Family Conflicts? Let's talk them out
18 September 2020
Posted by: Tom McGinness KPMG
Conflict in business is inevitable – but when it’s a family business it’s important to have structured communication.
By Tom McGinness, KPMG
COVID-19 has put many businesses under pressure to make tough decisions. That’s when conflicts can happen and the best option can be missed. When people come together, and where the decisions carry consequence, there will always be the possibility for disagreement. If the enterprise is a family business, these disagreements can prove even more heated.
“Managed well, disagreement needn’t be obstructive. With open communication and the right processes in place, a difference of opinion can be turned into a shared opportunity.” Tom McGinness, Global Leader Family Business, KPMG Private Enterprise.
Fortunately, experience tells us there’s a reliable, two-pronged approach to managing conflicts: improving communication and establishing structure.
When it comes to communication, it’s wise to start small. When I’m brought into a family’s conversation to help mediate, the first complaint I usually hear is “Why wasn’t I told?” or “When was I going to be consulted?” Ironing out any kinks in communication means holding regular, formal updates. The board can share news with all members at the same time, dispelling mild disgruntlement before it has the chance to do damage. In short, it’s good to get things out in the open and discuss them.
When you put in place clear, structured governance, disagreements can be held in a spirit of mutual support rather than becoming the catalyst of a family feud. Governance helps to temper heightened emotions and reframes personal resentments as mutual turning points.
The necessity of structure
The STEP 2019 Global Family Business Survey found that, worldwide, just 9% of family businesses currently hold regular meetings. In Europe, only one in ten hold family assemblies or meetings. This lack of structure can cause issues. Globally, fewer than one in five family businesses have a formal family employment policy. In fact, only 9% have any formal conflict resolution policy at all.
To get the clearest possible communication and conflict-resolution structure in place, I almost always recommend founding a family office. This is a group of people and advisors whose job is to make decisions on behalf of the family. It’s a flexible term: every family is different. Some family offices are as small as a couple of people trusted to make strategy decisions. Issues might include what investments to make, who to promote and how to manage assets.
One of my clients is a fifth-generation family business. Each month, six family members sit down together with a formal agenda and talk through the issues of the business and family. Non-family members (myself included) are invited to chair discussions, helping to ensure impartiality.
It’s a simple system that works brilliantly.
Diminish the potential for conflict
When proper governance is in place, it shapes discussions and reduces family conflict. People are clearer about their roles. There’s better understanding around processes and what the family is doing about charitable giving. There’s less possibility for misinformation and misinterpretation. Members know how to voice concerns, and often, conflict is completely avoided.
A family office can also agree on rules that forestall future disagreements – such as those around succession. The STEP survey found that just 16% of family businesses globally have a formal succession process; yet the potential for disagreement on this fundamental issue is tremendous. A family office can create succession rules years in advance of the event, holding difficult conversations now to avoid a conflict in the future.
Effective working with external advisors
A family office can also bring structure to how external advisors are used. I recently helped a family that was struggling with every member employing their own set of advisors. Money was pouring out to a long list of accountants and lawyers, each of whom had their own set of ideas.
First, we talked with the various advisors, bringing them together and establishing how they should put the family first. Then we put in place one team for the business who prioritised the family wealth, not individual family members. In the end, we cut a bill of three-quarters of a million on eleven sets of lawyers to a tiny fraction of that.
When carefully selected advisors are used as part of a formal family office, the relationship is strengthened immeasurably. Their objectivity and diplomacy can help with even the thorniest of issues. For instance, one of my clients is a family business where the chairman was 87 and still going in three days a week. That was a constant distraction for his son, the CEO. We talked to all members of the family before suggesting how to put the chairman’s energy to real use. He’s now chairing the family foundation and acting as an ambassador for the business to improve long-term customer relationships – a solution that satisfied everyone.
Trusted advisors can say the things that family members find difficult to voice, helping to resolve problems before they become full-blown conflicts.
Supporting your business
As a starting point, I always recommend that an external advisor sits down with each member of the business, on a one-to-one basis, and asks them why they want to stay in business together and what role they’d like within the business. Their answers can then be pulled together and used to build a blueprint for the future. In this way, everyone feels they’ve been consulted on the roadmap for the business
This approach worked particularly well for one of my clients, a long-established British family company. The two branches of the family wanted very different things: one intended to carry on, while the other wanted to sell the business to raise capital for a new venture.
However, the conflict between these two sets of plans wasn’t obvious to either branch. We were able to prompt some revealing conversations and, several one-to-one interviews later, identify the key issues. We then helped to find a solution: bringing in a third-party investor to buy out the branch that wanted to exit. Everyone got what they wanted.
Adding structure to a family business is essential because it allows all members to agree on how the company is run and how they’re expected to contribute. External advisors can work in harmony with senior family members for a prosperous future.
Invariably, from time to time, family members will disagree with each other. But with the right advice, and strong structures in place, clashing ideas can be a source of inspiration rather than conflict. Resolution will provide an opportunity for new growth.