Why business families fight and how to resolve disputes
4 min read . Updated: 25 Aug 2021, 01:07 AM IST
PremiumThe causes vary but appropriate mechanisms can be employed to attain harmony once they are identified
A patriarch of a family business once told me, “Running a business is easy. Running a family is difficult. Running a family business is the most difficult." About 300 of our top 500 companies are family businesses. They contribute over 25% of India’s gross domestic product and employ large numbers of people. Yet, we know that all families fight. If these fights are not contained, they disrupt the business, its employees, its investors, its partners, and the overall economy. If what the patriarch asserted is true, it is a worthy exploration to uncover the various reasons that can provide tinder for family fights. If business families watch out for these, a brewing fight will not surprise them, and can often be prevented or at least managed in a non-disruptive manner.
We find three different spheres in which fights arise. Fights occur within a family, something we all experience when people get hurt emotionally by actions of other family members. We call these fights within a family as arising on account of ‘soft issues’. Fights occur on account of differences over sharing the family wealth, which largely resides in their business. We call these fights within a family as fights over ‘hard issues’. Finally, families that own listed businesses often disagree on business strategy. We call these fights in the family as fights about ‘business issues’. The causes and cures for these fights differ. They need to be understood and handled differently to maintain family harmony.
Soft issues are laden with emotion and arise out of things like fairness, equality and respect. They can occur when family members break family norms or conventions, especially as families evolve. An elder could feel disrespected by a foreign-educated nephews’ comments or manner. The younger generation could find family norms too intrusive or restrictive, be it the need to marry within the community or not to challenge an elder openly. Embedded in soft issues is the question of ‘why’, which involves a quest to determine an underlying motivation for an action or decision that another family member takes. It leads to some family member getting hurt. If such issues are ignored and not discussed, as they often are, they create simmering discontent that later leads to bitter fights.
Hard issues arise at the family-business interface. These are rooted in the material consequences of family choices about how they will distribute the rights and benefits of owning a business, as well as the restrictions they place on members who enjoy these. Using an iceberg analogy, ‘hard’ issues are the visible ones that can easily be viewed by external observers. Common hard issues include succession or family fights over dividend distribution. What roles family members can get within the business, the speed of their progression, and decision rights within the firm could also cause friction. Fights over these are the most reported and are often the reason cited for splitting the business among various wings of the family.
Finally, family members need alignment over the business decisions and strategy of a listed company in which they have substantive ownership. Differences can arise on issues like how quickly to grow, which companies to acquire, how much risk to take on, or how to allocate capital. Given the required governance structure of listed companies, families must align views on how their ownership finds joint expression in the company’s board deliberations. The family must agree on how it uses its voting power on the business choices coming up for a decision. How does the family align itself so that a unified view is communicated at the board level? When the founder patriarch is alive, this is not a big problem, but subsequent generations need to find a mechanism to find alignment.
Despite distinctions in the root causes of conflicts, dynamic conflicts are rarely so crisply slotted into pure ‘soft’, ‘hard’, or ‘business’ issues. Friction from decades ago over unfair treatment within the family, for example, could show up today as disputes over succession. Business decisions may be coloured with overtones of past emotional strife between family members. Issues blend into each other. But the ways they are anticipated, identified, governed and resolved are distinct.
Soft issues need to be resolved with empathy by members within the family. At times, they may even need the good offices of a family ombudsmen (a respected aunt) who can hear the hurt and get the offending family member to be told off or made to apologize. An open culture built through clear messaging about extant soft rules and the stewardship shown by elders in explaining decisions and managing grievances goes a long way in assuaging pain. Hard issues are easier to manage. They are easy to anticipate, and rules and structures (family assemblies and family councils together with a family charter) can be put in place before they arise, to deal with them objectively and fairly. This will not always satisfy everyone, but can help prevent disruptive conflict. Similarly, structures for family alignment on business strategy can be created. For example, a family business board where issues are discussed (especially after the patriarch’s departure) can smoothen decisions. If necessary, trusted external advisors can be invited to join these forums and help facilitate decision-making.
Families would do well to heed Mahatma Gandhi’s words: “Peace is not the absence of conflict, but the ability to cope with it."
These are the authors’ personal views.
Janmejaya Sinha & Brittany Montgomery are, respectively, chairman BCG - India and consultant BCG.
