CHAPTER 3 – CONFLICTS & SOLUTION
with another.
Introduction
 Each of us has probably disagreed with our
respective friends, colleagues or family
members on a variety of issues whether big or
small.
 Family business are not immune from
disagreements or controversies among its
participants.
 Some may productive and beneficial to the
business; others may be counterproductive &
destroy the family business and the family itself.
Helping Families In Conflicts
• The most difficult aspect when one works in the
family business is their resilience in facing high
levels of conflict among family members in the
family business.
• This chapter describes some of the types of
conflicts and the roles each counsel plays in
resolving the conflict; and the tools used to deal
with any conflict.
The Unique Nature Of Disagreement In Family
Business
• First, the generation that has blood relation is
likely to be a victim to a conflict that threatens
the viability of a business.
• Another risk that comes with it is the risk to
family members surviving from the family
business. They will lose their resources to
support their families.
• Second, unlike other businesses that can sell
their shares to the public. Shares in the family
business may be difficult or impossible to sell to
third parties for a number of reasons such as an
agreement that prevents them from doing so or
it is possible that the third party is not
interested in owning a minority of shares in the
family business.
• Third, conflicts between unresolved family
members can result in broken relationships
within the family and ultimately the founders
are also not motivated to run the business.
The Importance of Conflict
• Individuals will feel uneasy if conflict arises
within an organization.
• Conflicts can divide one person's relationship
• However, conflict is a part of the need for
human relationships.
• It is impossible for two individuals to spend
time together without causing any
dissatisfaction between them, especially in
terms of opinions, thoughts and so on.
• Therefore, the most important step in resolving
problems in constructive conflict is to
understand that conflict is inevitable and that it
is actually necessary to achieve a healthy and
complete process of communication.
• Undeniably, innovation and customization are
rare without conflict.
• Illustration 1: Elephant Anatomy
• Six blind people touch an elephant but each one
touches a different body. So each of them has a
different view or perception of the elephant.
However, when each individual is able to share
the same information, it ultimately provides an
opportunity for a more complete and clear
picture of the subject and object being
discussed.
Sources of conflict in Family Business
• Perhaps, the most important prerequisite for
resolving conflict is to recognize the causes of
conflicts that can be caused by virtually
unlimited of events.
• Although there are virtually unlimited number
of sources out of which a dispute or conflict
may arise, the 4 particular issues seems to
cause the interfamily problems are:
1. Disagreements as to appropriate business
strategy
2. Disagreements to the relative skills and talents
of family members and their relative
entitlements to compensation, responsibility,
advancement opportunities & etc.
3. Lack of open and honest communication
4. A failure to respect each family member’s
contribution to the biz
Disagreements As To Appropriate Business Strategy
 • Example: Should the business expand into new
product line/make an acquisition; Should the
business increase its advertising budget; Should
the business hire additional personnel.
Disagreements to the relative skills and talents of
family members and their relative entitlements to
compensation, responsibility, advancement
opportunities & etc
• In most family businesses, employees working
in the business are not selected for their
qualifications, abilities and talents, but rather
for their status among family members.
• It is this choice that allows for
misunderstandings and conflicts in the family
business.
Lack Of Open And Honest Communication
 For example, when a leader in the family
business criticizes the performance of his
nephew, then the person's mother may be in a
bad mood or refuse to speak with the leader.
A failure to respect each family member’s contribution
to the business
• In extended family business, some cousins may
feel their contributions are invaluable.
• These feelings are difficult to hide and can
cause problems.
Typical Family Business Conflicts
1. Employment and Exit Policies
 It does not provide an 'employment' policy
stating that girls and boys can work in the
family business.
 It does not create rules of entry that allow
families and business managers to make
rational and fair decisions in line with their
business practices and healthy family
functioning.
 The role of a consultant is to ask questions such
as' who would you rather have in position-
someone who is trained, has excellent
experience and can generate income for the
business or someone who feels he or she
deserves a job as family member but is not
expert in the role and may cost the company? '
 A similar technique is empathy training. That is,
by asking owners to account for the effects of
unqualified family hiring practices compared to
dedicated employees who have worked for
several years in the family
2. Exit policies
 Some of the issues that arise are:
 When there are family members who are not
working hard enough and feel left out.
 When a family member wants to leave the
company because they feel responsible (or
believe that he or she has no skills to work
elsewhere or wants the salary they have
received).
 When there are family members who are older
but still refuse to retire
3. Role Definition
 Who better to play the role of successor?
 Who has the potential to be a leader and
mature to run a successful business.
 Clarity of role often causes problems (meaning
only family members bear more workload)
4. Control issue
 Control is often one of the sources of conflict in
the family business.
 Who has the power to make decisions, who
controls business resources, who has the right
to resolve conflicts etc.
 The old tradition of 'primogeniture'
 The issue of control occurs due to a lack of trust
between family members.
 Having control or authority means respect,
accountability and autonomy.
5. Salary policies
 The issue of who gets what?
 Justice, greed, rights are a major issue.
 Issues in terms of compensation, perks, use of
company assets, ownership and dividends.
 Family domain-everyone should be treated
equally.
 Business domain- salary based on performance.
6. Recognition
 A business’s core values.
 Recognition in terms of praise, financial reward,
promotion, opportunity (travel, position on the
board, additional training), handshake or hug.
  In family business, doing the hard work or being
the favorite are the ways children seek
recognition or approval from their parents.
Advisor’s Role In Conflict Situations
• Advisors must understand their own feelings
about and experiences with conflicts.
• Difficult for them to help the client if they feel
uncomfortable with the conflicts arise.
• Psychologists use the term
‘countertransference’ to describe when a
professional projects his or her own feelings or
expectations onto a client.
• Advisors responsibility is to provide the most
objective assistance and not allow their
attitudes to affect the client.
• It is appropriate to limit one’s involvement in a
situation in which one feels unable to maintain
one’s own boundaries.
 Where and When to Intervene
• There are multiple interventions available to
help a family & business resolve concurrent
problems.
• The sequence of these interventions may vary
depending on the personal & business dynamics
at any given point.
• There are many different roles & paths an
advisor can take in dealing with conflict.
 A useful model is the ‘public health’.
• It specifies primary, secondary and tertiary
prevention.
• Primary prevention- refers to preventing a
disease / conflict from occurring.
• Secondary prevention- refers to the early
detection and intervention of a conflict, which is
to avoid serious and serious conflict by stopping
it immediately.
• Tertiary prevention- refers to the treatment of
problems / conflicts that occur with attempts to
avoid larger problems / conflicts.
• The three levels in this model can be used to
address conflicts in the family business.
• Primary prevention
• Educating the clients about the challenges in
the family business systems & help them with
the tools to prevent unnecessary conflict;
-setting up one systems to assure fair
consideration to all parties & a healthy
approach to resolve the expected conflict.
Tools-family forums, rules of entrance,
compensation policies, training on conflict
resolution and so forth.
• Secondary Prevention
• When communication begins to deteriorate,
you can devise interventions to address
immediate issue & identify and resolve the
problem in the system (individual) that
contribute to the communication breakdown.
• Tertiary Prevention
• When conflict has already caused serious
dysfunction, distrust among members, possible
destruction of the business, advisor’s must help
the clients by looking at the options; amicably
separating their interests, selling the business
or halting the destructive paths.
• As an advisors, you can’t expect to prevent all
conflict, you can work to prevent destructive,
and unproductive conflict. As you look for
opportunities to prevent, intervene early.
Strategies For Constructive Resolution Of Conflict
Establish a safe environment
• Safe environment where individuals feel
comfortable & open when bringing up
conflicting or controversial perspectives.
• Leader in safe env invites participation & offers
a model of openness- others and own
perspectives.
• Individuals become willing to participate openly
as they realized they will be supported rather
than criticized.
• Way to establish a safe env for constructive
conflict is to establish and enforce ground rules.
• To keep e/one focused on the issues, use a flip
chart.
 • Advisor write the issue at the top of the page &
create 4 columns: options, pros, cons, &
remedies.
• First, advisor describes the issues or decisions
to be made by asking participants to suggest &
agree upon them.
• Next, advisors lists the range of options
presented, encouraging brainstorming.
• Next, the pros & cons of each option are listed
& remedies for the cons are named.
A Systematic Conflict-Resolution Approach
1. Identify the issue or issues-often overlooked.
 People assume that everyone understands the
issue.
2. Determine each party motivation in addressing the
issue.
 What do individuals perceive as the result of
not resolving an issue? To discuss the need for
all parties to commit making some changes.
3. Outline the positions & options suggested by all.
 Interview each individual to identify issues &
positions. Interview can decrease defensiveness
and increase openness to dialogue as well as
identify points of commonality such as goals,
values, assumptions and etc.
4. List the characteristics of an ideal outcome.
 Ideal outcome would address each party’s neds.
What are the criteria for a good decision?
5. Consider a list of options.
 Consider the pros & cons of all options. Check
whether each will achieve the desired outcome
shared by all.
6. Select the best option.
 Helping the family select the best option. Ask
them to talk about what things would be like if
the problem were solved. Push fam members to
propose.
7. Give an opportunity to reflect.
 Allow time to reflect on the choices made. Ask
e/one to ‘sleep on it’
8. Monitor implementation.
 Advisor should monitor the implementation of
the solution by asking fam to evaluate both:
 How the solution is working
 How they feel about the entire conflict-
resolution process
Initiate a Dialogue
• According to Edgar Schein (1987) - there are
assumptions made that are incompatible with
actual intentions.
• Most conflicts arise as a result of mistakes
made.
• Then a dialog is needed to resolve the conflict.
• The dialogue begins with an open exploration of
any assumptions that arise from the conclusion.
“Listening to listener”
• Then question the assumptions made and prove
whether they are valid. Advisor role to review
assumptions + ve or -ve.
Mechanisms For Resolving Disputes
• Basically there are 2 paths co-owners can follow
to resolve their disputes.
• First- They can agree on a mechanism or
procedure in advance to resolve the dispute at
any time - prior to commencement of business
operations through the time when an actual
dispute exists.
• Second – They will be able to agree on a
procedure if they have an actual dispute.
• Can be divided into 2:
1. Voluntary Resolutions
 Arbitration
 Outside Consultant
 Settlement Agreements
 Business Spin-Offs
 Buy-out of Dissenting Shareholder
 Sale of the business
2. Involuntary Resolutions
 Voluntary Dissolution
 Court-Ordered Dissolution
 Buy-Out in Lieu of Dissolution