Conflict and misunderstanding are part of a family however they are an enormous enemy of a family business. Learn from Harry and Meghan’s interview that probably caused a crisis to the British Monarch, managing conflict is the key, not only to the success of the business but also to the survival of the family itself.
Family members must build strong and well-structured business relationships. Being a brother, sister, or cousin may not be enough generally.
Although family-owned business conflict is attention-grabbing to outsiders, it can tear families apart. A family conflict that’s not properly managed and solved can harm the economy.
Global Family Business Index, compiled by EY shows that the world’s top 500 family-controlled enterprises grew by 9.9%, versus 0.06% growth for the Fortune 500. Family feuds can stunt this important economic growth.
If you own or manage a family business, you’ll be able to prove this statement from FINH Managing Director David Harland, "When colleagues and staff also are members of the family, ordinary conflicts can become a huge deal."
You might realize it is exhausting to balance both the interests of the business and the family member who’s involved in the conflict. Things will get worse if you owned unstructured family business.
What are the causes of conflict in the family business? What can family business practitioners do to solve this? The details will be discussed below!
Why does conflict occur in Family Business?
Most family businesses wish for business prosperity and family harmony, but they usually confronted with underperforming businesses and unsolved family conflicts.
Conflict and succession are the two biggest threats to the success of a family business. Conflicts in family businesses are rarely caused by poor business performance; most conflicts happen as the result of the family owners perceive that their wants or needs don’t seem to be me.
Conflicts also poped once things are unclear or poorly understood. Management of these conflicts becomes the key to the survival of each business and also the family. Indeed, the main reason behind the emergence of conflict in family businesses is the lack of understanding and communication between the three family dimensions, like the family, owners, and management.
The core problems likely to cause tensions in a family business include:
- Decisions regarding the long-run strategy of the business.
- Performance of members of the family actively involved in the business.
- Decisions about who suitable and not suitable to work in the business
- Agreeing on the idea valuation of shares in the business for those exiting the business
- Choosing the future leader of the family business.
Impact of conflicts on family wealth?
Destroying successful family business
Sadly, unresolved conflicts between members of the family typically result in the destruction of the family business in terms of reputation and structure as it disintegrates into smaller less effective units.
Negative impact on family harmony & relationships
As family members begin fighting with one another, family cohesion and harmony are negatively affected. These conflicts will make family members not only leaving their family business but also leaving and destroying the family relationships.
Freezing of assets and family wealth
In Indonesia, a variety number of family disputes have ended in courts that implement strict rules on the management of the assets under dispute. In certain cases, the assets of the business may be frozen until a satisfactory resolution of the disputes.
What do successful families do to minimize conflicts?
Most family businesses have cheap governance procedures to handle the business dimension.
- Establish the Family Rules
Through the family council or the shareholders’ assembly, the family typically builds
and agrees to a set of rules which address key ownership issues. These values are often referred to as family protocols. Successful family businesses already understood the importance to establish strong business relationships.
- Decouple Family Issues from Business Issues:
Very few family businesses in Indonesia have clear lines between family and business activities and this lack of clear separation increases the potential for conflict between family members.
- Establish a Family Forum (Family Council)
Families create family councils and shareholders’ assemblies for the family owners which may be a separate forum from the board of directors and management of the company. The family council becomes a forum that permits family owners to be actively engaged in the dialog surrounding ownership and family issues.
With this method, the threat of family conflict can be minimized and the chances of the next generation supporting the family business are improved.
- Transitioning the Next Generation
Aligning the vision of the senior generation and also the younger generation is crucial
to the success of the transition of the next generation. It is important to get the next generations involved and encouraged to learn about the business early in order to give them the necessary experience, develop a sense of ownership, and commitment to the business.
- Concept of fairness in the family
Fairness in the family means that all family members should be treated equally. Divisions and fragmentation between family members can be caused by family members suspecting others of benefitting at the expense of the family.
- Conflict Resolution Mechanism
A recent PWC survey indicated that although most of the families interviewed admitted to having conflicts, more than 70% of the families did not have any mechanism for dealing with disputes between family members.
Read: Grow Your Family-Owned Business by Building Effective Team - Case Study Of Google's Project Aristotle
Conflict is a common problem in family businesses. If you are part of the family business, you will almost certainly have conflicts with family members from time to time. The key is to take steps to address these problems in a way that prevents the disagreement from erupting into a war that has the potential to bring down the business.
But regardless of your approach, putting in the time and energy to resolve disputes has the potential to help prepare your business for a stronger future.
For more information on resolving conflicts in the family business, click on this link to join the Indonesian Family Business Community
The Indonesian family business community consists of dozens of family business practitioners whose mission is to develop their business for more than 3 generations and break the curse of 3 generations in family business.