Differences of opinion between board members of a family business can be difficult with a social dynamic not seen in other businesses. Experienced advisors can help avoid disagreements or deal with those that do arise more quickly and cheaply than dragging cases through the courts.
Much like families themselves disputes within family businesses come in many forms. Yet, there are some common themes like a disparity between the contribution to/influence over the company and the size or value of individuals’ shareholding or succession issues.
A dynastic business or a first generation one started by parents may directly involve only one of their children, while siblings do other things. When the parents retire, who should then run/inherit the business and how do you get value to those children not involved in the business?
In larger family owned businesses, external management may be involved and can become frustrated when family issues get in the way of good business sense. Family break ups like divorce can add another dimension to the issues faced by a family business, particularly when you do not wish non-family members to get a share of a business that has been in the family for decades.
Planning is key. “Smart businesses with good advisors will look to address issues before they arise by drawing up a shareholder’s agreement or family charter to set out each shareholder’s rights and entitlements,” says Chris Potts, partner, Dispute Resolution at Blake Morgan.
The less formal family charter is a document drawn up by all interested parties (including non-shareholder family members) to specify decision-making mechanisms in the business, how shares will pass on succession, and hopes and plans for the future.
Where a business does not have the undoubted benefit of a shareholders agreement or family charter, the parties should still look to resolve the disputes without going to Court. “Going to court can be an expensive business with no guarantee of success,” says Potts. “Moreover, a public fight between shareholders is almost never in the best interests of the business or the family.”
A good solution is to use a trusted family friend or advisor to help the family work through the issues, or a trained mediator, who will seek to identify common ground for settlement. Alternatively, if the parties agree, there can be a determination by an independent expert (possibly a lawyer or an accountant) appointed to resolve the matter, whose decision is binding on the parties.
Families are made up of individuals with individual needs and goals, and the trick is to align those with the needs and goals of a successful business.