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Dynamics, Emotions And Conflict In Family Business

Wednesday 15 August, 2007
Many business difficulties stem from issues within the family. Since conflict is common, families in business should learn the best methods for resolving differences before they boil over.

We all have read reports of sibling rivalries that erupt into business disputes when one brother or sister disagrees with another, or one is promoted over the other.

These clashes can even erupt in violence, as occurred when one member of the fractious Gucci family, renowned for its fashion design, got into a fistfight with another at a board meeting after being fired by his uncle.

Quieter business conflicts can also damage family relationships. Cousins in one branch of the du Pont family of Delaware were estranged for many years when they felt their cousin had unfairly used his leadership position to refinance the company for the benefit of his branch.

Too often, family members feel helpless to resolve them, or feel that their anger or hurt leaves them no choices other than what they are doing. Other families just deny or avoid conflict, carrying their hurt feelings and resentments along with them to family meetings and into endless disagreements.

The frequency and severity of the conflict in a family business stem from the fact that family companies constitute a unique form of business. Family members, who have a biological and personal history, try to transfer the good parts of their relationship to become business partners and colleagues. But family systems theory suggests that the journey from household to office suite is fraught with pitfalls.

The family as a system

Psychiatrist Murray Bowen and other family systems theorists have postulated that a family can best be understood as a single integrated whole, not as a group of separate and autonomous individuals. The family, in other words, is a system - much like fish in an aquarium or attorneys in a law firm.

The system has its own rules and recurring patterns of behaviour:

  • Boundaries

    A system has clearly defined boundaries and rules of membership. Many families are very closed systems, isolated from the rest of the world. A tightly bound business family will try to keep financial and other information very secret, which may cause difficulties for employees. They may not trust non-family members, even those who marry into the family.
  • Informal rules

    A system tends to have an informal set of rules or procedures for how its members function and interact with one another. For example, there may be a rule that "we don't say anything negative to each other", or "family members are all expected to be perfect". The system resists change and thwarts efforts to impose change. The emotional reality of the family's early years remains, even as the children become adults. Many family conflicts have their roots in early patterns.
  • Expectations

    Many of us grew up with an unrealistic expectation of what we should receive from our parents. A son may expect to inherit or share ownership of the family business, while his older brother may have worked for many years in the company with the expectation that some day it will be his alone. When the younger son enters the business, a clash is inevitable. These expectations become magnified in a family business where large amounts of cash and other assets are to be equitably distributed at some point.
  • Hierachy

    The system has a hierarchy, with unwritten and often unspoken roles and tasks. If you are the big sister, or little brother, you have a role. You are the funny one, the smart one or the carefree one. But when you work in the business, your role may demand different behaviours, or you may find it hard to be seen differently. And the family hierarchy often gets transferred to the business. It is hard for an older brother to take orders from his kid brother.
  • Family patterns

    The family's business is often incompletely separate from the family system. It is an extension of the family system and its rules and patterns. If the family pattern of functioning supports sound business practices, there is no problem. But when the family pattern is antithetical to prudent business management, the family-operated business is in danger. If everyone feels entitled to take out lots of money or receive generous perks, financial difficulties are likely to spring up.

    Problems develop when a pattern is transferred from a family into the business. For example, one group of siblings extended the pattern of taking care of their younger brother, the baby in the family, when he entered their company. His older brothers "looked out for him" by not giving him real responsibilities and not expecting very much from him. He continued his part of the pattern by being an irresponsible clown, acting like a child. The family pattern had damaging effects on the business.

    In times of crisis, relatives in business together can behave in ways shockingly similar to the way they acted when the children were little. When a family finds itself in trouble, its members rarely look to themselves as a unit to find the remedy. The family either blames one individual who exhibits behaviour that goes against the family's rules - which may or may not conform to society's rules - or they blame an outside agency, the tax system or their adviser. Though this may prove to be an effective way to keep relatives from seeing their own role in the problem, it is not an effective way to remedy family problems.
  • Communication

    Enterprising families also tend to incorporate the family style of communication into their business relationships which has been labeled "triangulation".  This occurs when there is tension or a strong difference between two parties.  One of them seeks out a third party and tells them about the problem.  When that third party turns or goes to the other individual and berates them or meddles with the tension.

    For example, if members of the next generation habitually complain to their mother when they are upset with their father, the pattern may continue even if Dad is the CEO, brother and sister are division managers, and Mom is not involved in the business. When they are upset at Dad, the young managers may talk to Mom, who in turn berates Dad in private for his alleged insensitivity.

    This violates the boundary between the family and business and shifts a business disagreement to the family. This triangle ends up leaving Dad more disconnected from his kids and gives Mom a role as a business mediator that is not helpful to the business. In a healthy situation, when the third party is told of the problem, they convey their understanding and tell the individual that they will have to go back to the individual with whom they have the problem and "work it out".

Many family disagreements tend to revolve around the issue of fairness. Because good parents love all their children equally, childhood fosters an expectation of being treated equally in the family setting, which is perceived as being treated "fairly".

Since parental attention and rewards were a precious commodity when the children were young, intricate rules were established within each family to ensure "proper" allocation. If any family member sees the business as violating these usually unspoken expectations, conflict can arise. Yet a CEO is likely to have different plans for each of her children in terms of their positions in the company, salaries and ownership shares.

If the family does not know how to bring these differences to the surface and resolve them, conflict can build and escalate over time. As it builds, people get more estranged, and minor issues are apt to trigger venomous responses. With all these difficulties arising in families, it is no wonder that conflict is often recurrent and potentially poisonous.

Family and business systems

Systems theory teaches that all aspects of a system (sub-systems) are interdependent. Anything that affects one part of the system also affects the others. Business problems can't be addressed by looking at the business or its finances alone; their resolution involves the family. Because the family has formed the company, its problems arise from the ways in which it is modeled on the family.

The family and the business, while including many of the same people, are vastly different worlds. Each has its own priorities, goals and expectations. They are two different systems, with different purposes. One involves emotional acceptance, the other rationality and results.

Difficulties arise because it's hard to learn how to shift the relationship when family members move between the two systems, pictured in Figure 1 as overlapping circles. Yet the rules, expectations and behaviour must shift somewhat as one moves from family to business. Together, these two interlocking systems become a third system, thefamily business system. Figure 1 is a good device to use with your family to initiate a discussion of the differences between your family and business systems, and how one affects the other.


Figure 1. Family members in business together must balance the conflicting requirements of the family and business systems and manage the boundary between them.

The family system's particular needs and energies are sometimes at odds with those of the business system. For example, the family system seeks to preserve harmony and minimise change, whereas the business system sometimes requires conflict and change.

The goals of the systems are very different. The family must develop and nurture its members, while the business needs to generate profits and operate effectively in a competitive environment. Many family business dilemmas arise when family needs or priorities overwhelm the business's needs.

Problems inevitably erupt when a family member expects people in the business realm to operate by the same rules they use in the family realm. If you deal with one system to the exclusion of the other, you are not going to achieve a long-term, lasting solution to your family business problems. The goal is for the family to learn to make good business decisions that also sustain family harmony.

The term "stakeholder", a takeoff on the term "stockholder", is used to convey the point that people who don't own stock in the company often have as much stake in business outcomes and are as personally and emotionally invested as those who own stock. These stakeholders are members of various constituent groups in the family business system. Their roles are based on their positions in the family and the business.  A typical list would include:

  • Family members who work in the business and own stock
  • Family members who don't work in the business but own stock
  • Family members who work in the business but don't own stock
  • Family members who don't work in the business and don't own stock but have a stake in maintaining amicable relationships in the extended family
  • Key non-family managers, who may or may not own stock
  • Spouses and kids of the people in the above groups

The best long-term solutions to family business dilemmas are developed when stakeholders are aware of the differing ownership, family and business roles and learn to integrate and balance them. Figure 2 presents a time-tested model that has proved useful in helping family business members understand the role conflicts that are inherent in their endeavor:

Issue Overlap

Figure 2. This model shows how issues can overlap in a family business. (J. Davis and R. Taguiri, The Influence of Life Stage on Father-Son Work Relationships in Family Companies, Family Business Review, II (1). 1989.)

For example, consider a minority family owner who doesn't work in the business. This relative may have a substantial proportion of his net worth tied up in his ownership stake, although he may receive little or no return on his equity.

Those who work in the business often want to invest profits for the future, while passive shareholders would prefer to receive dividends. Such conflict has paralysed many family businesses.

In cases like this, expectations must be shared and the rules must be balanced so members of each group feel their concerns are taken into account.

There are two basic paths to resolving conflicts; both must be implemented.

The first path is structural

This involves clarifying agreements and creating formal procedures to resolve issues that may arise. Taking the time to develop a clear set of rules about ownership transfer or unambiguous guidelines for employment can go a long way toward preventing future flare-ups.

The second path is to communicate openly and directly

This means approaching the person or people you disagree with to discuss your differences of opinion, differing expectations or hurt feelings. It does not mean that every issue is legitimate or that each person has an equal vote in determining a course of action.

But, for example, if a father is disappointed with his son's performance, isn't it better for him to discuss the deficiencies and ways to correct them, as opposed to sending a letter of termination without warning? Such failure to communicate has ignited many long and destructive family feuds and lawsuits.

In bringing problems to the table, family members have found it is helpful to focus on the separation of roles and interests (i.e., what we do as family members versus what we do as business owners and managers). Another strategy is to determine "Who owns the problem?"

For example, if a daughter would like to leave the business but feels obligated to stay, is it a personal problem or a business problem? Initially, it is a personal problem to be addressed by that person alone, although she may need the help of a psychotherapist, career counselor or other professional to resolve her internal conflict.

If she ultimately decides to leave, it may become a business issue, requiring the family to address the conflict in terms of the succession needs of the company.

If her father expresses disappointment or hurt or tries to put a "guilt trip" on the daughter, it may become a family conflict. In such cases, father and daughter may need to discuss their expectations of one another, hopes for the future and other matters.

Family business conflict resolution is not a one-time event; it is a process that requires family members to develop sensitivity, learn effective communication techniques and remain continually alert for hints at underlying issues.

When a family comes together to resolve their differences, with each relative stating his or her own interests and needs, it is helpful for everyone to step back and assess what is best for the system as a whole.

Author Credits

Dennis T. Jaffe, David Bork, Leslie Dashew, Sam Lane and Joseph Paul. Dennis T. Jaffe is a founding member of the Aspen Family Business Group http://www.aspenfamilybusiness.com. Dennis Jaffe can be contacted at djaffe@saybrook.edu.
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