Step by Step Plan to Manage Conflict in Business Families
By Harsh Chopra
The statistics tell the full story – Less than 30% of founders worldwide successfully hand over the baton to the 2nd generation and less than 10% make the transition to the 3rd generation. But to understand why every second family business is plagued with internal conflict let us start at the very beginning.
The first phase of a founder’s journey is a heady mix of excitement, passion and energy. No one knows if the plane will fly and it is the determination, grit and conviction of the founder which is a prerequisite for survival against seemingly insurmountable odds. He or she typically spends a 12 hour day at work firefighting all day long for the first 10 years of his journey . The children are brought up by the founder’s spouse as he / she is so consumed by the pressures of stabilising the infant business that there is simply no time for the family. For the founder the company is his child and the emotional attachment is understandably strong.
The single biggest underlying cause of conflict in business families is the inability of the founder – who has built his company brick by brick with blood, sweat and tears – to share power and authority with the next generation. He / she feels, often justifiably, that the next generation lacks the determination and grit to run the company which he has spent a lifetime building. When the next gen opened their eyes there were 3 cars in the garage and they have never had to undergo the baptism of fire that the founder did.
On the other side of the fence the next generation which is generally better educated and brimming with radical ideas feel they have not been given adequate authority and freedom and resent the intrusions by the founder into their assigned territory. They also feel frustrated by the founder’s repeated broken promises of retirement, his self-aggrandizement and habit of surrounding himself with old guard loyalists who are hanging on well past their prime.
The big 4 mistakes in a founder’s succession journey :
(1) Allowing family relationships to cloud judgements on capability
(2) Not factoring in sibling rivalry
(3) Too much focus on control at the expense of growth
(4) Back seat driving post succession
Succession is not a one day handover of charge where the founder hands over the keys of the kingdom and walks away into the sunset – it is a 5 to 10 year step by step journey of induction and grooming. If the founder does not initiate and develop a long term succession plan while he has full control the chances are that succession decisions will have to be taken abruptly without building consensus amongst the key stakeholders thereby plunging the family business into a spiral of destructive internal conflict.
Step by Step Plan:
By far the best way of managing conflict in a family businesse is to preempt it. Before the first signs of cracks start appearing take time out from day to day operations and go off-site with all members of the family in business to deliberate on the values and vision. The process of building a shared vision is itself a learning experience which brings the family together. If the long term vision of the family is not aligned they will almost certianly be conflict in day to day operational matters. The other discussion which must happen is that of personal vision. Where does each member of the family see himself or herself in 5 years ? This is a delicate discussion due to conflciting interests and ambitions. Sometimes it is best to take the help of an experienced, trusted and neutral external facilitator.Off-site bridge building family council meetings are excellent for building consensus on contensious subjects.
After a concensus has been built on the vision and values of the company the second step is for the founder to co-create and document a family constitution or family charter. The scope depends on the size of the business but in general it should cover the Vision & Values, Rights & Obligations , Ownership Structure and Dividend Policy, Family Employment Policy, Philanthropy . It is best to keep the family charter simple to start with and increase its size and scope as the complexity grows. Sometimes it helps to put the Family Charter in place before the second generation gets married because spouces come from a different cultural and value background and bring in a whole new dimension of uncertainity to the family discussions. Unlike the family values, the charter is not written in stone – it is a living document which changes with the evolving business.
The third and final step which has to be initiated by the founder is to put in place a long term succession plan. This should be based on an objective assessment of the capabilities of all family members in business. All stakeholders including the professionals who helped build the business must be consulted and their expectations factored in.
Every family will have some level of conflict because it is normal, healthy and desirable for family members across generations to have independent and divergent views on strategic challenges facing the business. The question to the founder is : How do you nurture this diversity of views, creative energy and innovation and align it with the family and business goals while at the same time preventing this diversity of opinions from moving towards destructive internal conflict? Ultimately it is all about building a culture of trust and respect which engages and brings out the best in all stakeholders and prevents this volatile cocktail of family emotions and interests from blowing up the family and the business.
The writer is the founder of Partners4Growth, a management consulting firm which advises Family Managed Businesses on succession planning, family charters and conflict management