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Helping Family Businesses
Prosper Across Generations®

Using a Mediator for Family Business Disputes

By Bernard Kliskam Ph.D.

The word “conflict” has had bad press. Rather than seeing conflict as a natural and predictable aspect of human interaction—a process that, if managed properly, can often lead to growth and new solutions—people tend to see it as a failure on the part of the disputants. This is unfortunate, because conflict, when channeled positively, can be a creative, energizing, and even a healing force.

In family businesses, where the twin currents of family and business run through so many decisions, conflict is inevitable. While conflict presents challenges for any organization, internal conflict in family businesses has a special complexity. It is often the product of experiences preceding, and factors outside of, the business issues that spark the immediate dispute. The conflict may have started years earlier on the playground, around the dinner table, in birth order, or even in a previous generation. The history may be silent, invisible, half-forgotten, but it is often a powerful presence in the conference room. I have seen businesses become stymied by conflict that has little or no connection to the business problem at hand.

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 is not a luxury; it is a necessity.

A mediator is a neutral outsider who works with all the involved parties to craft a resolution. Unlike an arbitrator, a mediator does not mandate a settlement; rather, he or she helps the parties communicate and develop a mutually acceptable solution. 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. Because of the informality and the guided, mutual communication, a mediated, as opposed to arbitrated, settlement has a better chance of soothing not just the business problem but also the troubled relationships that exacerbated it.

Mediation for family businesses is occasionally practiced by legal professionals, but more often it is performed by nonattorneys such as family business consultants who have some conflict resolution experience. The mediator’s skills lie in helping parties come to the same table, communicate, and work out their own solutions in a non-adversarial environment.

“Non-adversarial” does not mean that there is an absence of conflict or that antagonisms cannot be expressed during the mediation. Instead, non-adversarial refers to the process used to air and resolve the dispute. The skilled mediator does not put constraints on the discussion, but rather helps keep the focus on the parties crafting a solution. Thus, the mediation allows discussion on the source and substance of the conflict and helps people recognize their counterproductive patterns, with the aim of being able to move past them toward a businesslike, problem-solving mode.

Long-standing resentments have a place at the table, insofar as people can come to see how those resentments are standing in the way of the ultimate task at hand. Mediation, then, can not only result in specific terms of agreement, but can also offer an enormous advantage to a family business: the parties learn that they can communicate further and/or differently in the future. Under the mediator’s guidance, once they accomplish this, future productive interaction will no longer seen “inconceivable.”

Mediation in action, an example.
In a successful family business, a medical equipment company founded by two brothers, only one member of the second generation (the older brother’s daughter) chose to enter the firm. Her brother pursued an academic career, and their cousin, the only son of the younger founding brother, went to work in the telecommunications practice of a prestigious consulting firm. After several years, the daughter became CFO. Her father had retired (retaining his interest in the business), and she reported to her uncle, the CEO. Problems developed when the cousin was laid off by the consulting firm and wanted to join the family business—as a vice president with a seat on the management committee, and compensation equal to his last salary (which would be 20% higher than the daughter’s compensation). The daughter expressed concern about his lack of experience in their industry, and discreet indignation about his compensation requirements. Worried about being marginalized if her uncle and cousin were both active in the company, she went to her father and he entered the discussions.

Things escalated. The disagreement over how to accommodate the cousin became an unspoken but seriously disruptive conflict. The unwillingness to communicate about this issue became a refusal to communicate about other management issues. The three vice presidents, who were not family members, felt hamstrung; key processes and initiatives became compromised. The founding brothers, who had always successfully worked together, were each secretly consulting attorneys. Family dinners became a thing of the past. Finally, after several months, the vice president of human resources urged the brothers and their two children to try mediation for the sake of the family enterprise.

The mediator explained that, under her guidance, they would do the difficult work of devising a solution. Sometimes she had all of them at the table, and sometimes she spoke with one or two of them privately. (In situations where suspicions run high, mediators will often make sure to balance their separate communications, giving each party equal individual conference time.) She helped the parties recognize and cope with the frustrations and emotions that fueled the conflict—much of which began during long ago family interactions—and to focus on the future of the business.

At the end of five hours, the recriminations and allusions to legal action had ceased. The four parties agreed that the cousin would come into the business at the same compensation as the daughter but would have a one-year probation/learning period during which time he would report to a VP, while the daughter would continue to report to her CEO uncle. The cousin could attend management committee meetings by invitation, but would not have a vote. At the end of one year, the management committee would review the cousin’s performance and decide as a group about promotion. In addition, the CEO committed to keep both his son and his niece in his communications loop, simultaneously, and to respect normal management communication channels. Finally, they agreed that the CEO, his son, and his niece would meet once a week for at least the following four weeks to confirm that their hard-won arrangement was working—and the retired brother agreed not to intervene. Their resolution worked because they had devised it themselves and because it established a sound basis for going forward. It was good for the business, and it was good for the family.

A longstanding or valuable relationship might be at stake in a dispute with an outside party. It is always at stake when conflict erupts within a family business. A skilled mediator is often the best option to help family business members resolve the problem at hand and to avoid repeating old, counterproductive patterns in the future.

 

 

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