Managing the Dynamics of a Family Business

Family-owned businesses have the potential to create a lasting legacy, but they present an equal risk of causing conflict, as well as straining or even shattering existing family dynamics. Unlike traditional corporate structures, where there’s a clear organizational chart and general respect for a chain of command, family businesses tend to blur the lines between personal and business relationships. The resulting dynamic can reach far beyond tense family dinners or decades-old grudges: a family business could create financial or legal strife that lingers for years. With so many moving parts, the importance of moving intentionally with the goal of maintaining family and business dynamics is more apparent than ever.

Decision Making

Challenges common to family-owned businesses often originate from unstated expectations of roles, poor communication, and unclear responsibilities. Families generally thrive on cooperation and shared duties, but in business, certain roles shouldn’t be shared, particularly decision-making roles. When responsibilities are duplicated, overlapped, or fragmented among family members, the emotions surrounding the uncertainty can wreak havoc. Setting clear boundaries and roles reduces confusion and calms emotions. One approach is to meet regularly with the executive team and key family members to reacquaint everyone with the overall mission of the business. Revisit the strategies being used to achieve the mission to regain unity.

Equity and Bias

When assigning leadership roles, consider skills first, rather than literal pedigree. Looking at actual qualifications reduces the perception of bias, as well as any underlying tendencies toward actual bias. Biases may be unintentional but may still create a subconscious endorsement of one individual over another. In filling a role, interview family members as you would if they were non-family members applying for a position. Following pre-defined steps, such as having a set of interview questions, brings objectivity to the process. The discussion of appropriate compensation can become even more of a minefield than in non-family businesses. Information like the family’s overall family financial well-being or the lifestyle and spending habits of a particular family member may skew the boundaries toward exceptions. There may be expectations of higher-than-average compensation ‘just because,’ which can be avoided simply by paying a fair market rate for that position and communicating this clearly.

Conflict Planning and Prevention

We hear a lot about crisis plans in the workplace, which seem to focus on how to respond to external threats like intruders with bad intentions. A well-thought-out crisis plan is a strong tool to anticipate and alleviate internal conflict, including the possibility that family dynamics could create an unpleasant or even hostile work environment. This may require the assistance of a neutral third-party, such as a conflict resolution specialist. A specialist could look at past behaviors of employees at all levels and perhaps anonymously ask family and non-family employees about areas of tension or even existing factions between groups that may have different loyalties or ideas for future direction. A cold war within any business is never a good sign. Add the family dynamic and an unresolved disagreement or a line drawn between team members can mean disaster. No matter where it started or where it is now, it is important to stop this momentum before it passes the point of no return and spells ruin for the family legacy.

Open Communication

Family or not, open communication is critical to success. A hierarchy with one-way communication creates animosity in any workplace environment. In family businesses, feelings of discourse easily infiltrate personal relationships. Set guidelines around communication including an agreed-upon process should discussions become emotionally charged. Initiate and implement regular communication to provide information and insights and address concerns. Defining communications guidelines focus the energy on the business at hand rather than the personal likes or dislikes.

Succession Planning

Finally, every business needs a succession plan which provides a roadmap for future actions. Whether it is preparing the next generation to assume leadership roles or what happens if future generations are not interested in joining the family business, creating a plan supports financial stability and focus while removing uncertainty and the potential for future conflict.

How Legacy Trust Can Help

Simultaneously managing a business and family dynamics introduces an entirely new set of challenges. The team at Legacy Trust Company brings unbiased support and expert guidance to help your family business create a resilient legacy that will last for generations.