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By Family businesses are unique entities that blend personal relationships with the challenges of running a successful enterprise. With ownership, management, and control predominantly held by family members, they play a crucial role in generating employment and driving economic growth. Studies reveal that family businesses contribute significantly to global GDP and job creation. Their resilience during economic downturns stems from a long-term perspective and strong family values that motivate them to weather tough times and adapt to market changes, contributing to overall economic stability.
Unlike large corporations, family businesses face the complexities of intertwining personal and professional dynamics. Balancing these relationships can lead to conflicts, particularly in succession planning, impacting both the family dynamics and the business’s future.
Mismanagement and lack of governance structures can further escalate issues, leading to business failures that affect employees and local communities. Additionally, the presence of significant financial wealth within family businesses may intensify friction and rivalries that threaten the foundation of the business.
Internal conflicts within family businesses extend beyond the corporate setting, affecting society at large. Media companies, for example, wield significant influence on public opinion and cultural norms. When internal disputes cloud decision-making and create toxic work environments, it can compromise the quality and credibility of the content produced. This, in turn, influences public discourse and societal values, potentially eroding trust in media institutions and impacting social cohesion.
Effectively managing conflicts within family businesses is paramount to ensuring their enduring success. To preemptively address potential conflicts, especially in family enterprises with significant financial wealth, the following strategies should be taken into consideration:
Promoting merit and competence:
To prevent conflicts based on favoritism or perceived unfair advantages, it is essential to establish merit-based structures within the family business. Emphasize the importance of competence, qualifications, and performance when making decisions about roles, responsibilities, and promotions. By creating a level playing field and rewarding merit, you encourage a culture of fairness and discourage unhealthy rivalries based on entitlement.
We see the example of meritocracy culture in the Indian multinational corporation, Wipro Limited, which is a family business founded by Azim Premji. Despite family ownership, leadership positions are filled based on competence and qualifications. Rishad Premji, Azim Premji’s son, worked his way up through various roles, demonstrating his capabilities. In 2019, Rishad was appointed as the Chairman of Wipro, succeeding his father. This transition of leadership was well-planned and based on merit, preventing any conflicts over succession within the family.
Celebrating individual competencies:
Patriarchs and matriarchs play a crucial role in shaping the family business environment. Instead of comparing family members against one another, celebrate their unique talents and competencies. Recognise and reward individual strengths, encouraging each family member to contribute in ways that align with their abilities and interests. By valuing diverse skill sets, you create an atmosphere of mutual respect and collaboration rather than fostering an environment where competition breeds conflicts.
The Mars family and Mars, Inc. exemplify celebrating individual competencies within a family business. As the company grew, family members with different strengths were given leadership roles based on their expertise. For example, Forrest Mars Jr. was responsible for international expansion, while his brother John Mars focused on finance and operations. By recognising and valuing diverse skill sets, the Mars family created an environment of mutual respect and collaboration, avoiding conflicts that could arise from direct competition among family members.
Establishing structures gefore inheritance:
Avoid the potential chaos that may arise when inheritance becomes a contentious issue by establishing proper structures well in advance. Engage the services of professionals such as lawyers, accountants, or family business consultants who specialize in succession planning and governance. These experts can provide objective guidance, help create family charters, define roles and responsibilities, and establish clear protocols for decision-making and conflict resolution. By addressing these matters proactively, you minimize the likelihood of battles arising during critical transition periods.
Ford Motor Company provides a real-life example of establishing structures before inheritance to avoid conflicts. The Ford family has a formal process in place to identify and groom potential successors from the next generation. They established a family council comprising both family members and independent directors to oversee governance and decision-making. By engaging professionals and establishing clear protocols for succession planning and governance, the Ford family minimized the potential for battles during critical transition periods.
Fostering healthy sibling relationships:
Sibling relationships can be particularly sensitive within a family business. To prevent rivalries from negatively impacting the business, encourage open communication and foster strong relationships among siblings. Encourage regular family meetings or retreats where conflicts can be addressed in a constructive manner. Develop mechanisms for conflict resolution that focus on finding common ground and shared goals. By nurturing positive sibling dynamics, you create a solid foundation for the family business to thrive.
The Estée Lauder Companies Inc. demonstrates fostering healthy sibling relationships within a family business. As the company expanded, each sibling was given distinct roles based on their interests and strengths. Regular family meetings and open communication helped address any conflicts constructively, leading to a cohesive and thriving family business.
Communication
Poor communication is often at the root of conflicts within family businesses. Misunderstandings, unexpressed expectations, and hidden agendas can sow seeds of discord. Encourage open and transparent communication among family members, ensuring that everyone is heard and understood. Establish effective channels for dialogue, both formal and informal, that encourage the sharing of ideas, concerns, and aspirations. Regularly revisit the family’s shared vision, reinforcing the values and goals that unite the business and provide a sense of purpose.
Cargill, Inc., a global food corporation, places great importance on effective communication to maintain a unified vision for the business. Regular family meetings and open forums encourage transparent discussions and shared decision-making. The family members understand the significance of clear communication in aligning their values and goals with the company’s mission, preventing misunderstandings and hidden agendas that could lead to conflicts.
Avoiding battles in the family business requires proactive measures aimed at fostering harmony, respect, and effective communication. The family must collectively desire the growth of the business, independent of its members, and must be willing to put aside personal biases for this greater good. Ultimately, it is through a shared commitment to fairness, collaboration, and open dialogue that family businesses can thrive and leave a lasting legacy for generations to come.
Ojenike is a Family Wealth Advisor with Meristem Family Office.
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