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Family Business Mediation: Solving Legal Issues Without Going to Court

by Stephen McDonough
January 2017 Stephen McDonough

Mediation is often considered an excellent means of conflict resolution for personal or family disputes, but the benefits of mediation extend to more than just familial problems. In fact, mediation is oftentimes the best conflict resolution tool available for small and medium sized businesses.

Unlike litigation, business mediation is a more affordable and faster problem solving process that helps business owners solve disputes without investing a lot of time and money. With mediation, there are no long court appearances, and both parties can provide input in a structured setting guided by an experienced dispute resolution professional.

There’s no business like show business, and in no business are the benefits of mediation more clear than in family businesses. Conflicts occur in every type of business, but the number of variety of conflicts can increase tenfold when relationships extend outside of work. The famous phrase, “It’s not personal, it’s just business,” does not hold true in a family business, where things are always personal. Furthermore, conflicts within family businesses are often the most difficult to resolve, because there are multiple levels of interest in play: business issues, ownership issues, and family issues.

When tempers and/or frustration run high and relationships are on the verge of fracturing, more family businesses are turning to mediation to resolve issues without having to break the bank. Mediation can be applied to almost any issue imaginable, including matters ranging from selling a business, expanding, or personnel matters.

Family Feuds

Despite some shared DNA, family members bring different personalities and viewpoints to the table, and these can be difficult to balance. Furthermore, family relations can also nurture a false sense of entitlement, which can lead to arguments when jobs, raises, or promotions aren’t provided to a family member. Handling an argument within the family can lead to disaster as grudges or separations can be permanent. Rifts between members can destroy a business from the inside out, leading to dysfunction, reduced profits, and long-lasting hard feelings.

Fortunately, a more cooperative approach such as mediation or even the collaborative dispute resolution process can help resolve conflicts while preserving – or even improving – existing relationships. With a skilled neutral mediator helping to work through problems, family members avoid feeling alienated or unfairly treated. Of course, the mediation process is private and confidential – another important consideration for Massachusetts businesses.

Succession Planning

By 2017, it’s estimated that 40.3% of all family business owners in the US expect to retire. Less than half of those owners have put in the time to select a successor. Yet, if there’s no plan for succession, the business may crumble. Research has shown that only 30% of family-owned businesses survive into the second generation of family, while surprisingly only 12% of family businesses make it to the third generation.

Family business owners often fail to properly plan for succession, which is understandable given how much time and effort is required to operate a business. Succession planning can be a daunting task. Certain family members may be expecting a certain share of the business or a desired position. It can be difficult to ensure the business is handed off appropriately, and to the right person or team.

Using mediation, business owners and respective family members can sit down and constructively identify and discuss shared goals for the business with a mediator who brings impartiality, experiences, and trust to what can be difficult conversations.

Nepotism Issues

Problems in family businesses can extend outside of the family. In fact, one of the largest problems family-owned businesses face is non-related employee retention. The quickest way to alienate outside employees is to create a company culture based on nepotism. Everyone wants to help family, but hiring, paying, and promoting someone based on family relationships over merit makes non-familial employees feel disenfranchised.

Nepotism can destroy an employee’s desire and motivation to work, which will ultimately affect the bottom line. When conflicts arise with employees, mediation offers solutions. It can be hard to step back and weigh whether or not your family members are being given preferential treatment when a family bias exists.

Biography


Stephen McDonough works closely with clients facing divorce or other family conflict. His is a certificated mediator through the Massachusetts Council on Family Mediation, a designation that only about 11% of mediators have obtained. In addition to providing mediation services, Stephen regularly appears in Massachusetts Probate and Family Courts for clients involved in court-based cases. He is also a collaborative attorney, conciliator and mediator.

A smaller portion of his practice includes probate/estate administration cases and drafting wills and related estate planning documents.

Stephen is a volunteer conciliator through the Norfolk County Probate and Family Court, helping attorneys and their clients settle difficult cases that otherwise are facing a trial.



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