Conflict and the Families in Business
By Sonu Bhasin
Family and conflict within a family is a fact of life. Conflict within a non – business family impacts only the members of the family but in a business family conflict impacts the life of people even outside the family. A collection of individuals is most likely to have a set of divergent views and opinions on all matters. When these views are about the business that they are all part of, it is only natural that the divergent opinions result in disagreements.
The divergent or different views held by various family members of a business family rarely have their origination in the performance of the business; rather most disagreements stem from the fact that they believe that their needs are not met or that someone else in the family is getting a ‘better deal’ than them.
Disagreements, if not managed, are sure to lead on to conflict. And, any conflict within the family impacts the business negatively. In fact, succession and conflict show up as the top two reasons for Family Businesses failing to perpetuate. Studies carried out across the world throw up the astounding statistic that more than 70 percent of all Family Businesses fail to last beyond one generation.
Thus, it is important to understand the reasons that lead on to conflict within a Family Business. Some of the top reasons cited by family members in a study carried out by PwC include remuneration paid out to family members within and outside the Family Business; family members not being consulted on all business matters; setting of the norms for who can and cannot work in the Family Business; choosing the next gen leaders for the Family Business.
Family Businesses that transition successfully across generations have found a way to manage conflict within their families. In fact, the key is to identify, within their family, the reasons that could lead on to a full- blown conflict. The start to this is the enablement of open communication within the members of the family.
Better communication is facilitated by the creation of formal governance structures within the family. Family Council is one such formal structure that finds favour across families. Some other families use Family Retreats in conjunction with Family Councils to foster better understanding within family members.
A Family Council is the equivalent of a board of directors for the business. The family members nominate a chairman of the Family Council and he need not be the oldest among them. The members of the Council prepare a formal Family Constitution which spells out the details from who can work in the business to the remuneration criteria and even the process of planning for succession. As each family and its members are different there is no one set template that is used. Each family works out the areas important to them and writes them down into the Family Constitution.
The Dabur Group is seen as an example by others of making a Family Council work through the years. What has worked for the Burman family is the fact that the family understood the difference between Ownership and the Management of the business. External experts were brought in by them to help them transition from an owner-managed to a professionally-managed business where the ownership of the business continued to be in the hands of the Burman family. The external experts helped them write down the Constitution which even had the policies around dividends to be paid out. A formal office was made for family members who could go there to either work on their own ventures or to meet and discuss work.
The family council of the Burman family meets every quarter, usually after the Board Meeting where the financial results are announced. The family members who are part of the Board of Directors of Dabur take the other family members through the business and the projections for the year ahead. This makes each one feel a part of the business and they get to put forth their views, if any, on the running of the business.It is at this meeting that members are encouraged to talk about their own ventures which are outside of the main business of Dabur.
The family council structure has helped the Burman family develop an open communication within themselves. Many other Family Businesses would find that the conflict within their own families can be managed if they, too, follow the policy of fostering communication between themselves.
Sonu Bhasin is the author of The Inheritors – Stories of Entrepreneurship and Success and can be reached on firstname.lastname@example.org