Dealing with Issues in a Family Business: What Should Be Done?

There are around 5.5 million family businesses in the country, employing more than 98 million individuals. They are responsible for creating about 80 percent of all jobs in the United States and have a solid commitment to their employees and communities. They also contribute to 57 percent of the total GDP of the country.

Despite all these positive qualities, family businesses also have their weak points. The most concerning flaw is that nearly half of these businesses collapse after the passing of their founder. The average life span of a family business is 24 years.

They also have their share of conflicts among family members. In these situations, the family members should work hard to deal with these issues and prevent them from affecting the whole business and causing it to collapse. Here are the ways family members should deal with conflicts within a family business.

Define Limitations Within the Business

Defining the limitations in a family business prevents issues from emerging, particularly matters involving favoritism and nepotism. The family needs to set boundaries when it comes to the roles and responsibilities of every member of the family involved in the business. They should also avoid talking about family issues when they are at work.

The business should prioritize skills and experience when appointing people to certain positions within the organization. The family should avoid putting a family member in charge of a department even if he is not capable of handling the responsibilities required for the position.

Instead, the business should give roles to non-family members who have the capabilities and background for the post.

Elect for Mediation in Unavoidable Conflicts

When conflicts happen in the business, the family should go through mediation whenever possible. Mediating to resolve a dispute is less costly and faster. Even though opposing parties can hire attorneys, they are not required. Aside from legal professionals, the family members can also work with psychologists and other professionals to determine underlying issues in the conflict.

The family should also take proactive measures to prevent the situation from becoming worse. Due to this, family members should communicate with each other and find a resolution to these conflicts before they flare up.

Use Legal Contracts to Establish Guidelines

Family businesses should also establish guidelines using legal contracts to prevent conflicts from happening. These contracts set the expectations and responsibilities for all positions in the business. They also indicate how the company should resolve disputes when they emerge.

Family business agreements should define the roles and stipulate the code of conduct among family members involved in the business. It should also specify the creation of an advisory board and a family council.

If the family business does not have this agreement, it should consider creating employment contracts. These contracts formalize the entry of a family member into the business. They also show the responsibilities of the family member, grounds for termination, and prohibited actions.

A buy-sell agreement is also helpful in controlling the transfer of equity when the founder steps down or becomes incapacitated. The deal allows family members to acquire the interest of the departing founder. It allows the family to ensure the business stays within the family. The agreement also facilitates the transition of the company to the next generation in the family.

A shareholder agreement ensures the protection of the rights of all shareholders of the business. It also establishes the rules that the company follows along with the shareholders’ rights and obligations. A shareholder agreement also helps resolve conflicts within the business.

A prenuptial agreement is also crucial since divorce has a considerable effect on relationships within the business. Getting reliable family lawyers allows the family to draft a prenuptial agreement that is acceptable to all parties involved. The deal can avert conflicts by separating the marital property from the assets of the business.

Regard Family Members as Co-workers

people working

To ensure fair treatment of everyone in the business, the family business should not give special treatment to anyone involved in the business. This applies to family members and non-family members. To facilitate this, the family business should treat everyone as an employee, or everyone should consider everyone else as a co-worker.

If the members of the team act like a family, they will encounter issues in the future. These issues will emerge due to personal conflicts between different members of the family.

On the other hand, when every team member treats everyone as co-workers, including non-family members, productivity will increase. It enhances collaboration within the business and allows it to grow and increase its presence in the market.

Family businesses play an essential role in the country’s economy. So, it’s necessary to resolve issues that can affect their operations and productivity.

Share this post on

The Author

Scroll to Top