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Combating Family Business Drama with Mediation

Family-owned businesses are one of the oldest and most widespread forms of business models around the world. These businesses range from small mom and pop shops to multi-national corporations like Walmart, Ford Motor Company, Mars, Inc., Cargill, Inc., ALDI Group, The Gap, Inc., Pilot Travel Centers, and Dell Technologies. Family businesses represent stability, innovation, and long-term commitment to sustaining the company. These businesses serve as a stimulus for growth and job creation.

Not surprisingly, the leadership structure frequently includes multi-generational participants. Changing family dynamics can cause disputes, when personal animosities arise, minor disagreements develop into bigger ones sometimes drawing other family members in. Of course, conflict presents challenges for any organization, but the internal conflict within family businesses is especially complex and can often have a detrimental effect on the management and operation of the family business. Personal matters often introduce additional emotions, create animosity, and complicate what would otherwise be routine business matters. The longstanding history is often a powerful presence underlying disputes within the family business. Such disputes arise over management and control rights, the valuation of a family member’s stake in the business, poor performance, or distribution of assets that is perceived as unfair. While conflicts are a natural part of life, they are also the frequent catalyst when family businesses fail to succeed to the next generation. Therefore, it is vitally important that family businesses proactively manage and diffuse conflict.

The process of mediation can play an invaluable role in resolving family business conflicts. It can direct energy away from old grievances and toward finding business solutions for business problems and preserving working relationships. For a family business, protecting working relationships should not be taken for granted as it is not just a priority but rather, it is a necessity. Litigation is a formal, adversarial process, and often serves to ratchet up the level of animosity between family members. It is also an expensive, time-consuming process and can take years to resolve. In the alternative, mediation may assist the family in exploring options to resolve the dispute(s) prior to incurring the expense and hostility litigation often brings.

When conflict is not properly addressed it often festers and can have devastating consequences with long-term consequences that damage family relations as well as the company. Family feuds center around conflict rooted in sibling rivalry, succession issues, competing views on business and strategic decisions, ownership allocation, and lack of transparency amongst participants. These disputes are seen in some of the most well run and biggest family-run companies. Disputes also arise over the identification of assets shaping the business, the business valuation and exit processes. When these disputes arise between family members engaged in the family business, it is often the case that such disagreements are not limited to company issues, but rather include and are often driven by the dynamics of their personal relationships. Conflict and resentment within these familial relationships must be acknowledged insofar as the participants are able to see how such resentments are standing in the way of conflict resolution and successfully addressing the dispute(s). Mediation cannot only result in specific terms of agreement but can also offer an enormous advantage to a family business in that the participants may learn to better problem solve by communicating differently in the future. This underscores the importance of resolving disputes within family businesses and given the family dynamic, may be better resolved through alternative dispute resolutions such as mediation as opposed to litigation.

When the family members and family business are anticipating the succession of leadership prior to or following a founding parent’s death or incapacity, there is frequently conflict. This is particularly true when there has been inadequate pre-planning, or the plan is not comprehensive. Another frequently seen area of dispute is when members of a family business wish to “cash out” by selling their interest in the business. In smaller, closely held companies, it is not uncommon to find formation documents failed to contemplate a buy-sell agreement. Other times the transition plan or buy-sell agreement is inadequate or does not establish any real path for non-voting, minority interests to realize the financial payout the selling member anticipated. These issues arise more often when there is a death or incapacity of a key person and majority owner of the business.

As noted above, there is an array of potential triggers for a family business dispute, such as over business succession or when a prominent family member dies, retires, or otherwise wishes to exit the business. As family disputes arise in different ways, mediation can address a wide range of conflict within the relationships. Mediation provides greater opportunity than a court to consider matters in dispute so that a fair decision can be reached and not just on one issue in isolation. This allows the consolidation of family disputes which can be a positive alternative to the narrow justice served by litigating an issue.

A successful mediator is skilled in helping participants come to the table, recognize what may be impeding the participants inability to come to a resolution, communicate effectively, and assist the participants in working out their own solutions in a non-adversarial environment. Unlike a judge, a mediator does not render a decision. Rather, a skilled mediator helps the parties communicate and develop a mutually acceptable solution. Mediation allows discussion on the source and substance of the conflict and helps people recognize weaknesses or alternative perspectives with the aim of being able to move past them. Compared to other options for resolving disputes, mediation is quick, inexpensive, and private. It is also an informal process, not limited by rules of evidence, procedure, or remedy. Because of this, mediation allows for maximum flexibility in crafting a resolution acceptable to all parties. In contrast to litigation, mediation is informal, promotes mutual guided communication and participation from all parties. Therefore, this form of dispute resolution is better apt to result in an agreement with “buy-in” from all parties and has a better chance of successfully addressing the disputes about the family business, but also the troubled relationships which may have exacerbated the dispute.

It is important to acknowledge that not all conflict is negative. In fact, when managed properly, conflict can be a helpful and positive experience. Conflict can stimulate change, spur creativity, encourage fresh ideas and, when resolved, even build family cohesion. Mediating family and business conflicts offers participants flexibility, privacy and confidentiality of process when compared to litigation. Mediation is less antagonistic and less taxing on family relations and is faster and less costly than a formal litigation process. It is also less disruptive to the business, and more private without exposing family matters to the public. More importantly, mediation allows family members to retain more control over the situation than they would in litigation where a judge would issue a verdict.