Family businesses are captivating as their values are naturally woven in the company’s culture and they create a multigenerational legacy. However, at the same time, they are at risk to Family Wars that can engulf them. War is a strong word, but feelings run high enough in families to merit it as rightly pointed out in the book ‘Family Wars: Stories and Insights from Family Business Feuds’ by Grant Gordon and Nigel Nicholson. We have seen tragedies where a once legendary business empire disintegrated into small units. Hinduja Family Group, one of the world’s largest conglomerates, seems to be under the biggest existential threat the group has faced. Its age-old motto that “everything belongs to everyone and nothing belongs to anyone” has been challenged by family members and court battles have been going on in the UK and Switzerland over the control of the family empire since 2018. We have also seen bitter disputes in family businesses where brothers stabbed one another because of their needs not being met. The aftermath of such incidents is the burden of cleaning up, swallowing regrets and trying to build new aspirations. The key idea underlying this article is that instead of seeing family wars as problems to be solved, we can look at them as risks to be prevented.

Main Issue
Most conflicts in family businesses are caused because family business owners perceive that their needs are not met and not because of poor business performance. These conflicts arise on various issues such as how the wealth will be passed on to the next generation, choosing future leaders of the family and business, the strategy for business growth, performance of family members working in the business and setting of their remuneration levels etc. Alignment within the promoter family and agreed action taken on these issues are the key to survival of both the business and the family.

The root cause of these conflicts is ineffective communication between family members. Each family member has different interests, capability, exposure and hence, their own points of view. Some family members may be active shareholders involved in management of the business while other family members may just be passive shareholders. By virtue of managing the business, active shareholders understand the business challenges while passive family shareholders often do not have any idea about the working of the business. This divergence in personalities, roles and knowledge of the business gives rise to differences. Repeated instances of miscommunication lead to mistrust between family members and them reaching out to third parties. Often these third parties add fuel to fire.

How to deal with the issue
While Family Businesses are vulnerable to conflicts, we also see examples of successful multi-generational family businesses. Let’s understand how they deal with the aforementioned issue.

First and foremost, they accept that members of the family have different personalities, needs, aspirations, opinions and views of life. Infact, they nurture openness of communication and leveraging strengths of each family member for the family and business.

Secondly, proactive conversations are initiated to understand whether the family members want togetherness or amicable separation in light of securing a future for their children and the family business. The objective is to understand the needs of all and co-creating a way to meet them. Families can do this on their own or seek professional help to facilitate the same.

Thirdly, in cases where conflict has already started such as the Hindujas, “The best option right now is to sit and discuss the issue and come to a solution. If there is need, then use professional mediators, the cost of litigation is massive and there is often no end to such cases” as rightly said by Professor Kavil Ramachandran of ISB.

Lastly, time is of great importance. At any stage, value is either being created or getting destroyed both in the business and in the family. Hence, family businesses must identify their existing issues or prospective issues they will have to face and start dealing with them.

To summarise, the key takeaways for a preventing conflict in family businesses are:

• Accept differences and plan ahead for the future of family and business
• Have proactive conversations to understand the needs of family members
• Amicable resolution of differences
• Timely Action- Preventive or corrective based on situation

Conflicts are inevitable in family businesses. Winners are those who identify the warning signs early, deal upfront with the issues and do so in a manner that is beneficial to all parties.

The contributor is Senior Consultant, BAF Consultants.