Fam­i­ly busi­ness­es have var­i­ous types of con­flicts, with dif­fer­ent root caus­es. While con­flict can­not be avoid­ed, the fo­cus should be on cre­at­ing an en­vi­ron­ment where dif­fer­ences can be re­solved for the long-term ben­e­fit of the en­ter­prise and its abil­i­ty to con­tin­ue the lega­cy. How can fam­i­lies avoid this com­mon trap many fam­i­ly busi­ness­es face?

The Guc­ci fam­i­ly shows how dis­putes can weak­en a thriv­ing en­ter­prise. Guc­cio Guc­ci, the founder, died in 1953; his sons lat­er ex­pand­ed the brand, but suc­ces­sive gen­er­a­tions bat­tled over con­trol, strat­e­gy, and per­son­al ri­val­ries. In the 1980s and 1990s, le­gal fights and board­room con­flicts helped push fam­i­ly mem­bers out of man­age­ment, and out­side in­vestors even­tu­al­ly took over. The les­son for fam­i­ly busi­ness­es is that sur­vival and growth re­quire more than loy­al­ty and a fa­mous name. Clear gov­er­nance, suc­ces­sion plan­ning, de­fined roles and dis­ci­plined com­mu­ni­ca­tion are es­sen­tial to pro­tect both re­la­tion­ships and en­ter­prise val­ue over the long term.

Ac­cord­ing to Cam­bridge Fam­i­ly En­ter­prise Group, fam­i­ly busi­ness con­flict has four stages. First, mi­nor dis­agree­ments show up as healthy de­bates. Se­ri­ous dis­putes come next; per­son­alised at­tacks and po­lit­i­cal be­hav­iour ma­te­ri­alise. In the third stage, desta­bil­is­ing con­flicts emerge as fac­tions de­vel­op and con­sen­sus be­comes hard­er to reach. War­fare is the fi­nal stage. Here, harm to the fam­i­ly and the or­gan­i­sa­tion reach­es a crit­i­cal point. In­tense hos­til­i­ty may lead fam­i­lies to stop speak­ing to one an­oth­er, sell their stake, or seek le­gal re­dress.

What are some of the ar­eas in which these con­flicts arise? And what can you do about it?

Role am­bi­gu­i­ty

Fam­i­ly firms tend to be in­for­mal in their ear­ly stages. This makes sense, as fam­i­ly mem­bers of­ten have high trust and every­one is a gen­er­al­ist. As the en­ter­prise grows and more fam­i­ly and non-fam­i­ly mem­bers are hired, the in­ter­nal dy­nam­ics get more com­pli­cat­ed. Man­age­ment needs to clar­i­fy who owns each area. Em­ploy­ees and sup­pli­ers must know who the de­ci­sion­mak­ers are. Of­ten, the founder or CEO makes de­ci­sions and fails to del­e­gate. This at­tach­ment to de­ci­sion mak­ing can cre­ate is­sues when the founder is un­avail­able. The leader needs to shape the or­gan­i­sa­tion struc­ture for con­ti­nu­ity.

Clear au­thor­i­ty

Who makes the fi­nal de­ci­sion? Who has au­thor­i­ty, and up to what lev­el? Fre­quent­ly, banks will deal with the CEO and wor­ry about their ab­sence and who is next in line. Who deals with cus­tomer com­plaints? If it’s un­clear, it be­comes a con­test to show up for ex­ter­nal stake­hold­ers. An or­gan­i­sa­tion­al chart and job de­scrip­tions can help.

Com­pen­sa­tion clar­i­ty

Fam­i­ly firms tend to use dif­fer­ent com­pen­sa­tion met­rics. Ben­e­fits are of­ten based on gen­der, promis­es, equal­i­ty, loy­al­ty or pres­sures from fam­i­ly mem­bers. In fam­i­ly-ori­ent­ed firms, com­pen­sa­tion of­ten re­flects needs (chil­dren’s or grand­chil­dren’s ed­u­ca­tion, med­ical ex­pens­es, etc.). Some mem­bers get a ful­ly main­tained ve­hi­cle or a house, and oth­ers scratch their heads over the com­pen­sa­tion vari­ables. Com­pen­sa­tion should be tied to role, re­spon­si­bil­i­ty, mar­ket val­ue and per­for­mance.

Own­er­ship dis­cus­sion

Of­ten, due to poor fi­nan­cial lit­er­a­cy, fam­i­ly mem­bers may not know the dif­fer­ence be­tween salary for work­ing in the or­gan­i­sa­tion and be­ing a share­hold­er. Mem­bers must un­der­stand the dif­fer­ence be­tween staff and share­hold­ers, as well as the func­tions of the board of di­rec­tors. One so­lu­tion is to start a fi­nan­cial lit­er­a­cy pro­gramme to ed­u­cate mem­bers on how the com­pa­ny op­er­ates and shares the wealth.

Suc­ces­sion plan­ning

Tran­si­tion­ing the lega­cy is of­ten not well han­dled by the found­ing gen­er­a­tions or the CEO. While this is a sen­si­tive is­sue, it doesn’t have to be. Fre­quent­ly, the leader is a monarch type, will­ing to die with the crown on his head. This re­sults in un­cer­tain­ty. While fam­i­ly busi­ness own­ers are en­tre­pre­neurs, de­vel­op­ing a suc­ces­sion plan re­quires a dif­fer­ent skillset. This re­quires a fam­i­ly busi­ness spe­cial­ist who de­vel­ops time­lines and strate­gies to trans­fer the firm’s own­er­ship and man­age­ment.

Strate­gic di­rec­tion

With­out a clear plan­ning frame­work, some mem­bers may be un­sure of the firm’s long-term di­rec­tion. Strate­gic plan­ning dif­fers from that in non-fam­i­ly or­gan­i­sa­tions in many ways. Fam­i­ly po­si­tions are of­ten sa­cred, and changes to the or­gan­i­sa­tion’s de­sign can af­fect mem­bers’ com­pen­sa­tion and sta­tus. In ad­di­tion, be­cause in­vest­ment de­ci­sions re­quire con­sen­sus, mem­bers may have dif­fer­ent risk tol­er­ances, which can slow as­set al­lo­ca­tion. Fam­i­lies need train­ing in the strate­gic plan­ning process with­in the con­text of a fam­i­ly en­ter­prise.

Clear com­mu­ni­ca­tion

The above con­flicts share a com­mon thread: lit­tle or poor com­mu­ni­ca­tion. While fam­i­lies may start by talk­ing at the din­ner ta­ble (the first board venue), at fam­i­ly gath­er­ings, or over in­for­mal phone calls, the busi­ness even­tu­al­ly needs more struc­tured fo­rums. These can be reg­u­lar fam­i­ly busi­ness meet­ings, board of di­rec­tors’ meet­ings, or fam­i­ly coun­cil meet­ings. Hold reg­u­lar meet­ings on busi­ness mat­ters week­ly or month­ly. The goal is not to make the fam­i­ly more for­mal in every in­ter­ac­tion. The goal is to pre­vent im­por­tant busi­ness mat­ters from be­ing han­dled ca­su­al­ly un­til they be­come emo­tion­al.

Fam­i­lies in busi­ness should not try to avoid dis­agree­ment, as do­ing so on­ly cre­ates frus­tra­tion and fric­tion. Fam­i­ly en­ter­pris­es of­ten have the ad­van­tage of speed in de­ci­sion-mak­ing, and when con­flicts slow the process, the or­gan­i­sa­tion los­es its en­tre­pre­neur­ial edge. Con­struc­tive con­flict comes from hav­ing ear­ly, re­spect­ful dis­cus­sions in an en­vi­ron­ment where every­one knows where they stand.

Saj­jad Hamid is a SME & fam­i­ly busi­ness ad­vis­er as well as be­ing a Fel­low of the Fam­i­ly Firm In­sti­tute (2024). Con­tact him at: en­tre­pre­neurt­nt@gmail.com