Thursday, June 23, 2011

Management of Internal Conflicts in Family Businesses - A Prescription for a Breakdown of Communication, Trust and Respect

This article was written by Steven Wawra.

Editor’s Note: Author Mr. Wawra has been a mediator, arbitrator and settlement conference officer exclusively over the last decade with dispute resolution programs for various periods of time, including those administered by such agencies as county and federal courts, U.S. Postal Service, Financial Industry Regulatory Authority (formerly National Association of Securities Dealers), IVAMS and others. He also was an instructor for a period of time with University of California, Irvine, Extension in the Certificate Program in Conflict Management and the Use of Alternative Dispute Resolution, and has been a speaker on various topics in the field of alternative dispute resolution.

Some years before the difficulties in the family business arose, the family had started the business looking ahead with great anticipation to success and financial rewards. It benefited initially from a high energy of family spirit and talent. Spouses, parents, children and in-laws all contributed to the entrepreneurial effort. With clear communication and management rules of the road to guide the operations, the business could have developed and prospered.

Yet at some point relationships became strained and communication and respect broke down, and the break-down affected both the family relations and the on-going operation of the business. Because it involves both family and business issues, the family business presents one of the most intractable conflicts to sort out.

Let’s look at the dynamic of a family business dispute. Bitterness between family members running a business can develop for many reasons, and spin out of control. One brother works 12 hour days and the other brother or sister works little, yet both collect the same pay check, or have equal shares of company stock. The father may alienate one or more of the now grown children in the business with his authoritarian manner, which brings up the insensitivity the children felt to their needs in early life. The father on his part may feel the children do not appreciate the hard-driving, all-encompassing work ethic that was necessary to bring financial success to the family business, and why he should continue to be in control. The father gives preferential treatment in the running of the business to one son, which just opens up wounds of unfairness the other son felt while growing up. This feeling of unfairness may become more apparent as the discussion of succession planning proceeds. The reasons for feelings of unfairness, injustice or ingratitude are, of course, many, but the result is often that one family member stops communicating with another member, and this action sets off an equal response. Relationships between family members involved become strained and the whole family is affected – parents, children and grandchildren.

As a result of this family bitterness, the business suffers because business decisions are not made and deadlines are not met. The result of not acting to address the issues can be an end to the business, followed by a messy fight over the ownership of the assets, financial obligations in the winding-up, and often large legal bills and time in court. There are many examples over the years of family business conflicts which became very public, and we currently read in the press about the McCourts’ battle to own the Dodgers.

So how to approach the sorting out of a family feud before the business fails or the conflict lands in court. What is critical is that the family needs to understand that something needs to done and to take the steps to resolve it before the conflict becomes irreconcilable. The option of doing nothing and hope it gets better is very rarely a successful choice. The family members could struggle with it themselves and sometimes wisdom will prevail and measures will be taken to set the business on a good course. But beyond a correction by family members themselves, a third party can be introduced. Lawyers can be hired and can work together in a cooperative fashion to resolve the issues. However, if not successful, the conflict can end up in court.

Alternatively, a mediator can be asked to become involved to help to reestablish communication and trust, so that business issues can be addressed. There is a natural hesitancy to invite a third party mediator into the private dispute of a family, which understandably may feel uncomfortable about discussing or exposing the dispute. However, if the family cannot resolve it themselves, one of the least intrusive methods to resolve the dispute may be for the family to use a mediator, who is bound by confidentiality as part of the mediator’s code of ethics.

Unfortunately, most mediations occur after a lawsuit has been filed and after much cost in terms of financial and emotional stress on the parties. Aside from using mediation in this formal legal track, few people realize that the mediation process can be used to bring about an end to internal conflicts in family businesses long before any thought of filing a lawsuit occurs. Through this process at this stage, a de-escalation of the conflict can occur, communication can be reestablished and relationships and respect can be restored.

So how is this accomplished? The tools used in the mediation of formal court conflicts are available to use where there has been a breakdown of family communication and a damaging of relationships, which has so affected the family and business. Family members in conflict have gotten on a wrong track and they don’t know how to get off the track. That is where a mediator can help them rethink their positions and transform the conflict into dialogue and understanding.

Families have long ties, and the goal is to reconnect the ties and reestablish the relationship. First, the mediator sits down with each family member involved (and possibly any important other) and lets them talk – so the mediator can map out the conflict. This is not just a passive listening to the person telling their story, but an active questioning and encouragement to develop what is at the core of their dispute. This is the only way to get the emotional intensity of the true feelings of the person.

Part of the talk with each family member is to give constructive help on how to talk with each other so as not to continue the conflict. If one continues to attack and blame the other for the past, the track the conflict is on will continue with argument on argument. But if the nature of the conversation is altered to tell how things have affected you – what it felt like to you – when this or that occurred, the other person cannot argue with you. You are not attacking or blaming, you are stating how something affected you.

Once separate meetings have taken place with each family member, all family members in conflict are brought together to talk with each other with the mediator. The unfairness, injustice or ingratitude felt by family members is discussed at length. Each can tell how the other affected him or her with the intensity each felt. Before starting all involved agree to rules – treat each other in a respectful way, with no blaming or attacking. Each person is asked to really listen to the other, and if agreed at the beginning, to repeat the essence of what the other said. This tells a party that he or she is being heard and trust starts to develop as a result.

An environment of sharing is created, with each being empowered to tell his or her story in full detail. This is really the first time a conversation can start to take place. As this occurs, eventually the emotionality of it all decreases and a change starts to take place. The perceptions that were formed about the other which inflamed the conflict are seen in a new light and each starts to learn about how the other saw it and was affected.

This process can take anywhere from a few hours to days. As a result, a reconnection can be made, in either the reestablishment of the old relationship again or just an understanding of, as they say, “where you are coming from”. In either case, the important element of communication is re-established, which is good for the family and also will allow business decisions to be made.

Rules for better operation of the business can be agreed upon and family members can pledge to talk to each other with respect and to call the other if a problem comes up. An arrangement can be made to call in a mediator to help talk it out if desired. What was a family business in danger of failing because of the failure of communication can now be restored to full vitality.