“Family businesses are the backbone of the private sector in Ireland with approximately 75pc of Irish-owned businesses being family owned.
Yet the unwillingness of family business owners to effectively plan succession is one of the main reasons that many family businesses fail to survive to the second generation with even fewer business surviving to the third generation and beyond”.
It goes without saying that in every business where there is growth and expansion, there must be changes to accommodate that expansion. And family businesses are no different in that regard.
However, where they do differ from non-family-owned businesses is that the decision-making progress tends to be laden with emotion and in family businesses, if there is a difference of opinion as to how the company should adapt to change, this can have emotional as well as economic consequences and can lead to cracks in relationships.
Here are a few tips as to how to reduce the potential for conflict in a family business.
1. Have a Family Business Constitution
This provides a solid framework that is open and transparent in as much as it can be by setting out the ground rules and providing guidance as to what should happen in the event of certain occurrences arising.
Take for example, a business that is founded by a father and/or mother and now three siblings have come into the business. If the parent(s) decide to retire, what happens next?
Are the siblings clear on what will happen then? Are their roles and functions clearly defined? Who has the authority to do what?
Blurred lines as to roles and authority can be a source of great difficulty and can lead to conflict.
This is only a very small example, as it is often the case that family businesses are far more complex than just direct descendants. There may be in-laws, cousins, close family ties and other persons working within an organisation also.
But it is with this in mind, that a family constitution is a worthwhile asset to help reduce uncertainty and conflict.
2. Don’t Be Afraid to Get External Advice
When the reins are being passed from one family member to another this can be a difficult transition for not only the family members but also other employees.
It can be helpful to bring in external advisors to give their perspective and to assist the transition.
Whether it be legal, financial, or otherwise, it is not a bad idea to get some advice other than your own.
For example, an external mediator could facilitate conversation between the heads of the business, and this can reduce potential flashpoints.
Seeking external help is not a weakness. On the contrary it demonstrates a strength in taking a sensible approach to introducing change.
3. Talk About Succession
Confusion and supposition arise when people are unclear about the future of the business. This is particularly the case when it comes to family business. Therefore, it is imperative to begin this discussion and have it over a period of time so as to create clarity and certainty.
When people are clear about what is happening and what their roles are in these events, it is less likely that conflict will occur.
Another point to consider is that by speaking about succession it helps bring to the surface any points of issue that might arise in the future.
The sooner in the process that a family begins a conversation and any problems that raise their head are dealt with, the smoother the transition.
Giving time to raising and discussing topics is a far better decision than sweeping issues under the carpet in the hope that they will disappear and is not advisable.
The moral of the story is: If there is a problem, don’t ignore it – act on it.
4. Pay Attention to Inheritance Law Implications
It is important to be aware of any implications of inheritance law. These laws can and do change and therefore it is important to know what consequences any form of inheritance carries on to the next generation.
For example: Are there financial implications in transferring shares from one family member to another? Are there legal matters to be considered? Are there tax implications to the transaction?
While it might seem obvious to state, forearmed is forewarned and leads to a better decision-making process.
5. Keep the Business Unique
What makes family businesses unique is that they are family businesses. However, the very same fact can also be the cause of conflict. If decisions need to be made, emotions can run high, problems become personal, and it is very difficult to remain impartial.
The avoidance of making decisions necessary to the survival of the business because it will upset family members or shift the status quo are common occurrences that mediators encounter.
A good way to deal with these issues is to talk about them in advance – using hypothetical questions.
This is a good method of reality testing choices.
For example: What happens if the company moves in a particular direction? What changes need to be made for change to happen? What challenges would the company face for change to happen?
Using hypothetical questions gives businesses the opportunity to look at the situation more impartially and to pre-test any suggestions in planning for the future.
It is also important not to forget or eliminate the family aspect to a family business. The questions simply serve to examine the current business, and probe whether any underlying family-related considerations need to be addressed to maintain family harmony in planning succession.
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“Family businesses are the backbone of the private sector in Ireland with approximately 75pc of Irish-owned businesses being family owned.
Yet the unwillingness of family business owners to effectively plan succession is one of the main reasons that many family businesses fail to survive to the second generation with even fewer business surviving to the third generation and beyond”.
It goes without saying that in every business where there is growth and expansion, there must be changes to accommodate that expansion. And family businesses are no different in that regard.
However, where they do differ from non-family-owned businesses is that the decision-making progress tends to be laden with emotion and in family businesses, if there is a difference of opinion as to how the company should adapt to change, this can have emotional as well as economic consequences and can lead to cracks in relationships.
Here are a few tips as to how to reduce the potential for conflict in a family business.
1. Have a Family Business Constitution
This provides a solid framework that is open and transparent in as much as it can be by setting out the ground rules and providing guidance as to what should happen in the event of certain occurrences arising.
Take for example, a business that is founded by a father and/or mother and now three siblings have come into the business. If the parent(s) decide to retire, what happens next?
Are the siblings clear on what will happen then? Are their roles and functions clearly defined? Who has the authority to do what?
Blurred lines as to roles and authority can be a source of great difficulty and can lead to conflict.
This is only a very small example, as it is often the case that family businesses are far more complex than just direct descendants. There may be in-laws, cousins, close family ties and other persons working within an organisation also.
But it is with this in mind, that a family constitution is a worthwhile asset to help reduce uncertainty and conflict.
2. Don’t Be Afraid to Get External Advice
When the reins are being passed from one family member to another this can be a difficult transition for not only the family members but also other employees.
It can be helpful to bring in external advisors to give their perspective and to assist the transition.
Whether it be legal, financial, or otherwise, it is not a bad idea to get some advice other than your own.
For example, an external mediator could facilitate conversation between the heads of the business, and this can reduce potential flashpoints.
Seeking external help is not a weakness. On the contrary it demonstrates a strength in taking a sensible approach to introducing change.
3. Talk About Succession
Confusion and supposition arise when people are unclear about the future of the business. This is particularly the case when it comes to family business. Therefore, it is imperative to begin this discussion and have it over a period of time so as to create clarity and certainty.
When people are clear about what is happening and what their roles are in these events, it is less likely that conflict will occur.
Another point to consider is that by speaking about succession it helps bring to the surface any points of issue that might arise in the future.
The sooner in the process that a family begins a conversation and any problems that raise their head are dealt with, the smoother the transition.
Giving time to raising and discussing topics is a far better decision than sweeping issues under the carpet in the hope that they will disappear and is not advisable.
The moral of the story is: If there is a problem, don’t ignore it – act on it.
4. Pay Attention to Inheritance Law Implications
It is important to be aware of any implications of inheritance law. These laws can and do change and therefore it is important to know what consequences any form of inheritance carries on to the next generation.
For example: Are there financial implications in transferring shares from one family member to another? Are there legal matters to be considered? Are there tax implications to the transaction?
While it might seem obvious to state, forearmed is forewarned and leads to a better decision-making process.
5. Keep the Business Unique
What makes family businesses unique is that they are family businesses. However, the very same fact can also be the cause of conflict. If decisions need to be made, emotions can run high, problems become personal, and it is very difficult to remain impartial.
The avoidance of making decisions necessary to the survival of the business because it will upset family members or shift the status quo are common occurrences that mediators encounter.
A good way to deal with these issues is to talk about them in advance – using hypothetical questions.
This is a good method of reality testing choices.
For example: What happens if the company moves in a particular direction? What changes need to be made for change to happen? What challenges would the company face for change to happen?
Using hypothetical questions gives businesses the opportunity to look at the situation more impartially and to pre-test any suggestions in planning for the future.
It is also important not to forget or eliminate the family aspect to a family business. The questions simply serve to examine the current business, and probe whether any underlying family-related considerations need to be addressed to maintain family harmony in planning succession.
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