Early Warning Signs of a Family Business Dispute

A family business dispute rarely comes out of nowhere. Specifically, by the time the legal letters are flying, the warning signs have usually been visible for months or years. However, in the moment they are easy to dismiss. Often, the family puts the early signs down to personality, stress or a bad week. As a result, the underlying problem is allowed to grow until it becomes too big to ignore. Importantly, recognising the early warning signs of a family business dispute is one of the most useful things any family business owner can do. Crucially, the earlier the pattern is recognised, the easier and cheaper it is to address.

This page sets out the warning signs that most often appear before a family business dispute breaks into the open. Specifically, it covers the conversational, behavioural, financial and structural signs to watch for, and what to do when you see them.

Conversations that have stopped happening

Importantly, one of the earliest warning signs of a family business dispute is the disappearance of conversations that used to happen easily. Specifically, the family stops talking about certain topics. For example, the future of the business, the founder’s retirement, who will take over, or what should happen when the founder dies. As a result, the silence around these topics grows.

Often, the silence is rationalised. For example, the family member who raised the topic is told it is not the right time. Alternatively, the topic is put off to “next year”. Crucially, when topics that matter to everyone in the business become permanently off-limits, that is a warning sign. Notably, the issues do not go away. Instead, they accumulate.

For more on the difficult conversations family businesses avoid, see the page on the founder problem.

Conversations that have started to be tense

By contrast, another early warning sign is when conversations that used to be ordinary become tense. Specifically, board meetings that used to be brief and pragmatic now take longer. Likewise, family lunches that used to be relaxed now have a particular topic that everyone avoids. Often, certain family members stop attending events they used to attend without question.

Importantly, the tension is rarely about the topic on the table. Typically, it is about something underneath. For example, the agenda item is about the budget. However, the real argument is about who is allowed to make the decision. Crucially, the visible tension is the surface presentation of a structural issue that has not been resolved.

Requests for information that did not used to be requested

Another reliable early warning sign is when family members start asking for information that was previously taken on trust. Specifically, requests for management accounts, breakdowns of director remuneration, schedules of related-party transactions, or details of company expenditure are typical examples.

Often, the requests are framed politely. For example, “I just wanted to see the latest accounts” or “Could you let me have a copy of the directors’ loan account?” Importantly, the family member running the business may feel offended. They may interpret the request as a lack of trust. Crucially, the request itself is the warning sign. Specifically, when a family member feels the need to verify what was previously assumed, the trust that holds a family business together has begun to fracture.

For the legal framework around access to information, see the page on unfair prejudice petitions in family business disputes.

A family member starting to consult their own adviser

Importantly, one of the strongest warning signs is when a family member starts taking independent professional advice. Specifically, they may consult their own accountant rather than the family’s. They may speak to a solicitor in confidence. They may approach an independent valuer. As a result, the family business is no longer being treated as a shared concern. It is being treated as a position to be advised on separately.

Often, the independent advice is sought quietly at first. Sometimes it is not disclosed at all. Crucially, by the time the rest of the family finds out, the family member has typically reached a settled view about what they want to do. As a result, the conversation that follows is not an open one. Instead, it is a negotiation.

Decisions being taken outside the usual forums

By contrast, another warning sign appears when the usual decision-making forums stop working. Specifically, board meetings get cancelled. Family conversations get sidestepped. Decisions are taken informally, by the family member with the most power, without consultation with others.

For example, a significant contract is signed without the board’s approval. Alternatively, a senior hire is made without consulting the other working family members. Often, the family member taking the decision is acting in what they consider to be the best interests of the business. Crucially, the issue is not the decision itself. It is that the decision-making process has broken down. As a result, the trust that the process represented has also broken down.

Similarly, sometimes the warning sign is the opposite. Specifically, decisions that used to be informal start being formalised. For example, the family member running the business begins to record everything in writing, copying in lawyers. Often, this is a defensive move in anticipation of a dispute. Either way, the change in pattern is the warning sign.

Money flows that look different

Importantly, financial signs are often the most visible warning that a family business dispute is approaching. Specifically, money begins to flow differently. The directors’ loan accounts get adjusted. The dividend timing changes. The expense claims start to look different. Sometimes, family members start to draw down balances they had previously left in the business.

For example, a family member who had previously left dividends in the company suddenly takes them all out. Likewise, a director may start charging the company for items that were previously paid personally. Conversely, an in-law who used to be on the payroll is quietly removed. Crucially, none of these changes is necessarily improper. However, each represents a shift in how the family is treating the business financially. As a result, each is worth noticing.

For the underlying have and have-not dynamic, see the have and have-not pattern in family businesses.

Family members consulting each other privately

Another warning sign is when family members start meeting privately to discuss the business. Specifically, telephone calls, lunches and visits start to happen between subgroups of the family. As a result, the conversation about the business stops being a whole-family conversation. Instead, it becomes a series of separate conversations, each held with selected people.

For example, two siblings meet without the third. Likewise, the founder’s spouse meets one child without telling the others. Importantly, these meetings are sometimes innocent. By contrast, they can also be the beginning of camp formation. Crucially, when family members start to align in subgroups, the dispute is no longer a matter of competing views. It has become a matter of competing factions.

Non-family employees changing their behaviour

Importantly, non-family employees often sense a family business dispute before the family does. Specifically, they may start updating their CVs. They may take more sick leave. They may avoid the family members involved. As a result, the visible changes in non-family employee behaviour are sometimes the most accurate signal of trouble.

For example, a long-serving manager who used to be open and engaged becomes reserved. Similarly, a finance team that used to send reports on time starts missing deadlines. Often, the explanation is mundane. By contrast, in a family business it is worth asking whether the team is responding to tensions within the family that the family has not yet acknowledged. Crucially, by the time good non-family employees start leaving, the family business dispute is usually well underway.

Customers, suppliers and banks asking questions

Similarly, external parties often notice the warning signs of a family business dispute before the family does. Specifically, banks may start asking more detailed questions. Customers may request meetings with multiple family members rather than just one. Suppliers may seek written confirmation of decisions that used to be agreed on the phone.

Importantly, external parties pick up signals that the family has stopped noticing. For example, inconsistent messages from different family members. Late replies. Decisions that get reversed. Crucially, when external parties start to behave defensively towards the business, that is a sign that the family dispute has begun to affect commercial relationships. Notably, the cost of this damage often exceeds the cost of the underlying dispute.

The founder making statements about retirement that they do not follow through

Importantly, one of the most specific warning signs in a family business is the founder who repeatedly says they are about to retire but never does. Specifically, the retirement is announced. Plans are made. The next generation begins to take over. Then, at the last moment, the founder finds a reason to stay. As a result, the cycle repeats. Often, it repeats for years.

Crucially, each cycle erodes trust. Specifically, the next generation begins to believe the founder is never going to leave. Meanwhile, the founder believes the next generation is not ready. As a result, the underlying succession dispute hardens with every announcement that does not happen. For more on this dynamic, see the founder problem.

An in-law starting to take a more active role

Another warning sign is when a spouse or partner who was previously in the background starts to become more involved. Specifically, they begin to attend meetings, ask questions and offer views. Sometimes, the family member they are married to becomes noticeably more assertive at the same time.

Importantly, the in-law is rarely the underlying cause of a family business dispute. By contrast, they can be the catalyst that brings long-standing issues to the surface. Often, the in-law brings a different perspective on fairness and may have less stake in keeping the family together than the family members do. As a result, things that the family had been prepared to leave alone get raised. Crucially, the appropriate response is not to resent the in-law. Instead, it is to recognise that the issues being raised had been there all along.

The disengaged family member becoming engaged

By contrast, another warning sign is when a family member who has been disengaged from the business for years suddenly takes an interest. Specifically, they start attending meetings, asking questions, or seeking copies of accounts. Often, the trigger is a life event such as a divorce, a redundancy, a health scare, or the death of another family member.

Importantly, the disengaged family member is entitled to be engaged. Specifically, they remain a shareholder, with all the rights that brings. However, the re-engagement is often experienced by the working family members as an intrusion. Crucially, the appropriate response is to recognise that the disengaged family member’s rights have always existed. As a result, the question is not whether they are entitled to engage, but how the family will respond now that they are doing so. For more on this, see the passive shareholder and the disengaged family member.

What to do when you spot the warning signs

Importantly, recognising the warning signs of a family business dispute is only useful if it is followed by action. Specifically, there are several steps that almost always help.

• First, take the signs seriously. The temptation is to dismiss them as a passing tension. Often, that is a mistake.
• Second, talk to the family member you are worried about. Specifically, a private conversation that acknowledges the tension is almost always better than waiting for it to surface.
• Third, review the governance. For example, does the business have a current shareholders’ agreement? Is the succession plan documented? Does the family have a forum for these conversations? For practical guidance, see preventing family business disputes.
• Fourth, consider whether to bring in outside help. Specifically, a mediator or experienced family business adviser can often help the family have the conversation that the family alone cannot. For more on this, see why mediation is usually the right starting point.
• Finally, take early legal advice if the warning signs include exclusion from management, requests for information that are being refused, or financial decisions that look improper. Importantly, early advice from a direct access barrister is far cheaper than waiting for the dispute to escalate.

Why early action matters

Crucially, the cost of acting early on a family business dispute is a small fraction of the cost of acting once the dispute has escalated. Specifically, a single mediation session in the early stage may cost a few thousand pounds. By contrast, contested unfair prejudice litigation routinely costs hundreds of thousands. As a result, the same dispute resolved at the warning sign stage can be settled for less than 1% of the cost it will reach if it is allowed to develop.

Importantly, the human cost follows the same pattern. Specifically, a tense conversation addressed early can leave the family relationship intact. By contrast, the same conversation avoided for two years can leave the family permanently fractured. As a result, the warning signs on this page deserve to be taken seriously not because every one will become a dispute, but because some of them will. Crucially, the cost of acting on a false alarm is small. The cost of missing a real one is enormous.

Frequently asked questions

What is the earliest warning sign of a family business dispute?

In most cases, the earliest warning sign is conversational. Specifically, topics that the family used to discuss easily start to be avoided. Alternatively, conversations that used to be ordinary become tense. Importantly, the conversational warning signs typically appear months or years before any visible legal or financial issue. As a result, family businesses that pay attention to how the conversation is changing usually have the best chance of preventing a dispute.

Does a family member asking for information always mean a dispute is coming?

Not necessarily. Specifically, family members are entitled to information about the business they own. However, when a family member starts requesting information that was previously taken on trust, it usually signals a shift in the underlying relationship. Importantly, the appropriate response is to provide the information rather than to resist. By contrast, resisting the request reliably accelerates the dispute.

How long do the warning signs usually appear before the dispute breaks?

Typically, the warning signs appear for months or years before a family business dispute becomes a legal one. Specifically, conversations stop, trust erodes, money flows change, and decisions get taken outside the usual forums. As a result, most family business disputes that end up in court could have been resolved years earlier if the warning signs had been acted on. Importantly, the average dispute reaches court three to five years after the first warning sign was visible.

Can family business disputes be prevented after the warning signs appear?

Yes, in most cases. Specifically, once the warning signs are recognised, there is usually a window during which the dispute can be addressed through governance changes, transparency and mediation. By contrast, the window closes once legal letters have been sent and positions have hardened. Crucially, the practical advice is to act on the warning signs while the conversation is still possible. For guidance, see preventing family business disputes.

Should I take legal advice as soon as I see the warning signs?

Often, yes. Specifically, early legal advice does not commit you to litigation. By contrast, it gives you a clear picture of where you stand, what your options are, and what time-sensitive steps you may need to take. Importantly, taking early advice from a direct access barrister is often far cheaper than waiting for the dispute to escalate. As a result, even families that ultimately resolve the dispute through mediation benefit from understanding the legal context early.

Further reading on this site

• Family Business Disputes (main page)
• What Makes Family Business Disputes Different
• The Three Circles Model
• The Common Causes of Family Business Disputes
• The Founder Problem
• The Next Generation
• The Passive Shareholder
• The Have and Have-Not Pattern
• Why Mediation Is Usually the Right Starting Point
• Preventing Family Business Disputes
• Unfair Prejudice Claims and Derivative Actions

Get advice on your situation

If you can see the warning signs of a family business dispute, early specialist advice is one of the most valuable investments you can make. Specifically, I act as a direct access barrister, commercial mediator and mediation advocate in family business disputes throughout England and Wales.

Call 020 4538 0246, use the contact form, or book a call directly. In addition, my book Winning in Family Business Disputes (forthcoming) covers the warning signs and the patterns of family business disputes in detail, alongside my published works on shareholder disputes and commercial mediation. Organisations like Family Business United also publish useful guidance for family business owners.

Important disclaimer: This page is provided for general information purposes only and does not constitute legal advice. The content may not be legally accurate for your situation or at all. You must not rely on anything on this page in respect of your legal rights. Before taking or refraining from taking any legal action, you should seek advice from a qualified lawyer. I disclaim any and all liability for any loss, damage or expense howsoever caused by reliance on the contents of this page. If you would like advice on your specific situation, contact me here.