8 Common Sources of Family Business Conflicts
Conflicts may feel uncomfortable but are inevitable in any business, including family businesses. Avoiding conflicts can be a grave mistake as meaningful conflicts can propel the business forward. Understanding common sources of family business conflicts can help you better prepare for potential challenges in the road ahead. This article lists 8 common sources of family business conflicts.
1. Ownership
Ownership distribution can be a difficult decision. Conflicts can arise when differentiating shares are allocated to family members who play a more active role in building the company value versus those who are less involved.
2. Hiring Family Members
There may be pressure to hire other family members (for example, in-laws) to join the family business. This can be a source of conflict especially if they do not have the training required to do the job.
3. Informal Roles, Responsibilities and Accountabilities
A laid back culture can be positive for many businesses; however, unclear roles, responsibilities and accountabilities in a family business can lead to conflicts. Common conflicts include unequal distribution of work, who is accountable if work is not done, who should be consulted or informed about a decision, and who gets the final say in a decision-making process.
4. Setting of Remuneration Levels
Compensation disputes, whether among family members or non-family employees on salaries, bonuses, commissions and paid time off can arise.
5. Future Business Direction
A family member’s differing views for the future business direction can influence his or her performance and dedication. It can also lead to independent decision-making as he or she is not on the same page. Both of which can lead to conflicts.
6. Exiting as a Family Shareholder
Conflicts can arise if a family member shareholder wishes to sell some shares in the family business to reduce their stake or ultimately exit from ownership completely.
7. Future Leaders, Business Succession and Estate Plan
Lack of clarity on the plan for future leaders and business succession as well as clarity on the estate plan can raise anxiety among family members and lead to rivalries and politics.
8. Allocation or Reinvestment of Profits and Building Family Wealth
Allocating profits to pay family members or reinvesting profits for business growth can stir conflict. Additionally, some family business members may wish to build family wealth that is not directly tied up in the business.
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This content is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this content should consult with his or her financial partner or advisor.