Lessons learned: plan ahead to prevent family conflict in family business

Laurie Price is a senior consultant in Baker Tilly’s family business strategy group.

I grew up in a family business. My grandfather started an automotive business on the side while he was in the military. When he retired from the military, the side business became his full-time job that supported the family. His oldest child, Doug, had a knack for cars and was well suited to continue the business legacy. Doug went on to college and earned a bachelor's degree in business. He then returned home to run the family business with the help of his two younger sisters. What started as a side hustle for my grandpa grew into a thriving auto parts distribution business with five locations across two states. This thriving business was led by my uncle, his automotive passion and his vision for the future.

Unfortunately, tragedy struck when my uncle was killed in an auto racing accident. Roles and responsibilities in the business were shuffled and redistributed in attempt to account for this great loss. The business continued under the co-leadership of my aunt and mother. Eventually, my sister and I joined the ranks, marking the third generation of family involvement.

Today, our business is no longer operating. After a downward spiral over more than a decade, quietly closing one location after another, family members and leadership were leaving one by one.

From my perspective, at the heart of the demise of my family’s business was the failure to plan for mitigation of family conflict. After my uncle’s passing, not only was there no visionary leader or vision for the business, but points of conflict were often dealt with in a manner to placate family members versus solve actual problems. Years went by and disagreements over business decisions were “swept under the rug” so to speak, in order to not upset the delicate balance of false family harmony. This “style” of conflict resolution buried underlying problems while also making it more difficult to resolve conflict in the future.

Fast forward to today, as a member of Baker Tilly’s family business strategy group, I use my experience to advise our family business clients on how to prevent family conflict before it destroys a business using three pre-emptive steps:

1. Develop a shared vision for the future

First and most critical is building family unity around a collective vision for both the business and the family’s future. Likely the beginning of the end of our business was when there was no longer a shared vision for the future. The business was operating at a status quo, and while it was still expanding for a period, a set of defined goals and shared vision for the future were absent. In its simplest form, running a business without a clearly defined vision could be considered akin to leaving on a family vacation in a loaded car with the kids and dog with no destination in mind! Eventually, conflict will ensue and prevail.

2. Define family business governance practices

Incorporating governance practices and policies is crucial, particularly those to expressly address family shareholder, family employment and family and leadership decision making responsibilities and parameters. These policies need to be developed, documented, implemented and periodically reviewed. As your family grows and changes, you need to ensure that these parameters continue to be relevant and suitable for your business. It has been our experience and observation at Baker Tilly that less than half of family businesses have governance policies in place. Had my family had a structural starting point for leadership decisions made after the death of my uncle, decisions could have been focused on the business first and not on personal agendas and ambitions.

3. Communicate openly

Maintaining open communication channels and a professional and respectful atmosphere when challenges do arise is essential. Open communication and mutual respect can be more challenging in family settings where underlying rivalries or bias may be prevalent. Nepotism and feelings of unearned privilege often breed resentment and other negative feelings, particularly across multiple generations. Encouraging open communication before conflict has a chance to fester can help parties sort out intentions and redirect issues before the conflict spirals. Sierra Nevada Brewing company, a successful, second-generation family business, takes this concept to heart. Printed on every can of Sierra Nevada beer is the motto “Family owned, operated and argued over.” This kind of open communication has made Sierra Nevada Brewing company a successful family-owned business in a very competitive market.

In the end, proactively planning is the best way to prevent the consequences of conflict in a family business. The best times to rationally consider how to approach and resolve conflict are when business is good and before tragedy strikes.

For more information on this topic, contact our family business strategy team.