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Harmony, resilience, unity: navigating conflict in the family business

Family Business
Family business

Harmony, resilience, unity: navigating conflict in the family business

Nov 27, 2020

Understanding how disagreements might develop, and how to prevent them from escalating, will help your family mitigate conflict.

The pressure that comes with running a business means that disagreement is an ever-present possibility. From personality clashes to differences in opinion over strategy, and pushback against unpopular decisions, there is a risk of conflict in any workplace.

But for family businesses it's a risk that has consequences not just for the success and longevity of your business, but also for family harmony and reputation.

"Unfortunately, myriad families and family businesses have been torn apart, and wealth lost, due to conflict among family members," says Amy Lau, Senior Vice President, Family Governance and Family Office Advisory, Wealth Planning and Advisory at HSBC Private Banking. "That's why it's vital to understand how conflicts might develop, and how to prevent issues from escalating."

There are many ways disagreements can begin to simmer under the surface. Perhaps the younger generation and older generation have differing opinions about the younger generation's future role in the business. A family member who sits outside the formal ownership structure may seek to exert their influence on how the business is run. Familial rivalries and family dynamics also may seep into the business, particularly if roles and responsibilities are not clearly defined.

"These are just a few examples," Lau says. "We often see conflicts arise if a family lacks a clear, agreed-upon vision or purpose, and when there is no agreed framework for members to come to an agreement on major family issues."

Regardless of the reasons behind the conflict, there can be serious ramifications. Conflict among family members might delay decision-making and jeopardise the effective operation of your business. It also risks harming your family legacy, undermining the unity of the wider family and even resulting in protracted and costly legal proceedings.

In other words, mitigating conflicts – and managing them when they arise – is crucial.

Building a firm foundation on shared purpose

Establishing and agreeing on a shared vision or purpose for your family business – in alignment with your family's values – will inform the future plans for your business, providing clarity around what it will do and achieve, and the core activities that will create value while uniting family members across generations.

A family constitution can be useful here, and is effective for building consensus and preventing harmful disagreement and conflict. This living document sets out your family's vision and values, as well as important policies around ownership and succession. It also might include information about business strategy, or roles and responsibilities of family members within the business.

Importantly, it can also specify how grievances will be addressed, and how disagreements will be managed before they grow into something more serious.

Bringing family members together

"Once a family has clarity on their shared purpose, we find it useful to create a platform for discussion through which all family members feel their voices, interests and concerns can be heard," Lau says.

Open and honest communication around management, succession and ownership questions will lay the foundation for transparency, accountability and participation within your family business. At the same time, formalising the channels of communication provides a mechanism for issues to be worked through in a sensible and constructive way.

A family assembly, for example, is a relatively informal, inclusive platform where family members – no matter their role in the business – can gather to receive updates about the family and the business, discuss changes and share their opinions.

Allowing this sort of transparent communication and ensuring that no one is left out can help to strengthen cohesion in your family: if a family member feels included and able to voice their concerns, negative feelings are less likely to fester and later expand into conflict and possible damage to the business.

A family council serves as a more structured governing body within your family. Typically comprising family members with defined roles, a family council will vote on important decisions and implement changes, and acts as a conduit between your family and the business.

Drawing upon an organised and formal framework, a family council can help to prevent conflict and implement solutions to resolve conflict when it occurs.

"A number of our clients use these family governance tools to help bridge the family and its business," Lau notes. "Building a forum for communication and setting out clear, collective rules for decision-making will help your family reach agreement on important issues, while also enabling the family to have an aligned strategy and one voice to external parties."

Drawing on neutral support and guidance

Working with an objective third-party professional from HSBC Private Banking can help your family put the aforementioned boundaries and forums in place, and work through issues in an informed and systematic way.

We also facilitate families in formalising an agreed collective decision-making framework into an appropriate legal structure by working with your tax and legal advisors for implementation.

By taking emotion or personal feelings out of it, we can help family members feel like they have a voice, and then guide them in seeking out consensus, drawing out their goals and focusing on the future.

Through this journey, families may realise, to their surprise, that their goals are much more aligned than they had assumed.

"Every family is unique," Lau notes, "and will need frameworks tailored to their specific needs. As trusting relationships are built among family members, and conflicts are dealt with constructively, competitive advantages for family businesses can be unleashed."

HSBC Private Banking can help your family's wealth survive successive generations, resolving conflicts by providing a coherent plan for sustaining family unity as well as prosperity. For more information on how we can support you and your family, please contact us or your Relationship Manager.

 

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