then into conflict. Where What do we see there? There was no does it come from and how does it freedom of communication, there was remain a characteristic of so many no useful exchange of information, no families in business? Conflict is born of clarification of procedures or intentions. confusion when there is a failure of There was only confusion out of which communication, or a reluctance to intro- grew conflict that over the next few duce and abide by systematic manage- years drove family members away from ment processes, or a lack of transpar- the business. Without family support, ency in the way the business is run and the company eventually withered and the reasons for running it that way. died.</p><p>Maybe parents refuse to spell out their Conflict results from confusion because intentions or preferences for the future nobody understands anybody else, and of the business and other family true to our human nature that which we members’ places in it. Maybe children do not understand we fear and that refuse to make clear decisions about which we fear we either flee or we fight. whether they plan to enter the business Or conflict results because confusion or to stay out of it. In both cases, generates false assumptions that are consciously withholding information and never clarified and corrected – example: maintaining a state of confusion is a way “I couldn’t learn his views on selling the of exercising control. And when others company, but I assumed he wanted it to resist being controlled, the conflict remain in the family. I was outraged begins. when he said he had accepted the purchase offer.” – and that give way to Confusion conflict can result when a anger and to bitterness that simmers family in business has too little freedom and corrodes and may destroy the to communicate. Several years ago I business and the family. was asked to advise a family business whose senior owner was proud to tell The cure, again, is a commitment by the me at our first meeting that he con- business’s leadership and family stake- ducted a family conference once each holders to systematize, objectify and quarter where family members working professionalize, to establish a rational 6 organizational structure and to publish remedy. One younger brother in a descriptions of responsibility and author- family of constantly feuding siblings told ity, to draw up strategic plans and suc- me, “I don’t know why, but we seem to cession plans, to be clear and trans- listen to one another with negative ears. parent among family members and Since childhood we’ve always expected others who have a right to know. to hear insults and criticisms from one another, and so that’s what we’ve Carry-over is the fifth major cause of the always heard.” Such families never conflicts I’ve seen in family owned learn to see one another as adults, as businesses, when old hurts, disappoint- people with both strengths and weak- ments or disputes are carried over from nesses who are doing their best in this one time of life to the next and continue day and time, as partners. They never to eat away at the mutual trust and escape from yesterday and so yester- respect that families in business must day’s sins are never forgiven. have to achieve success and satisfy- action. I call conflict from carry-over the The cure that I frequently recommend tragedy of unforgiven sins. for this cause of conflict is a structured program, facilitated by a professional, to In carry-over conflict, family members identify, understand and work through hang onto the posture of conflict even carried over resentments and disputes when the original cause has been that feed continuing conflict and may forgotten. Relationships and percep- ultimately bring down the family busi- tions of one another become locked in ness and also the family that owns it. time like an old photograph or an insect fixed in amber: A young family member Compensation,competitiveness, control, continues to be perceived and treated confusion and carry-over – five causes as the 10 year-old who wouldn’t pick up of destructive conflict in family busi- his toys or sit politely at dinner. The nesses. No cure that I’ve suggested is a parent continues to be perceived and magical potion that will improve the treated as the aloof and over-bearing situation immediately and painlessly. authority figure who was the family’s Each one requires genuine family center of power and was never, ever willingness to take such problems in wrong. Siblings insist on thinking of hand, recognize their destructive power one another not as the vice president in and work very hard to find and charge of sales or as the manager who implement remedies. The greatest mis- has created a wildly successful new take that any family business can make product line, but as the pesky little is to do nothing, to resolve to just live brother who did something embar- with their conflicts and hope that the rassing at a birthday party and the rude business and the family can somehow older sister who never listened to survive. anyone else’s opinion. My physician friends tell me that while The conflict created by such carry-overs some diseases or conditions cannot be of emotional and psychological baggage cured, almost all of them can be is especially destructive because its ameliorated, relieved, made bearable in causes are so difficult to identify and to some way. My psychologist friends tell 7 me that most human beings can bear As the water gets hotter and hotter, who anything if they know that it will end at knows what goes through the frog’s some point. They also observe that mind: “Well, maybe it’s not as bad as it most of us would rather suffer at the seems.” Or “I’m tough. I’ll show them I hands of the known than make a change can take it.” Or “If I jump out and go and face the fearful unknown. hopping around, it will just upset everyone in the room.” Or “You know, My story-telling friends tell me about the sitting in a pan of very hot water is a frog in the pan of water. If you put a frog tradition of my family, so I’ll just have to into a pan of hot water, the frog will react sit here and pretend I don’t mind it.” and jump out. If you put a frog into a pan of cool water and then put the pan The result, according to my story-telling over a heat source and increase the friends, is that the frog sitting in the temperature gradually, the frog will not water accepts and adapts and jump out. The frog will adapt to the rationalizes his increasingly worsening rising temperature of the water – adapt situation until, of course, he dies. It is again and again and again. tragic when refusal to confront and cure conflict has the same effect on a family owned business.</p><p># # #</p><p>© James W. Lea, 2006</p>