When Circumstances Take Charge in the Family Business
Running any business is not without its challenges but when circumstance takes charge, particularly in a family run business, the effects can ripple right through the business and the family in the business. Mark Bradford, an adviser with Family Business Solutions (FBS) explains more.
It is often the case that decisions taken in the past can influence those at the helm of a family run business in ways that might appear illogical to the rest of us. It is not uncommon for example for disagreements that have taken place in the past to dictate or set a precedent for what happens in the future.
Take remuneration for example. We have seen circumstances where disagreements between 2 brothers over money led to everyone in the next generation deciding to pay themselves equally irrespective of the contribution they make individually to the business. While this might appear to be an admirable way forward, it can and invariably does lead to difficulties and disagreements in the future about the different levels of contribution and associated reward.
Another example is where the founder of a family business has particularly strongly held views about the type of business the family operates, so strong in fact that the next generation failed to question them. When a significant change in the marketplace occurred they failed to respond appropriately, which eventually led to the downfall of the business.
There are also those circumstances that might result in a positive outcome for the business, but can divide an entire family. For example, when a parent chooses one sibling to take over the reigns of the business and circumstances beyond the control of the other siblings, who might have been equally capable, mean they aren’t given the same opportunity to prove themselves. While the business may flourish, the ripples may be enough to cause considerable upset within the family.
This is particularly so when decisions are made in isolation without consulting other members of the family. Indeed, it is not uncommon for parents to consider it their duty to make decisions for the future of the business without consulting or involving the next generation.
Not thinking through the consequences of recognising the contribution of one of the children within the business to the exclusion of the others who are involved can create exactly this kind of discord in family businesses. This is what transpired in one family business where one of the children had taken on the role of general manager and the father decided to gift them some shares in recognition, but didn’t consider gifting to the others. This led to a conflict between the siblings who had before then got along very well together. None of the siblings wanted to express a grievance or bear grudges but found themselves doing so as a result of these circumstances, which were beyond their control.
The final example which illustrates how circumstances can ripple through a family business and family unity concerned a founder who ran a very successful business but was so busy doing so that he didn’t take time to appreciate the consequences of his own mortality. He didn’t have a Will so when his children inherited the business on his untimely death, a chain of events was triggered generating a conflict short of a feud, within the family, between siblings, family members and spouses. It was a very difficult situation for all concerned and sadly, could so easily have been avoided.
The overarching point to make is not fall into the trap of letting circumstance dictate what happens to your family business and to recognise that time changes everything. Keeping an open mind and always being prepared to discuss, plan and agree the way forward achieves far better outcomes for the business family and the family business.
Here are some advisory points that should help in these situations:
- It is worthwhile seeking out a neutral advisor who can help the family to open up a wider discussion about the present circumstances and to find ways to achieve unity and harmony within the family.
- Open up discussion amongst the whole family to find and recognise the circumstances that led to the present day situation.
- Don’t shy away from discussing the history. To avoid it will only mean it is not addressed properly and will linger as a source of enduring conflict.
- Be honest about your own feelings with others.
- Recognise that everyone within the family has a legitimate point of view, which may be different from yours.
- Don’t try to ignore the problem. It won’t go away.
- Make sure family members have a Will in place. So many family business owners don’t have a Will or have a Will that will not achieve the desired outcome. The expectations of everyone currently involved may not be met if an unexpected situation occurs, and the consequences can be catastrophic for the business, the source of wealth and stability for the family.
Mark Bradford is a Specialist Family Business Advisor at Family Business Solutions (FBS) the family business consultancy arm of Wright, Johnston & Mackenzie LLP. Mark has a wealth of family business experience from working in, and for, family businesses for over 30 years, 20 years of which at board level. This experience enables a quick understanding of both what the family dynamics are, as well as the commercial issues faced by a family businesses.
Please get in touch or visit www.ukfbs.co.uk for more information or contact 0131 524 1500.
Family Business Solutions Limited (FBS) is a limited company registered in Scotland with registered number SC199202.