How to Prevent and Manage Family Business Conflict: Decision Making and the Family Business Constitution

by Matthew Levy

Conflict among family members at home, at work, or in the board room can wreak havoc on individuals, family relationships and the stability of the family business. Managing decision making productively and preventing significant conflicts should be a primary objective for anyone in a family business.

Preventing and Managing Family Business Conflict: Decision Making and the Family Business Constitution

For the Family in Business there are three main causes of conflict:

  1. Lack of alignment as it relates to vision, values, expectations and policies
  2. The challenges of managing disagreements
  3. Strong emotions and sometimes even volatility
The Family Business Constitution

Every family in business together should have a Family Business Constitution, the cornerstone governance document for family business and the best conflict prevention tool.  It is a living strategic governance document and a policy guide for decision making.

The process of creating a Family Business Constitution is the best way to create a unified vision and a culture of shared values and to learn the skills to make decisions that will set a strong foundation for the business and for harmony in the family.   Creating it will unify the family and participants will make crucial decisions about:

  • Family and business vision and values
  • Family business legacy and history
  • Purpose of owning the business
  • Planning ownership and management transitions to the next generation
  • Exit strategies, shared ownership rules, selling and transfer protocols
  • Retirement plans
  • Family management and governance expectations
  • Assessment and compensation of family members
  • Governance structures such as boards, executive teams, and family councils
  • Inheritance plans and nuptial agreements
  • Models and guidelines for managing conflict
  • And many others

One of the biggest mistakes made by family business owners is to delay addressing challenging topics or believing they can rely on their shareholder agreement, articles of incorporation, or operating agreement instead of creating the Family Business Constitution.

Lack of agreement on such topics can cause resentment, members feeling slighted, younger generation feeling frustrated and unclear about the future, and owners and family members feeling trapped in the business.   In my years of working with family businesses, I have seen family relationships severed, branches fall away from the business and the family, and family members that never pursue their career dreams.  I have even heard of middle aged adults rolling around on the floor fighting like children and adults throwing punches in the board room.  All of these are preventable.

As a result of creating a Family Business Constitution, I have also seen families that:

  • Created a vision to double the company revenue from $300MM to $600MM in 5 years and succeeded
  • Gave retirement to an older generation that was waiting for the younger generation to step up
  • Planed a transition to the next generation
  • Recoverd from difficult ownership/management transitions
  • Healed emotional wounds from past generation’s conflict and unite the family, including members that aren’t in the business
  • Decided to create executive teams, boards, and family business councils;
  • Set new strategies and create new businesses
  • Realized that their father’s shareholder agreement is inadequate for them and make changes
  • Choose a new CEO from inside the family
  • Restructured the company for growth
  • And so much more…

When should you create a Family Business Constitution?

Start Early – Be Proactive

The best time to create the Family Business Constitution is early and before you think you need it.  Consider creating one:

  1. During business formation, before creating the shareholder agreement
  2. To solidify company values, mission and vision
  3. Well in advance of the transition to the next generation, before the next generation may enter the firm, before they are planning their career and when the children are still in grade school
  4. Immediately, after the new generation takes over (not at all ideal)
  5. To build agreements that will allow the family to live in harmony, before individuals or the family is embroiled in conflict and before you think you need to.

If you don’t already have one, then consider starting now. And if you do already have one, then have the next generation revise it, early, as they prepare to assume management/ownership.

Who should facilitate and guide the process?

Use an Expert Facilitator 

The best person to lead the creation of a Family Business Constitution is an experienced facilitator who is also a family business strategist and skilled in family business governance and management, coaching, and conflict resolution, and who has the interpersonal skills to manage the nuances of this sometimes emotional and volatile environment.  The right facilitator will ensure that all parties are heard and understood and that the conversations move forward to a peaceful resolution and that decisions are made most harmoniously and most consistently with the family’s vision, values, and objectives.

Conclusion

Being engaged in a family business is a most worthwhile undertaking, yet it can also be wrought with the risk of volatility and conflict. How a family prevents and manages conflict can be the key to business success and family unity.  Preparing a Family Business Constitution during times of peace and success, in advance of when it appears necessary, can be the best conflict prevention and planning measure available to a family business.  It creates a solid foundation for family ownership, governance, and management.  When conflict does arise, the family can lean on the guidance of the Family Business Constitution for decision making and on its new skills and stronger relationships to best manage conflict safely, responsibly and effectively.  Using a skilled facilitator, such as a family business consultant, creates the greatest likelihood of open and harmonious discussions and outcomes that support unity in the family for sustained business success.

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Results Management Group executive coach, strategy execution

Matthew Levy is the Chief Catalyst and Principal of Results Management Group, a strategy, alignment, execution, and family business consulting and coaching firm.  He specializes in aligning management teams with bold, compelling visions, strategies, and plans and excels at guiding management teams and families to create and rebuild trust, collaborate effectively, make decisions, and establish effective governance.  Matthew holds an MBA, from Thunderbird. He also studied conflict resolution at the Harvard Negotiation Insight Initiative and at American University, Entrepreneurship at Wharton, and Family Business at ITESM.

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