• Service: Enterprise, Family business
  • Type: Business and industry issue
  • Date: 10/23/2013

Managing and Resolving Conflict in the Business 

Managing and Resolving Conflict in the Business
Conflict shouldn’t be viewed by family businesses as something to avoid at all costs. The positive outcome of any well-managed conflict – or ‘creative tension’ – can be that it helps family businesses take advantage of diversity and build their competitive advantage.

Few people enjoy conflict – whether it be some form of confrontation or even just voicing disagreement – but sometimes conflict can be the catalyst that brings longstanding issues to a head, and then they’re aired and actually dealt with, hopefully to the point of being resolved.

Without creative tensions, customary ways of conducting business (e.g. outdated traditions) can remain unchallenged and the company doesn’t evolve; something that’s necessary for longevity and growth.

Companies that avoid conflict in the business

In KPMG in Australia’s 2013 Family Business Survey, nearly 600 family businesses were interviewed about various aspects of their companies. Interestingly, 40% of the respondents indicated that they had not experienced any conflict within the business over the previous 12-month period.

It may be that these respondents do in fact experience creative tensions but that the manner in which they deal with them is healthy and leads to resolutions, meaning they are not felt to be ‘conflicts’. Of the 60% who said they had indeed experienced conflicts within the past 12 months, it was discovered that two of the primary causes were differing ‘vision, goals and strategy’ and unequal ‘competence of family members’.

Exit strategy woes

One participant professed:

“We could sell out, but as the father of the CEO, I would feel guilty if I sell it from under him. The siblings (non-executive board members) are not in agreement that this youngest member of the family is really suited for the CEO role. I fear that the siblings will fire him if I choose to step down and retire.”

An often effective strategy for dealing with such tensions involves aligning emerging market opportunities with your internal capabilities – basically, you put your best people forward to get the most out of the opportunity. This can also be a good chance to ‘train up’ those who need additional guidance/experience and/or must acquire further capabilities. This highlights the two roles that a family business leader must play: a capitalist for the business, and a socialist for the family.

Decisions, decisions…

Two other primary causes of family business conflict as identified through the survey were ‘how decisions are made’ and ‘financial stress’. The primary source of conflict for larger family businesses was around decision-making processes, recognising that as firms grow, they also become increasingly complex in structure and operations, with more family and non-family members engaging in decision making.

Financial stress was rated the second most common source of conflict among smaller firms, but it wasn’t identified among the top five sources by larger firms. Also, first generation firms said they consider financial stress as paramount, while this was only ranked as seventh by those in second generation or longer firms.

These findings align with the view that as both the family and business grows; there are more resources available to operate effectively and with less attendant worries.

The challenge of generational change and growth

The last of the leading (RC) sources of conflict was ‘managing growth’. This was identified as being the primary source of conflict for medium-sized firms, presumably because these are the companies in the midst of their growth phases.

When asked what sort of mechanisms are employed in managing conflict, around 30% of the survey participants said that family gatherings are the most common forums for dealing with contentious business issues. This was followed by: board, family council, and shareholder agreement. Unsurprisingly, family meetings were shown to be more common among first generation firms, with the other mechanisms featuring more with second generation and later firms.

These findings show that second (or third, fourth, etc.) generation firms are more likely to set up less family-oriented governance mechanisms to help with the management of both the family and the business (alternatively they are implementing these mechanisms because of conflict already experienced). It might, therefore, be beneficial for first generation companies to consider adopting some of these mechanisms early on in the game to address those challenges that will inevitably arise as part of generational changes and/or growth within the business.

Bill Noye

Bill Noye
Bill is a Partner at KPMG’s Private Enterprise division. He is a Fellow of the Institute of Chartered Accountants in Australia & Chairman of Family Business Services for KPMG Australia with 25 years’ experiences advising on Family Business issues.

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