Employee conflict and strained relationships are unavoidable in any business but the majority of non-family businesses have policies in place to govern behaviour when disagreements occur.
Family businesses, on the other hand, operate under unique circumstances. Managerial decisions are often made based on responsibilities toward relatives in the business, meaning once an unpleasant situation arises, it may be difficult to resolve. Conflicts can quickly escalate, with disastrous consequences for both the business and the family.
According to recent research conducted by Grant Thornton, Family Business Australia, and Family Business New Zealand (FBANZ), 83 per cent of all Australian family businesses encountered some form of conflict during the last 12 months.
Balancing the needs of the family with the needs of the business was found to be the most common source of conflict in the 2021 Family Business Survey, which was experienced by one-third of family-owned businesses.
The establishment of future business goals and strategies was the second major source of contention among family businesses.
“The primary challenges remain to navigate the transition of the business to the next generation, and managing tension and conflict – the reasons for which change with the generations,” said Greg Griffith, CEO Family Business Australia and Family Business New Zealand.
Other conflicts that were high on the list include business survival (16 per cent), remuneration of family members (15 per cent), and competence of family members working in the business (15 per cent).
Surprisingly – and despite what popular culture portrays – sibling rivalry was ranked the lowest as a source of conflict at only 5 per cent — consistent with the Family Business Survey findings from previous years.
Keeping it within the family
According to Family Business Australia and Family Business New Zealand, 70 per cent of businesses in Australia and New Zealand are family-owned and operated, employing half of the workforce.
A total of 57 per cent of family businesses intend to change leadership within the next four years. Plans to shift leadership have slowed significantly since 2018 when 72 per cent expected to transition leadership within four years.
The report found that those who want to transition in such a short amount of time should preferably have identified one or more potential successors long before the immediate 12 month period before the transition.
The importance of good governance
Strong governance and well-defined procedures for running your business are just as critical for family-owned businesses as they are for publicly traded companies. The report found that just 15 per cent of respondents had a formal conflict resolution procedure in place.
Disagreement may be a destabilising force in family businesses in ways that are different to other ownership structures– and it is not uncommon for conflict to affect relationships outside of the corporate setting.
The report found that the origins of tension and conflict in first-generation businesses are similar to those felt in every start-up business — survival, financial stress, strategy development, and balancing work and family life.
Role of a facilitator
Kirsten Taylor-Martin, Partner Private Business, Tax & Advisory at Grant Thornton said that an independent facilitator can help to establish the structures and forums to address conflict, but more importantly, an independent facilitator allows families to have open and honest conversations about the direction of the business, thereby preventing conflict and a negative impact on profits.
“As family member communication style is an issue for a quarter of all Australian family businesses, the introduction of independent facilitation eliminates this concern as each member of the family is heard and understood.
“In addition, professional management can provide expert guidance on succession planning, managing growth and financial stress,” she said.
According to the Survey, the average Australian Family Business turns over $22 million in annual revenue and employs over 60 people.
The industry’s peak body, Family Business Australia, has found the family business sector is worth approximately A$4.3 trillion, family businesses account for 70 per cent of all businesses, and they employ around half of the country’s workforce.
Fortunately, just 17 per cent of family companies had little or no dispute in the previous year, which is encouraging given the constraints imposed by the Covid-19 pandemic. The report said that investing in strong governance is a call to action for all family businesses, especially in these difficult times.
“Seek outside guidance, put in place systems to bring the family together, and prepare your prospective successor well in advance, even if you are not planning to leave your business in the near future,” recommended Ms Taylor-Martin.
“It all boils down to creating a stronger, more robust business that has the highest chance of being successfully passed down to the next generation.”
Learn more about the Family Business Survey here