Family Business Conflict: Flexible Solutions

Share:

In a family business conflict, relationships are embedded in a system of family dynamics and a business system. It is impossible to separate the two components: familial relationships and business relationships. One informs the other in a circular fashion. Although some claim that in a family business dispute the interpersonal family relationship dynamic should be severed from the business conflict -that everyone should leave their baggage at the door-it is improbable to assume this is possible (Sharma, Chrisman, & Chua, 1997, p.4). We are a product of our experiences and interactions, and our own particular family culture is embedded in our being for better or worse. Methods for resolving conflict in business situations run along the continuum from litigation to arbitration to mediation (Class Slide). An analysis of mediation strategies of family business disputes tells us that there is no one answer to the question of which method of mediation provides the best course of action. Rather the process of mediating this type of dispute requires flexibility; employing a transformative model when needs dictate, a more facilitative model when needed, as well as employing other conflict resolution strategies such as negotiation and potentially bringing in other types of professionals (mental health professionals, legal professionals, business consultants, etc.) to fully address the multi-layered nature of this type of conflict.

In this paper I will explore the topic of conflict resolution including litigation, binding arbitration, and mediation as applied to family business conflicts, including evaluative, facilitative and transformative, and discuss the benefits and limitations of these types of conflict resolution strategies in this layered conflict situation including: the elements of a family business conflict and why they are different from other types of business conflicts, different theories on resolving family business disputes using techniques ranging along the continuum from litigation to mediation, describe transformative mediation theories that can be employed to resolve aspects of family business conflict, and finally discuss what course of action is desirable.

Businesses are complex, dynamic organisms, with plenty of opportunity for conflict to develop over a range of issues, and between a range of players within this organism. A business with family members adds another level of complexity to an already complicated system. Elements of family businesses that make them somewhat different from other businesses are also the elements that are at the core of classic family business disputes. Harvey and Evans discuss several classic types of conflict that arise in family businesses. They include family members who are either not capable of executing the duties of a certain position they were given, or are not interested in following the plan that was laid out for them as a member of their family. For example, a child may be groomed for a position in a family business their whole life, but may not want to be involved. The result may be a member of the management of said business who has no interest in being a part of the team running it, which has an impact on all those around, including family members and non-family members employed in the business (Harvey & Evans, 1994, p.335).

Another classic family business conflict issue is the issue of succession. This conflict can exist on two different levels: one referring back to the issue of capability or rather the belief or disbelief of the company team that the candidate for a management role is the best choice, and the other referring to the potential conflict between siblings or other family members because they were not the choice for a leadership role (Harvey & Evans, 1994, p. 335). There may be no clear staffing plan or organization chart which could result in a battle between players for control of certain positions. The vying for position and the conflict that arises can have a very negative effect on the day to day functioning of a business, impacting everyone around it.

Harvey and Evans also discuss when a business is in its first stage of development that “time and capital concerns” and the scarcity of these resources can lead to tension which results in conflict (Harvey & Evans, 1994, p. 339). Additionally they discuss when founders “take too much of the ‘build the business’ on themselves…[and] extend themselves beyond their expertise” (Harvey & Evans, 1994, p. 339). Harvey and Evans also consider the impact of sibling rivalry when siblings enter the business, and the problem of the founder not “letting go” to allow for the next generation of leadership (Harvey & Evans, 1994, p. 341). One of my business school professors Dr. Dave Deeds, a business consultant, commented he could not get the founders out the back door fast enough. The skills one develops as an entrepreneur, and the mindset of a founder, are not always enough to take a business to the next level of success. This can create “growing pains” masked as control issues and consequently tremendous conflict, especially when family dynamics are a part of the mix.

Haynes and Usdin discuss other issues that arise in family businesses including “management, power struggles, arguments over the payment of dividends versus reinvestment, disagreements over the future direction of the company, severance pay disputes, and problems brought on by the divorce of one of the principals“(Haynes & Usdin, 1997, p. 117). Some of these issues cited as classic family business conflicts are also conflicts that could arise in any business (incapable management, no clear organizational chart, employees vying for power or position, etc.). These issues lead us to a deeper discussion of how the family dynamic impacts a business. What exactly is at the core of the difference between a family business and another business?

Gordon and Nicholson provide many thoughts on the pros and cons of family businesses. They refer to “familiness” as a competitive advantage in part specifically because of the love, trust and past history of “people who know each intimately-almost telepathically.” They also offer that when the dynamic is healthy and good, there is evidence that family businesses outperform their large and small non-family competitors (Gordon & Nicholson, 2008, p. 8). Conversely, if the dynamic of the family system is negative, the “spillover” can be dangerous to the success of the business (Gordon & Nicholson, 2008, p. 8). Sharma, et.al. sum it up in this way, “the family business may differ from non-family businesses because the controlling family’s influence, interests, and values have overriding importance” (Sharma, et al, 1997, p 4).

Gordon and Nicholson discuss three causes of conflict within family businesses: content issues, identity issues and process issues. Content issues include issues where family members have opposing interests, either concerning resources (which can be solved by writing a check), or value drive issues (more difficult to resolve, may become intractable). Therefore, some content issues can be solved following a path of distributive style negotiation, and others, especially those involving a sense of right and wrong, may be more amenable to the use of mediation (Gordon & Nicholson, 2008, p. 10). They refer to identity conflicts as the worst type, “emotion heats up when the resources somehow symbolize a person’s intrinsic worth. Money often represents all kinds of psychological elements…most powerfully when it stands for how much one is valued or loved” (Gordon & Nicholson, 2008, p. 11). Finally, process issues are simply explained in the following way, “one of the simplest ways of igniting conflict is to set up incompatible goals for people and then force them to share the resources necessary for achieving them” (Gordon & Nicholson, 2008, p. 11).

Going another level deeper, family “biogenetic conflict” is what makes these content, identity and process issue conflicts different in family businesses versus other businesses (Gordon & Nicholson, 2008, p. 19). The essence of biogenetics is “shared genes [that] make us love each other and fight for each other, especially against the competing claims of unrelated people and other families” (Gordon & Nicholson, 2008, p. 16). One may relate to the feeling of “I can say what I want about my family member, but don’t you!” The shared DNA creates an unbreakable bond, for better or worse. Family issues also include marriages, divorces, remarriages, and stepfamilies; all areas ripe for conflict, as well as the bonds between parents and children and siblings. Add in gender issues within families, parenting styles, and family culture (Gordon & Nicholson, 2008, pp. 15-25) and the complicated set of issues becomes more complex when imposed on an already complicated business organism.

There are several different approaches to resolving conflict that may be employed in family business disputes including litigation, binding arbitration, and mediation (Prince, 1990, p.210). Litigation can be costly, not only on an economic level but also on a psychological level, especially when family members are involved. The employment of this strategy is time consuming, can conspire to take one’s eye off the proverbial ball, and the resulting tension can negatively impact not only the family members involved, but the entire business. A lawsuit filed by a family member against another family member is an unfortunate outcome of a conflict, once the action is taken the impact cannot be undone and has lasting consequences for family harmony. Prince offers that in the unlikely event that all parties agree to binding arbitration, “within a family business, an imposed solution often generates animosity from the parties who feel shortchanged” (Prince, 1990, p.210). Prince contends that family business disputes are not only about the business disagreement, but are often about underlying family issues. For these reasons, binding arbitration may not be an optimal solution.

Mediation may be a good option to resolve family business conflict. Haynes and Usdin argue that mediation is the best alternative for resolving family business disputes because it focuses on creating solutions agreeable to all parties, and focuses on the future relationship of the parties (Haynes & Usdin, 1997, p. 115). In a family business, often the parties cannot just walk away from the business and hence each other. They have communication patterns whose roots are deep. The parties are highly interdependent and have shared experiences along with shared DNA, all of which create the unique family culture and the filters through which they view their world, themselves, and the business they share with the family unit. Resolving conflict is essential for the business to be an ongoing concern.

Mediation is defined as “a process in which disputants attempt to resolve their differences with the assistance of an acceptable third party. The mediator’s objectives are typically to help the parties search for a mutually acceptable solution to their conflict and to counter tendencies toward competitive win-lose strategies and objectives” (Deutsch, et al, 2006, p. 726). Mediation is based on a cooperative orientation to conflict. The self-determination component may be helpful in leading to a “psychological commitment” to the outcome, and agreements that are sustainable (Deutsch, et al, 2006, pp.727-728). Deutsch’s crude law of social relations tells us that “the characteristic processes and effects elicited by a given type of social relationship also tend to elicit that type of social relationship” (Deutsch, et al, 2006, p. 31). The positive effects of a cooperative orientation to conflict are many and well documented. They include effective communication, less obstructive behavior, and recognition and respect to name a few (Deutsch, et al, 2006, p. 27). Studies of mediation show that the process has a positive future impact citing improved social skills and improvement in relationships ((Deutsch, et al, 2006, p. 730).

All types of mediation honor the following underlying principles: self-determination, confidentiality, voluntariness, mediator impartiality and neutrality (Frenkel & Stark, 2008). Haynes & Usdin add that in family business disputes employing a mediation strategy early in the conflict helps avoid high economic and psychological costs, believing that the personal nature of the family relationships impair the ability of the disputants to communicate with each other in an effort to resolve their problems. Bringing in an impartial and neutral third party can assist in the resolution process (Haynes & Usdin, 1997, p. 115). In addition to the underlying principles listed above, Prince adds that the procedural flexibility or “evolutionary nature of mediation permits the framework to be redefined as the process unfolds, modified to fit the needs and personalities of the family members and, indeed, the nature and level of the conflict” (Prince, 1990, pp. 212-213). Prince also discusses mediation’s orientation towards the future, and its importance to family business conflicts, “the goal of mediation is not to provide therapy but to enable the participants to manage their difficulties and to ensure that the family, as well as the business is well served…mediation is characterized by the modest goal of resolving the specific substantive issues being disputed…the objective..,to defuse conflicts that directly affect the performance of the business” (Prince, 1990, p. 213).

Prince contends that the third party aspect is helpful to business advisors (attorneys, accountants, consultants) in that they are able to maintain their neutrality in what is sometimes a very emotional process, and that their relationship with the business and family members is somewhat protected and enhanced by the process (Prince, 1990, pp. 209-210). Astute business advisors may assist families with deciding on a strategy for resolving these conflicts. Love and Stulberg discuss a mediator as one who provides a structure to the discussion, helping to define interests, set priorities and facilitate the creation of an agreement using techniques such as reframing, looping, and active listening. They offer “the mediator is the very last person to give up” and is an optimistic third party creating the dynamic expressed in Deutsch’s crude law of social relations (Love & Stulberg, 2007, p. 574). This dynamic helps parties understand, not necessarily agree with each other, and creates a more cooperative environment in which to discuss differences.

When looking at different mediation strategies, the continuum includes evaluative at one end of the directiveness scale, facilitative in the center of the directiveness scale, and transformative at the opposite end of the directiveness scale (Class slides). The issue of mediator directiveness is important in family business mediation in that the roots of these types of conflicts lie deeper than the surface. In dealing with emotionally charged issues often found in family business disputes, and in order to move forward with relationships, I believe there needs to be understanding, empowerment and recognition (Bush & Folger, 1996), forgiveness and reconciliation to really solve issues and create or maintain trust, change the family culture and move forward in a productive fashion. The old adage that “you can bring a horse to water but you cannot make him drink” makes the point that an intervention needs to be viewed by all parties as fair. The best way to get to fair, is for the parties to define the process themselves. Evaluative mediation is defined by more directiveness, geared more toward settlement of an issue (Love & Stulberg, 2007, p. 70). Evaluative mediators may be “experts” in their field and their goal is to help find agreement by providing direction ( Frenkel & Stark, 2008, p.74). It may not be the best choice in a family business situation as it does not necessarily address the deep emotional side of these types of conflicts and may not lead to a lasting peace.

Facilitative mediation has goals of finding a solution to a problem, facilitating “collaborative, integrative problem solving…it can produce creative win-win outcomes that reach beyond formal rights to solve problems and satisfy parties’ needs in a particular situation or, alternatively, remedy parties’ difficulties” (Bush and Folger, 2005, p. 10). It is also referred to as “mediation through understanding…understanding what is important to each other is [the] goal, both emotionally and intellectually” (Class slides). However, Friedman and Himmelstein offer the following comment, “Underlying many conflicts is a deeper level of meaning that is not touched or examined in most conflicts. And while it might not be necessary for the resolution of the problem, this deeper understanding offers an opportunity that, if made explicit and discussed, can change the parties relationship and elicit a range of possible outcomes” (Friedman & Himmelstein, 2008, p. 118). A facilitative process may be more useful when the mediation process is employed early, before a conflict escalates, or when emotional issues have been addressed previously and the disputants have somewhat resolved them and have moved on. However, if this has not happened, going back to what Prince said about family business disputes not being just about the business disagreement, but are often about underlying family issues, a strategy for dealing with these disputes may be a multi-level strategy flexible enough to address these underlying family issues first, in order to move onto the business disagreement, thereby helping to create a sustainable peace.

Transformative mediation offers the possibility of “transformation of the participants…transformative mediators see the people and their limited abilities or perspectives in dealing with conflict as the main problem to be solved” (Friedman & Himmelstein, 2008, pp. 69-70). It may not be able to address all of the psychological components of the complicated relationships within a family, other professionals may need to play a role in that process. But it may provide a path to resolution that enables a business to continue to operate effectively and efficiently for the family’s benefit. Haynes and Usdin believe that when family members are in conflict, personal feelings impact their capacity to communicate and resolve conflict (Haynes & Usdin, 1997, p. 115). Transformative mediation is not necessarily about the solution, but the solution potentially coming out of the process (Frenkel and Stark, 2008, p. 70).

Bush and Folger refer to transformative mediation having two dimensions: empowerment and recognition. Empowerment refers to the parties gaining clarity about what they want and need and recognition refers to the parties gaining an empathetic perspective of the other side. “It is in this sense that mediation is potentially transformative: It offers individuals the opportunity to strengthen and integrate their capacities for self-determination and responsiveness to others” (Bush & Folger, 1996, p. 269). If effective, it has the potential to change the communication dynamic within a unique family culture.

One of the hallmarks of transformative mediation discussed by Bush and Folger is “taking an optimistic view of the parties’ competence and motives.” They discuss transformative mediators assuming competence and decency of the parties and allowing the parties to work through their concerns to their satisfaction (Bush & Folger, 1996, p. 270). This is important when we consider the emotional component of the complex family business dispute. Another hallmark of transformative mediation is allowing and being responsive to parties’ expression of emotions (Bush & Folger, 1996, p. 271). Transformative mediation uses the expression of emotions “not to eliminate or re-channel them or to delve into their sources but rather to uncover what lies behind so as to enhance empowerment or recognition” (Bush & Folger, 1996, p. 271). Through this venting of emotions, a party can gain a deeper understanding of what everyone is feeling, where these emotions are coming from, and to describe what caused them, and may aid in reestablishing trust.

Family relationships have long, deep, emotional histories. When conflict arises, trust is often the “first casualty;” as conflicts escalate trust decreases and distrust increases (Deutsch, et al, 2006, p.111). This distrust can impact the parties’ ability to act cooperatively together in order to work through conflict. Distrust is defined as a “tendency to attribute sinister intentions to other” (Deutsch, et al, 2006, p. 97). Positive emotions can help build trust, while negative emotions can decrease trust (Deutsch, et al, 2006, p. 104). The hallmark of being responsive to parties’ emotional expression may also be transformative in that it may enable participants to effectively reframe another’s intent in a more positive light, and may cause them to feel more positively about a party in the conflict situation. In this way, the transformative moment experienced through honoring this hallmark may aid in rebuilding some trust lost, trust being an important element of positive family working relationships

The creation in mediation of a safe space where emotions can be expressed can help move the process of conflict resolution along. Emotions are the clues that help us understand the real concern of a party. Fisher and Shapiro discuss five core concerns that offer a framework for dealing with emotions: appreciation, affilitation, autonomy, status and role. They argue that when these five core concerns are addressed fairly, honestly, and consistently they can be used to gain insight into an “emotional experience” and to help “stimulate positive emotions” (Fisher and Shapiro, 2005, pp. 11-19). Mediation also sets up a safe place for venting, while encouraging reflection. It helps us identify emotional experiences and helps us “see things differently” (Jones and Bodtker, 2001, pp. 218-227). Emotional venting, being heard, and the resulting “felt experience” of being heard, combined with reconsidering an old perspective seems necessary in family business mediation, where future relationships are important to the ongoing family and business (Jones and Bodtker, 2001, pp.227). The power of understanding another’s perspective and the hope that it can change one’s own perspective is expressed in a quote from Longfellow, “If we could read the secret history of our enemies, we would find in each life a sorrow and suffering enough to disarm all of our hostility” (Johnson, et al, 2003, p. 12).

Another hallmark of transformative mediation is “being responsive to parties’ statements about the past…to mine the past for its value to the present” (Bush & Folger, 1996, p. 273). Discussing the past can enable the parties to understand a different viewpoint; perhaps to look at a past event in a different light given the passage of time and to reconsider their initial reaction or assessment about the event and the individual. This may be extremely helpful in getting to the root causes of family business disputes, and in changing the conversation towards a more positive and productive tone.

Another hallmark suggests “viewing an intervention as one point in a larger sequence of conflict interaction” (Bush & Folger, 1996, p. 274). If we view this as true, one can see the value in employing this type of transformative strategy to a family business conflict. It is a foundation, a stop on the continuum of conflict-hopefully one where empowerment and recognition are found for the parties, and skills are developed that enable the parties to successfully deal with whatever comes their way.

There is never a one size fits all solution to a complex problem, no black and white, only shades of gray. Harvey and Evans state “the combination of conflict in the business organization and the family unit compounds the effect of conflict. This combination of conflict levels also necessitaties conflict resolution methods that are more complex and aimed at the different sources of conflict” (Harvey & Evans, 1994, p. 334). Developing a strategy to help resolve complex conflicts involving family members needs to evolve as the issues unfold.

As discussed above, transformative mediation is a good choice for the first part of the family business conflict resolution strategy. Listening to positions, then getting to the underlying interests, using feelings as emotional cues, emotional venting and the power of being heard, employing strategies that promote empowerment and recognition can facilitate the resolution of the “family part” of the conflict. It is essential to dive under the surface to see what lies below, and transformative mediation is the best strategy to attack that underlying layer of a conflict, find out what it is really about, and help parties move forward in their relationship while hopefully leaving parties with a new set of tools to resolve future conflicts. Once the underlying family issues are addressed, the business issues can be addressed using a flexible strategy that may employ a more directive facilitative mediation strategy, a strategy of integrative negotiation, or for some issues, an economic-rational driven strategy that looks more like a distributive negotiation.

Prince offers that mediation of family business conflicts is better for the business, that it is less destructive. He goes on to say, “Mediation works to bring the family together and often strengthens the business” (Prince, 1990, p. 209). Early intervention in a conflict, improving communication and communication skills, honoring self-determination, providing a road map for expressing emotion and feeling all honor an help preserve these important family “biogenetic” bonds (Haynes & Usdin, 1997, p.115). These skills are not only useful for the family aspect, but the benefits can be translated into better interactions with all members of a business organism, which can only enhance organizational effectiveness. Mediation offers the best course of action in dealing with the underlying conflict in family business conflict. Building a resolution model that incorporates a transformative mediation strategy and is flexible enough to employ other resolution strategies and evolve as levels of conflict are addressed is necessary in building a sustainable resolution.

Bibliography
Bush, R.A.B. and Folger, J.P. (2005). The mediation field: An overview and four stories. In The promis of mediation: The transformative approach to conflict. San Francisco: Jossey-Bass.

Bush, R.A.B. and Folger, J.P. Transformative mediation and third-party intervention. In Mediation Quarterly, Volume 13, Number 4, Summer 1996.

Deutsch, M. and Coleman, P.T., and Eric C. Marcus (Eds.) (2006). The Handbook of Conflict Resolution: Theory and Practice. San Francisco: Jossey-Bass.

Fisher, R. and Shapiro, D. (2005). Beyond reason: Using emotions as you negotiate. NewYork:Viking. Section 1: The Big Picture, pp. 3-21

Frenkel, D.N. and Stark, J.H. (2008). The role of the mediator: differing approaches, fundamental norms. In The practice of mediation: A video-integrated text. New York: Wolters Kluwer.

Gorden, G. & Nicholson, N. (2008). Family Wars: Classic Conflicts in Family Business and how to deal with them. London, England: Kogan Page Limited.

Harvey, M. & Evans, R.E. (1994). Family Business and Multiple Levels of Conflict. Family Business Review, 1994, 7, 331-348.

Haynes, John, M. & Usdin, Thomas, M. (1997). Resolving Family Business Disputes Through Mediation. Family Business Review, 1997, 10, 115-134.

Johnson, M., Levine, S. and Richard, L.R. (2003). Emotionally intelligent mediation: Four key competencies. In Bowling, D. and Hoffman, D. (Eds). Bringing Peace into the Room. San Francisco: Jossey-Bass.

Jones, T.S. and Bodtker, A. M. Mediating with heart in mind: Addressing emotion in mediation practice. In Negotiation Journal. Volume 17, Number 3, July 2001.

Liebowitz, B. (2011). The Family in Business: The Dynamics of the Family Owned Firm. New York: Business Expert Press, LLC.

Love, L. and Stulberg, J. (2007). The uses of mediation. In kupfer Schneider, A. and Honeyman, C. (Eds.). The Negotiator’s Fieldbook. Chicago: American Bar Association.

Moore, C.W. (2003). The Mediation Process: Practical Strategies for Resolving Conflict (3rded.). San Francisco: Jossey-Bass.

Prince, R.A. (1990). Family Business Mediation: A Conflict Resolution Model. Family Business Review, 1990, 3, 209-223.

Pruitt, D.G. and Kim, S.H. (2004). Social Conflict: Escalation, Stalemate, and Settlement, 3rd Edition. McGraw-Hill.

Rosenfeld, E. (2011). When Family and Business Overlap. Changing Lanes, 2011, Volume 5, Issue 1.

Sharma, P., Chrisman, J.J., & Chua, J.H. (1997). Strategic Management of the Family Business: Past Research and Future Challenges. Family Business Review, 1997, 10, 1-35.