The most critical factor as to whether a family business functions effectively in the present and whether it succeeds into the future is the approach taken towards succession planning and managing family conflict.
Those who work in a family business are acutely aware of the heightened potential for conflict and what this may mean for family harmony and the business’s success, especially when the emotionally charged issue of succession planning is raised.
While every family business is as unique as every family, it’s inevitable that one day the owner will exit the business, whether it’s through sale or succession to the next generation.
Growing up as the fifth child in a family of six children, I was never interested in joining the business founded by my father. In fact, only my youngest brother wanted to take on the challenge. Through a series of events three siblings, including me, now work in the business.
My career started initially as a graduate lawyer at the law firm Freehills, where I worked on some of Australia’s biggest corporate transactions. I was the last of the brothers to join the family business and the decision to leave law took a massive ego check and level of personal development. My two brothers and I have since bought the business from my parents in 2012 and it was the best decision I ever made.
Among a large number of factors that might affect a successful transition is the willingness of the founder or existing head to hand over control of the business, the ambition and desire of the new generation to make their mark, and – where there is more than one potential successor – the competing interests of those individuals seeking to take the helm.
The biggest gift we had during the succession process was that our parents have been happy to be less hands-on in the business while maintaining a mentoring role. We value our father’s continuing involvement to share his wisdom and industry knowledge while allowing us to explore new ideas and opportunities.
Managing family relationships can be challenging at the best of times. Trying to do this in a business context and through a matrix of varying rivalries and emotions including love, pride and loyalty can be much more complicated. Introduce a new set of dynamics with spouses and in-laws and another level of challenges arise.
A key step in our succession was to have a family meeting to propose the sale with all siblings and, most importantly, all spouses. It was critical that the purchase was on market terms based on an independent valuation with no favour shown. It was important to address the distasteful topic of inheritance and how this would be managed.
There were a number of new issues to be addressed on the aftermath of our successful transition. For us, it was important that all siblings are equal in the business in terms of responsibility, work load, rewards and outcomes.
At a PwC seminar we learnt that family businesses have a unique perspective on how business should be run and the hierarchical model advocated in most MBA programs can be a major stalling factor due to the power of family dysfunction.
We manage conflict by addressing it with total honesty and questioning ourselves whether a disagreement is worth creating a conflict. Where a stalemate arises we have an agreed deadlock mechanism, which turns to our father.
You must also operate in a mindset that recognises the value offered by your family in the business and never allow your ego or greed to take hold.
Ten tips for managing conflict and planning succession
No one set of rules can apply to all family businesses. However, here are some lessons we have found useful:
1. Always be honest about everything.
2. Don’t let issues fester. A big issue is a small issue that has been left unaddressed.
3. Implement a deadlock mechanism so your business is never without direction and abide by it.
4. The spouses are key stakeholders and are as important as the members of the business. Do not neglect their thoughts or feelings.
5. Address the distasteful topics, such as inheritance, as these are the things most likely to become an issue after the passing of the business founder.
6. Strive for equality between the siblings: equal work, equal outcomes, equal responsibility.
7. Check your ego and recognise the value all family members offer rather than focusing on your own contribution.
8. Separate work life and family life and do not mix the two.
9. A family business will be richer for having family members who have experienced work and life outside the business.
10. Greed is the start of the end of the business.