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Succession planning, shareholders agreements, mediation and negotiation rather than litigating in Court, are often the best ways to solve these kind of situations. If course if no other option remains, litigation may be the only way to secure your position.
Adversarial problems invariably arise at family firms. Even more than in other businesses, often the issues are heavily intertwined with emotional and relationship difficulties rather than legal or even commercial ones. This means Courts, focussed purely on legal issues and binary outcomes, are often ill placed to resolve family business issues.
In family firms, the consequences of conflict can be particularly severe and unrest harder to resolve. Even where legal and factual issues have been resolved, relationship concerns may linger and may be a block to effective resolution of the conflict. The fallout on wider family relationships, family wealth, on employees and the local economy can be catastrophic.
These issues are so profound and real that and entire TV series “Succession” is based upon them. Although the series (so successful that it is in its third season) is based around a fictional large family business, the issues that it uncovers are typical of large numbers of family businesses, small and large and across any sector.
I have worked with many family businesses struggling with dispute. Having been involved in a third-generation family firm myself prior to becoming a lawyer, I am better placed than nearly all other lawyers and mediators, to understand the interpersonal dynamics and the issues that drive this kind of conflict.
I have worked with a range of family dispute scenarios including parent/children, husband/wife, children/children, parent/children/cousin, family/nonfamily board members and various others permutations. I struggle to think of any of the disputes that have not damaged the underlying businesses either directly or by distracting the parties away from the positive family drive which can mean family businesses work really constructively and have higher longevity than their nonfamily equivalents.
Sometimes the disputes are over genuine operational choices such as pursuing an opportunity or not or doing things differently. Sometimes they are driven by perceptions of one family member benefitting disproportionately or unfairly. Often corporate governance structures and documentation are non-existent or do not reflect the reality of the relationships. Sometimes these situations can persist comfortably for years or decades but unravel at times of crisis, ill health or when a key family member dies. Often, because of loose or poorly define structures there is stalemate and corporate paralysis.
Mediation can be key to enabling different generations or factions to work out a way forward. It allows a safe space for important things that needed to be said to be spoken about. It can allow for each side to be given an opportunity to understand the other’s perspective. Mediators are skilled at allowing options to be explored and developed in the safety of a structured conversation and process. Sometimes solutions can be developed that protect one generation’s financial security whilst giving freedom to younger family members to take the business forward and build on their parents’ successs.
For family business in particular, mediation can help families avoid being dragged through courts and sensitive private issues being made public. Mediation is confidential and private. No-one is going to see the family’s dirty laundry, whilst they will at Court. It also means that if unsuccessful, what is said at mediation will not make its way into later Court proceedings. Admissions, concessions and apologies can be made, without fear that they will be brought up later if the mediation is unsuccessful.
Mediators can also be great facilitators to assist with proactive dispute avoidance and prevention before conflict emerges in the first place. Much better to have measures in place to try to avoid fall-outs occurring in the first place, rather than having a negative impact on the business of a dispute. By that point, resolving the conflict can be much harder, with parties entrenched and having moved into the dangerous stage of wanting to damage the other side regardless of self or aggregate infliction of injury.
Resentment about historic family issues, sometimes going back to childhood, or disagreement about plans for the future or succession planning can get in the way of sound business decision making about the future. One family I helped, involved the three children arguing about how much work one sibling had done compared to another, or how much they had taken out of the business financially. On the face of it, the parents were trying to help, but the facts supported the assertion that the children had not been treated equally in terms of managerial responsibility or financial reward. This led to resentment on the part of the child that considered, possibly rightly, that they had been disadvantaged.
One hugely important task either as a preventative measure or to help resolve a matter once it has arisen is to document governance arrangements formally and effectively. These can protect family relationships or at the very least protect the business against impasses and stalemates.
Often businesses are structured on a 50/50 basis. This works well, sometimes for years, whilst everyone is ‘friends’ and the business is growing. But it can be disastrous without proper mechanisms being set up in advance. All it takes is for one disagreement, perhaps over nothing to do with the business, and the business becomes immediately and sometimes fatally paralysed.
In a husband/wife business I helped, one of pair had a romantic relationship outside the marriage. This caused complete business shutdown when the other refused to engage in the day to day decision making and voted against all proposals good or bad. In its most polite terms, this can be said to be a ‘sub-optimal’ outcome.
Lack of documentation and process can be a disaster when someone dies and it is not clear who the new shareholders are or how they are to be involved in the running of the business. Agreements should be reviewed and changed where relevant on a regular basis to take account of changes in relationships and family makeup.
It can be hugely destructive when trying to deal with a family business dispute and there is nothing that sets out how the issues should be dealt with. To avoid conflict taking, and acting on, advice on governance structures and agreements in respect of disputes is worth its weight in gold. Even if they don’t prevent conflict, which is inherent in most human relationships, they will provide for an orderly resolution that inflicts minimum damage.
Court really has to be the last resort, in nearly all cases. Disputes often cost more to resolve through litigation than their value in the first place. History is littered with even ‘winners’ coming away with nothing but legal fees that exceeded the sums in dispute and the other party can’t pay. It can have intergenerational financial impact and pain, where grandchildren’s relationships, future and education are adversely impacted.
When mediation works, and evidence suggests it is in the vast majority of cases, it can be very successful. Court is a stressful and expensive process for most people. I haven’t yet come across a litigant, even after they won a case, who said they enjoyed the process. For nearly all, it is a draining, costly, overwhelming, distracting, unpleasant and negative process. Lawyers have to shoehorn a complicated dispute into a strict legal framework. This often means the legal case becomes disconnected from the original dispute and takes on a life of its own.
Mediators are skilled at helping family members take stock in private, reflect on what they consider to be important, paint a picture of what the negative consequences might mean to them as well as the party who they are in dispute with, explore realistic options, test possible solutions and come up with long-lasting, permanent and robust ways forward.
Seemingly entrenched and impossible to solve disputes can be unlocked and resolved in a relatively short period of time with a skilled, experienced, independent facilitator who’s specialism is in family business disputes.
Robin will travel throughout the country to assist family businesses wherever he can.
email Robin by clicking here with a short description of the issue for a free appraisal to see how he can help.