Family businesses often create a high level of conflict, resulting in difficult business and personal issues. These disputes often have the quality of a divorce. In family held enterprises, especially those where the second generation has taken control, there may be ongoing resentments and inequalities of contribution that result in family business conflict. In addition, balancing the transfer of wealth between the active participants and the family members who are stakeholders but not working in the business can cause great conflict and resentment.
Managing family business conflicts in a family business is an ongoing and difficult task. While a family business can be of great benefit to members of a family, it often suffers from conflict in aims, goals, participation, and contribution, resulting in damage to the business and to family relationships. Mediation is an effective method to provide family business conflict resolution in order to help family members, both active and passive participants in the business, come to terms about goals, structure, control, and money issues.
Throughout the family business mediation process, many issues may be discussed including:
- Family Business Succession Planning
- Selling the Family Business
- Divorce and the Family Business
- Closely Held Businesses and Partnership Dispute Resolution
Each of these issues in discussed in greater detail below:
Family Business Succession Planning:
As in any business, in a family business, transitioning the business from one generation to the next is a complex and difficult process often resulting in conflict among family members. Family business succession conflicts are heightened by the particular nature of a family business. When the elder generation relinquishes control of a family business, there is often a struggle for control between members of the next generation. This type of conflict, because it is relates to family relationships and histories, lends itself to the mediation process with an experienced family mediator who has a deep knowledge of business and finances.
The transition of a family business to a new generation often causes strains and conflicts amount the family members. Some of these challenges are:
- A possible divergence of view as to whether the family business should continue or not.
- Whether the plan for liquidation is sound and will optimize the value for the family member stakeholders.
- Possible disputes about the sharing of proceeds between family members.
- Tansitions away from the family business can be emotional and difficult for the family participants.
Mediation can help to restore family relationships, heal wounds, break through impasses, and work on concrete structures and agreements that help the family members go forward with their goal of operating a profitable business smoothly and without unnecessary family conflict. Diverging interests can be reconciled or accommodated so that conflict is reduced.
Because family mediators are experts in people, family mediators can help recognize and reconcile differences in values, temperament, family history, business outlook, financial knowledge, (or lack thereof) which underlies family business disputes. The setting in mediation (rather than in litigation) greatly benefits the family, and can result in transformation of family relationships. Mediation is well suited for resolving these difficult family business issues.
Selling the Family Business:
In family business, often a dispute arises as to whether to sell the family business, or retain it within the family. Selling a family business affects the active members of the business, and also the passive stakeholders who rely on the business for financial support. Sometimes family businesses are sold because of unresolved conflict and contention. These businesses might have been ongoing and profitable if the family participants and stakeholders could have resolved their problems.
The interests of the family members who wish to sell the business and those who do not can be reconciled and planned for in family mediation. The terms of the sale and its effectiveness in securing value for the family members can be addressed in mediation. Family mediation can assist the family members in understanding and managing the transition, which can be a difficult personal, financial, and professional transition for the family stakeholders.
Divorce and the Family Business:
Divorce is an unfortunate reality of life. In the United States,about half of first marriages and over 60% of second marriages end in divorce. When a family member active in a family business divorces, there are financial and emotional implications and challenges, which can be complex. These can often be resolved through family mediation.
Family Mediation is an effective method to address the issues in control, buy-outs, and sharing of marital estate that arise in divorces. Mediation can help the family preserve relationships with the former in-law, who is likely to remain in relationship with the family for the rest of his/her life due to the presence of children.
Valuation of the divorcing family member’s share in the business can be addressed by mediation, using the reports and assessments of valuation experts and appraisers. In face-to-face mediation sessions, the financial reports and information can be presented, understood, discussed, and evaluated. This can avoid a lengthy and costly valuation dispute that could end up in costly litigation personally damaging to family members.
Closely Held Business and Partnership Dispute Resolution:
A closely-held business and a partnership, even if the active participants are not related by blood or family, is very much like a family. When partners and closely-held business owners experience conflict and have a dispute they are unable to resolve, their relationship is very much like a marital dispute. For this reason, meeting with a trained family mediator with expertise in business and finances can be a good step towards resolving the dispute.
Partners may no longer be talking productively to each other, although working in the same location day after day. Their mutual dysfunction can cause pain on a daily basis. The conflict may cause the business to fail. There is painful fallout to the spouses and families of the partners, and to the employees of the business. These conflicts, if unaddressed, can spin out into litigation.
A family mediator can be brought in to facilitate a process of discussion and negotiation, leading to resolution and possibly reconciliation. The result can lead to a positive outcome for the partners, with greater understanding and a plan as to how to move forward.