All organizations experience conflict, whether between board members, executives or management. As part of their formal governance processes or as a matter of their operating style and culture, well run companies establish formal processes to address conflicts.
In a family business, conflict can be particularly problematic. Unfortunately, it is not uncommon for business-related problems to cause temporary or permanent rifts between family members, even between parents and their children.
Family businesses that maintain harmony and sustain themselves through generational transitions have conflict resolution plans in place to handle situations in which disagreements arise, communication breaks down, and the company’s ability to manage itself is threatened.
Steps to Avoid and Deal with Conflict
Conflict arises in family businesses over many issues such as who owns the company; how much each member is paid; and the role, if any, of outside executives. Another issue that often causes turmoil amongst family businesses is whether the business should stay in family hands, be sold, or merge.
Need for a Succession Plan
Succession is one of the most potentially contentious issues for a family business. It may be related to highly emotional issues such as...
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Preserving the company’s way of doing business
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Its “legacy”
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Changing direction by selling the company and distributing the wealth generated
A clear succession plan is indispensable, even if the current CEO and other key leaders are years away from retirement. Is there a buy-sell agreement that specifies who will buy out the principal owner if he or she were to die or become disabled? It may not be comfortable to talk about mortality or the transition of power to a new generation. Nonetheless, it is an essential step.
In the process of considering succession, several critical issues should be addressed. An unexpected transition in leadership can cripple the business. Therefore, the owners and other key executives, family members or not, should have life insurance policies in order to help pay the related expenses. In a closely held family business, where estate taxes can be a crushing burden, there must be a clear plan, supported by insurance policies, for how estate taxes are paid over a manageable period of time.
Staying On Too Long
A common problem with many family businesses is that leaders insist on staying on longer than is in the company’s best interest. This may happen out of habit, from a need to feel relevant, or out of fear of the next generation making mistakes. This can become a major issue if it keeps the generation currently running the business from tapping into the energy, commitment, and new ideas of the next generation.
Having a succession plan in place makes it easier to ensure that the current generation of management picks the right time to step down. As markets and competitive dynamics change, so should the leadership of companies that must navigate these shifts. At the same time, the older generation will feel more confident and the new generation will be more successful if the company has established reliable and systematic management processes to ensure sustained profitable growth over the long term.
Succession planning and preparation can be a difficult issue. Family businesses that take initiative to deal with it forthrightly will optimize their chances of preserving their wealth and legacy.
About the Author
Brian Kinahan’s specialty is increasing the valuation of a business before it’s sold. He brings 35 years of C-level experience in middle market companies including 10 years as permanent Chairman, CEO or COO, plus 10 years assisting CEOs of distressed businesses and another 10 years helping CEOs of growing companies generate sustained profitable growth by upgrading business practices to match the demands of a larger enterprise. Contact or learn more about Brian here.
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