Business performance or, more often: lack of same, is a common cause of conflict in Family Business. When business results are not what they could and should be, and worse, are not what people need them to be, tensions mount, and conflict often follows close behind.
Poor business performance has many causes – some avoidable, some not. No matter the true cause of the problem, the pop culture quote: “I didn’t say it was your fault, I said I was blaming you” often applies (I have this at home on a fridge magnet, and believe it to be insightful). Blame, especially when it’s not warranted, and even when it is, carves a very short route to conflict.
What do we mean by poor business performance? At the macro level, we’re concerned about shrinking markets, reduced competitiveness, falling revenues, rising costs, and unsatisfactory profitability (or losses). Some of these external factors can be much influenced by individuals.
At the micro level we’re concerned with “things” not being as they should be, within the operations of the business. For example: family members employed in the business consistently underperform, or openly sabotage the efforts of siblings, or constantly undermine the authority of family and non-family employees, or waste business money, or make improper use of business assets. Such internal factors can be influenced, and controlled, through good leadership, confident management, and effective governance.
When underperforming family employees are called out and can’t defend the results of their own actions (or inactions), they sometimes claim the protection of an over-nurturing parent (often Mums for sons, and Dads for daughters). Such a protective, “family-first” response in a business that otherwise prides itself on having a “business-first” (ie: rational and commercial) operating style, creates anger and resentment against leaders/owners who are seen to be openly, and heedlessly, breaking their own rules of propriety and ethical conduct. Organisational trust evaporates as their inappropriate responses challenge everybody’s belief in, and commitment to business culture, corporate discipline, and governance systems in general.
Another common cause of conflict that occurs when businesses are under-performing arises when family employees continue to draw excessive salaries, relative to the value of their contribution to the business, while non-working family members receive no benefits, staff fear for their futures, and parents have to tighten their belts to help keep the business afloat. When said individuals, consciously or unconsciously, project a sense of entitlement that others consider wholly unjustified, they burnish their reputations as “parasites” – living off the business and the family -to a level of shine that can’t be ignored – thereby inflaming conflict.
This toxic dynamic pits parent against parent, sibling against sibling, and cousin against cousin. Then there’s the inter-generational element ……
Silent partners and passive shareholders get antsy when they see people in the business doing fine, while everyone else seems to be tightening their belts. They wonder if they’re being dudded, and/or the books are being manipulated. The less they’ve had to do with the business, and the more they’ve trusted their working partners, the greater the tension. When trust departs, conflict rushes into the vacuum left behind.
Poor business performance can also be used as a proxy excuse to create a substitute battleground to deliver payback on ages-old family jealousies.
Solution
Get some objective calm into the situation as a basis for moving the issues from personal / emotional to commercial / practical.
Seek answers to the following questions:
- Are the objective, financial (and other) results of the business sub-par and/or below business and family expectations?
- What are the main reasons for the poor results (macro and micro causes)?
- What role are family members playing in getting these results, especially as members of the business executive?
- What’s being done to improve the results?
- Are any significant personal performance or governance issues causing concerns amongst staff, family employees, family members, or other stakeholders?
Call a family meeting where the actual business results, and responses to the above questions, are presented and explained by a non-family, external accountant, or adviser. Note that the business accountant / CFO may be too much under the thumb of the business leader to be entirely objective. Don’t baffle with bullshit – present the results in a form that can be easily understood by an interested 12 year old. There’s a better chance the adults will then get it, too.
If the business is large enough to justify the expense, get business operations competently reviewed, and the financial accounts properly audited. Instructions to advisers should require the above style for presenting results to stakeholders, once their work has been completed.
Subsequently, implement a system of providing regular performance reports to help upgrade all stakeholders’ knowledge of financial reporting and business performance issues.
Manage family expectations to realistic levels without forcing unreasonable and/or inappropriate compromises.
Invite suggestions for improving business performance from all relevant stakeholders to increase their levels of engagement and show them their opinions are invited, heard and respected.
Explore and, if necessary, mediate to resolution whatever issues are found to be creating the underlying cause(s) of conflict.
If family members rely on wages, cash distributions, or any other significant benefits from the business to survive (or support a gracious lifestyle), and it’s clear that that the business can’t, won’t, or shouldn’t provide be providing said benefits – either temporarily or permanently – consider whether the family itself has the ability and will to provide financial or other support from the family’s own resources, rather than out of the business, on a temporary basis.