Family Business Conflict and Resolutions (Part 2): The seeds of conflict in a family enterprise. Don’t pour on fertiliser!

Family Business Conflict and Resolutions (Part 2): The seeds of conflict in a family enterprise. Don’t pour on fertiliser!

A family enterprise is a set of entities and people having a common business and often a related investment or even philanthropic foundations, all owned by the one family tree. Those family enterprises in Australia may now be a first generation, or in a European or Asian context, a family dynasty. The legacy of a dynasty cannot be handed to the next generation successfully unless a family enterprise learns to deal with conflict.

The causes of conflict are elegantly explained by Davis and Tagiuri’s ‘Three Circle Model’ (1982), where the interest of each individual is inspected between their possible engagement within the roles of ownership, business and family. The model explains the overlaps of the family member (emotional) aspect and the impact of business management along with the mantle of ownership. Conflict is immediately obvious, as the needs of the business will quite often contradict family aspirations. Thus, the actual intrigue of a family enterprise is perhaps a cauldron at any point in time capable of boiling into self-destruction!

In an article in the International Family Office Journal (December 2017), Christian Stewart of Family Legacy Asia summarised ‘conflicts and the family enterprises’ within contemporary Asia as:

“First, the majority of Asian family-owned enterprises are likely to fail because of internal challenges with the key one being destructive family conflicts.

Second, the majority of family firm conflicts are actually predictable.

Third, many conflicts in family enterprises are caused by different perspectives that come from the different positions that family members occupy in the ‘Three Circle Model’.

Fourth, conflicts in family enterprises are inevitable – so if a family wants to pass on a successful business to the next generation, they need to start developing their own tools for managing conflict as early as possible.

Fifth, conflict avoidance (ie not discussing it) will do more harm to a family than facing conflicts; it is very important to have an agreed process for working through conflicts (a conflict resolution process).”

And so the seeds of conflict are sown when:

  • The business values and family values may differ
  • There are no boundaries between the issues of ‘family’ or ‘business’
  • Family members and others of course will disagree (i.e. human nature), with conflict arising from
    • Those engaged in the business vs those with no business relationship
    • The perspective of an owner vs an executive
    • The contemporary influences of each generation from their societal influences creates expectation differences.

The parenting of each generation and ‘family unit’ (e.g. the influence of a spouse) also creates tensions and can lead to jealousy. The desired business directions of some may differ from the aspirations of others, whether they be family or not family within the business and conflict also results from the different focus of an individual vs their family unit.

Learning to identify conflict in a family enterprise is the first step towards resolution. The second step is in our next blog.