Father and daughter walk through the office while discussing a project

June 15, 2018

How to Minimize Family Conflicts When Running a Family-Owned Businesses

Running a family business can be equal parts rewarding and challenging. The rewards often come from working together with loved ones to build a successful and profitable venture that provides a living for both family and non-family employees.

But there can also be tremendous challenges in managing a family enterprise.

Dealing with the dynamics of family relationships can be difficult enough in the home environment. When these dynamics are brought into the workplace, there is the potential for problems both in the office and at home.

The difficulties of keeping family businesses going from one generation to the next are born out in the statistics. According to the Family Business Institute, only about 12 percent of family businesses survive into the third generation.

Steps for Preventing Conflict in Family-Owned Businesses

Regardless of how hard owners try to keep business and family separate — to be both dad or mom and "the boss" at the same time, and not to bring work home at the end of the day — the lines sometimes become blurred.

Often times, conflicts stem from misunderstandings or from varying expectations from each family member. However, with proper planning those potential problems can be minimized.

Communicate Openly and Set Expectations

Whether you've been running a family business for years, or your family members are just now becoming part of the venture, set aside time for all family members who are involved in the business to meet and talk openly about the business.

One of the main topics you should consider doing as a group is defining the roles and responsibilities of each family member. Doing so will allow everyone to have a component of the business that they're responsible for managing and making successful. It will also help to prevent miscommunication of who is responsible for what or who is the decision maker for a certain topic.

Once you've defined the roles, you may also want to discuss how performance will be measured. The family members should be held to the same expectations as any other employees. A formalized performance review system will help hold all employees accountable as well as make it easier to evaluate which employee — family member or not — should receive the bonus or promotion.

If you've been working together already, this would also be a good opportunity to openly discuss what each family member believes is working well and what they think could be improved. During the conversation, you may realize it's time to update or create a strategic plan for your business that is guided by your family member's input.

Remember, discussions at these meetings should be business-focused — the time shouldn't be spent talking about family issues or problems you might be dealing with at home.

Keep "Shop Talk" to a Minimum at Home

Conversely, set some boundaries for talking about business while you're at home. It's probably unrealistic (and even undesirable) to never talk about the business in your home environment. But you might want to set some boundaries to help keep the line between business and home less blurry. For example, maybe you decide that shop talk is off limits over the weekend, during dinner or while on vacation.

Treat All Employees Fairly

Treating employees equally can be one of the biggest challenges for family business owners, who sometimes go to one extreme or the other — either giving family employees preferential treatment, or treating them more harshly than non-family employees in an effort not to show favoritism.

If non-family employees believe that family members are being treated preferentially, they will likely resent this and might even resort to looking for another job. Meanwhile, if family employees feel like they are being unfairly criticized or held to an unreasonably high standard, their morale and productivity will likely suffer — and hard feelings might carry over to the home environment as well.

In addition to creating a formalized performance review, you might also want to consider a code of conduct that all employees are expected to uphold. For example, if you don't require all employees to have their work email on their phones, you shouldn't expect that of your family members. Similarly, if all employees are expected to be at work by 9 a.m., but your family members are strolling in an hour late without consequence, this will send the wrong message to non-family employees. Outline what your expectations are for all employees and distribute it across the company in a formalized way so all are aware of the policy.

Don't be Afraid to Let Family Members Fail

Sometimes, family business owners can be overprotective of family members to the point of not ever giving them any real responsibility or decision-making authority. This is especially common with their children who are active in the business. But the most valuable business lessons often come from failure, so give your kids the freedom to fail in the business — ideally, while you are still there to help get things back on track.

Make Business Decisions Without Consideration of Family Repercussions

There are times when family business owners are faced with making decisions that are in the best interest of the company, but not necessarily in the best interests of a family employee. In these situations, you must make the right business decision, regardless of its possible impact on any single employee, including a family member. You owe this to the company and all of your other employees, both family and non-family.

Form a Non-Family Board and a Family Business Constitution

Two other suggestions are to form a non-family board of advisors and to draft a family business constitution. Members of a non-family board — which might be comprised of your attorney, banker, CPA and/or outside business associates and advisors —can offer an outside perspective that helps you see family business issues more objectively.

A family business constitution, meanwhile, will put in writing the core principles governing the family business. These may include corporate governance, family employment and compensation guidelines, policies governing the ownership of business shares among family members, and the company's mission, vision and values.

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This article is for general information and education only. It is provided as a courtesy to the clients and friends of City National Bank (City National). City National does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors or persons quoted as of the date of the article with no obligation to update or notify of inaccuracy or change. This article may not be reproduced, distributed or further published by any person without the written consent of City National. Please cite source when quoting.

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