Avoiding conflict in family businesses

So, what are the best ways of avoiding damaging conflict within a family business? The Head of Dispute Resolution, Solicitor Peter Livingstone, looks at the issues.

Within a family business, the long-term goal is often the same: to build up the business and to pass it on to the next generation. Normally that is fine, but difficulties may arise if the parents split up and remarry, one of them loses mental capacity, or one of the children is key to the business but the others are not.

Disputes are very expensive. Not only is there the legal bill, but inevitably there is a huge loss of management time and energy, to say nothing of the emotional trauma to those involved.

Are there any ways in which the risk of this happening can be reduced or removed?

If there is a long-term plan for the business, make sure that everyone knows what it is and supports it.

It is also very important that you put in place the documents which confirm and record what the plan is. This may be a partnership agreement. Alternatively, it may be a shareholders’ agreement if you have a limited company, and you can combine that with having a different class of shares (with a different set of rights attached) for each family member.

You should also think about what the parents’ Wills will say, and you should make sure that everyone working in the business has a proper employment contract.

If there is bad news to give to one member of the family, (such as they are not going to be involved in the business), make sure that this information is given as early as possible, so you can have a good opportunity to talk things through, and to explore the alternatives.

This is especially important where Wills are concerned. Saying in a Will what has been decided may be an easy way to approach things from the deceased's point of view since they do not have to deal with the consequences, but it is often unfair on those who are left to pick up the pieces.

If a dispute does arise, make sure that you obtain professional input as early as possible and before positions become entrenched.

A very useful way of sorting things out is through mediation, which has a good record of success. About 85% of disputes which go through mediation are resolved on the day or within a few days afterwards.

Ultimately, you may have to accept that finding a perfect solution will be impossible. If that is the case, can you identify a least-worst outcome and drive towards that.

Above all, keep talking - it is when the talking stops that many disputes begin to get out of control and start to cause real damage, so make sure that lines of communication remain open as much as you can.

For more information on our mediation services or dispute resolution services contact Peter Livingstone on 01935 846235 or email peter.livingstone@battens.co.uk